Document:

Exhibit 10.1

 

AMENDED AND RESTATED

REVOLVING CREDIT NOTE

 

	
  $5,000,000.00

  	
   

  	
  Naperville, Illinois

  
	
   

  	
   

  	
  April 21, 2004

  

 

FOR VALUE RECEIVED, EBIX, INC., a Delaware corporation, f/k/a EBIX.COM,
INC. (“Maker”) promises to pay to the order of LASALLE BANK, NATIONAL ASSOCIATION, a
national banking association (“Bank”) at its offices at 135 S. LaSalle Street,
Chicago, Illinois, 60603, or at such other place as the holder of this Note may
designate in writing to the Maker, on or before October 31, 2005, the
principal sum of Five Million and 00/100 Dollars ($5,000,000.00),or, if less,
the aggregate amount of the Revolving Credit Loan advanced and unpaid pursuant
to a certain Amended and Restated Loan and Security Agreement made by and
between the Maker and the Bank of even date herewith, as the same may be
amended from time to time (the “Loan Agreement”), the terms of which are
incorporated by reference and made a part of this Note as though fully set out
herein.  Capitalized terms used and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Loan Agreement.  The amount advanced and
outstanding under the Loan Agreement as shown on the books and records of the
Bank shall be considered correct and conclusively binding on the Maker absent
manifest error.

 

The Maker further promises to pay interest on
the Revolving Credit Loan as provided in the Loan Agreement.

 

All payments received from the Maker
hereunder shall be applied by the Bank in accordance with the terms of the Loan
Agreement.

 

This Note and any renewals and extensions
hereof, and any other Obligations of the undersigned to the Holder hereof (the
term “Holder” shall include the Bank and any subsequent holder hereof) due or
to become due, now existing or hereafter contracted, and howsoever acquired by
the Holder, are secured, inter alia, in the manner described in the Loan
Agreement.

 

This Note is issued under the Loan Agreement
and this Note and the Holder are entitled to all of the benefits provided for
by the Loan Agreement or referred to therein, to which Loan Agreement reference
is made for a statement thereof. 
Pre-payments may be made hereon only at the times, in the events and in
the manner provided in the Loan Agreement.

 

All unpaid amounts owing on this Note or on
any other Obligations immediately shall become due and payable at the option of
the Holder, without notice or demand, upon the occurrence of any Event of
Default.

 

In the event of default in the payment of any
sums due under this Note, the Maker hereby agrees that the Bank may offset all
money, bank or other deposits or credits now or hereafter held by the Bank or
owed by the Bank to Maker against all amounts due under this Note or against
any other amounts which may be due the Bank from the Maker.

 

No clause or provision contained in this Note
or any documents related hereto shall be construed or shall so operate (a) to
raise the interest rate set forth in this Note above the lawful maximum, if
any, in effect from time to time in the applicable jurisdiction for loans to borrowers
of the type, in the amount, for the purposes, and otherwise

 

1

 

of the kind contemplated, or (b) to require the payment or the doing of
any act contrary to law, but if any clause or provision contained shall
otherwise so operate to invalidate this Note, in whole or in part, then (i)
such clauses or provisions shall be deemed modified to the extent necessary to
be in compliance with the law, or (ii) to the extent not possible, shall be
deemed void as though not contained and the remainder of this Note and such
document shall remain operative and in full force and effect.

 

All makers and any endorsers, guarantors,
sureties, accommodation parties and all other persons liable or to become
liable for all or any part of this indebtedness, jointly and severally waive
diligence, presentment, protest and demand, and also notice of protest, of
demand, of nonpayment, of dishonor and of maturity and also recourse or
suretyship defenses generally; and they also jointly and severally hereby
consent to any and all renewals, extensions or modifications of the terms of
this Note, including time for payment, and further agree that any such
renewals, extension or modification of the terms of this Note or the release or
substitution of any security for the indebtedness under this Note or any other
indulgences shall not affect the liability of any of the parties for the
indebtedness evidenced by this Note. 
Any such renewals, extensions or modifications may be made without notice
to any of said parties.

 

The Maker shall be liable to the Holder for
all costs and expenses incurred in connection with collection, whether by suit
or otherwise, of any amount due under this Note, including, without limitation,
attorneys’ fees, as more fully set forth in the Loan Agreement and the
Mortgage.

 

This Note shall be governed by and construed
in accordance with the laws of the State of Illinois.

 

	
   

  	
  EBIX, INC.,
  a Delaware corporation,

  
	
   

  	
  f/k/a
  EBIX.COM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R. J. Baum

  
	
   

  	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
  R. J. BAUM

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  CFO

  
						

 

2

 

AMENDED AND RESTATED  LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, (“Agreement”)
dated as of April 21, 2004, is entered into by and between EBIX, INC.,
a Delaware corporation f/k/a EBIX.COM, INC. (the “Borrower”), and LaSALLE BANK NATIONAL ASSOCATION, a national banking association (the
“Bank”).

 

WHEREAS, the Bank has previously loaned or committed to loan the Borrower the
original principal sum of up to $5,000,000.00, comprised of a certain Revolving
Credit Loan Commitment not to exceed the sum of $5,000,000.00 as evidenced,
secured and governed by, among other documentation, that certain Business Loan
Agreement dated October 31, 2003 by and between the Borrower and the Bank
(the “Original
Revolving Credit Loan”), the terms
of which are incorporated by reference and made a part of this Amendment as
though fully set out herein; and

 

WHEREAS, the parties wish to restate and amend the terms
of the Original Revolving Credit Loan in its entirety and further wish to
increase the amount of Original Revolving Credit Loan, according to the terms
of this Agreement.

 

NOW THEREFORE, in consideration of the mutual covenants
set forth herein, the parties hereto agree as follows:

 

ARTICLE I.

DEFINITIONS.

 

1.01         Definitions; Other Interpretive Provisions. 
When used herein, the following terms have the following meanings (such
definitions to be applicable to both the singular and plural forms of such terms):

 

“Account Debtor” shall mean any party who
is obligated on any Account, Contract Right, Chattel Paper or General
Intangible.

 

“Affiliate” shall mean any Person which,
directly or indirectly, owns or controls, on an aggregate basis, including all
beneficial ownership and ownership or control as a trustee, guardian or other
fiduciary, any of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors (irrespective of whether, at the time, Stock
of any other class or classes of such corporation have or might have voting
power by reason of the happening of any contingency) of the Borrower, or which
controls, is controlled by or is under common control with the Borrower or any
stockholders of the Borrower.  For
purposes hereof, “control” means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.

 

“Authorized Borrower Representative” shall
mean any of Robin Raina, Chairman, Chief Executive Officer and President of
Borrower or Richard J. Baum, Chief Financial Officer and Vice President of
Borrower, or such other person or person approved by resolution of the Board of
Directors of the Borrower form time to time, a certified copy of which
resolution shall be delivered to the Bank.

 

“Bank” shall mean LaSalle Bank, National
Association, a national banking association with its principal place of
business at 135 S.
LaSalle Street, Chicago, Illinois 60603.

 

“Borrower” shall mean Ebix, Inc., a
Delaware corporation, f/k/a Ebix.com, Inc., having its principal place of
business at 1900 E. Golf Road, Suite 1200, Schaumburg, Illinois, 60173.

 

“Business Day” shall mean any day, other
than a Saturday or Sunday, on which commercial banks are open for domestic
business in Chicago, Illinois.

 

“Closing Date” shall mean APRIL 21,
2004.

 

“Collateral” shall have the meaning
specified in Section 4.01.

 

“Computer Hardware and Software” shall mean all of the Borrower’s rights (including rights as licensee
and lessee) with respect to (i) computer and other electronic data
processing hardware, including all integrated computer systems, central

 

1

 

processing units, memory units, display terminals, printers, computer
elements, card readers, tape drives, hard and soft disk drives, cables,
electrical supply hardware, generators, power equalizers, accessories,
peripheral devices and other related computer hardware; (ii) all Software
and all software programs designed for use on the computers and electronic data
processing hardware described in clause (i) above, including all
operating system software, utilities and application programs in whatsoever
form (source code and object code in magnetic tape, disk or hard copy format or
any other listings whatsoever); (iii) any firmware associated with any of
the foregoing; and (iv) any documentation for hardware, software and
firmware described in clauses (i), (ii) and (iii)
above, including flow charts, logic diagrams, manuals, specifications, training
materials, charts and pseudo codes.

 

“Contract Right”
shall mean any right of the Borrower to payment under a contract for the sale
or lease of goods or the rendering of services, which right is at the time not
yet earned by performance.

 

“Debt” shall mean, with respect to the
subject Person, all of the following items of indebtedness, obligation or
liability, whether matured or unmatured, liquidated or unliquidated, direct or
indirect, or joint or several:

 

(A)          All Obligations of such Person;

 

(B)           All indebtedness in effect guaranteed,
directly or indirectly, in any manner, or endorsed (other than for collection
or deposit in the ordinary course of business) or discounted with recourse;

 

(C)           All indebtedness in effect guaranteed,
directly or indirectly through agreements, contingent or otherwise: (1) to
purchase such indebtedness, or (2) to purchase, sell or lease (as lessee or
lessor) property, products, materials or supplies or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such indebtedness or to assure the owner of the indebtedness against loss, or
(3) to supply funds to or in any other manner invest in any Person;

 

(D)          All indebtedness secured (or for which the
holder of such indebtedness has a right, contingent or otherwise, to be
secured) by any mortgage, trust deed, deed of trust, pledge, lien, security
interest or other charge or encumbrance upon property owned or acquired subject
thereto, whether or not the liabilities secured thereby have been assumed; and

 

(E)           All indebtedness incurred as the lessee of
goods or services under leases that, in accordance with GAAP, are or should be
reflected on the lessee’s balance sheet as a capital lease.

 

“Debt to Tangible Net Worth Ratio” shall
mean the ratio of Debt to Tangible Net Worth.

 

“Documents” shall mean this Agreement, the
Notes and any other documents, instruments or certificates to be executed and
delivered hereunder or in connection herewith by or on behalf of the Borrower
or any of its Affiliates.

 

“Environmental Laws” shall mean any
federal, state or local law, statute, ordinance, order, decree, rule or
regulation relating to releases, discharges, emissions or disposals to air,
water, land or groundwater, to the withdrawal or use of groundwater, to the
use, handling or disposal of polychlorinated biphenyls, asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of Hazardous
Substances, to exposure to toxic, hazardous or other controlled, prohibited or
regulated substances and to the transportation, storage, disposal, management
or release of gaseous or other liquid substances, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 USC §9601 et
seq., the Resource, Conservation and Recovery Act of 1976, as amended by
the Hazardous Solid Waste Amendments of 1984, 42 USC §6901 et  seq.,
the Toxic Substances Control Act, 15 USC §2601 et  seq., the
Occupational Safety and Health Act of 1970, 29 USC §651 et  seq.,
the Clean Air Act of 1966, as amended, 42 USC §7401 et  seq., and
the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 USC §1251 et  seq., and all rules, regulations and guidance
documents promulgated pursuant thereto or published thereunder.

 

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

 

“Event of Default” shall have the meaning
specified in Section 9.01.

 

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“Financial Statements” shall mean, at any
time, the audited financial statements of the Borrower for its most recently
ended fiscal year, the unaudited financial statements for the most recently
ended quarterly accounting period of the Borrower, and any other similar
information and reports concerning the financial affairs of the Borrower
(including without limitation pro forma financial statements), copies of which
have been furnished to the Bank.

 

“GAAP” shall mean generally accepted
accounting principles consistently applied throughout the period involved.

 

“General Intangibles” shall mean all
“general intangibles” as defined in the UCC, and in any event shall include
without limitation the choses in action, designs, patents, trademarks, service
marks, trade names, copyrights, trade secrets, customer lists, inventions,
Software, software programs, good will, applications for registration,
registrations, licenses, franchises, customer lists, tax refund claims,
guarantee claims, security interest, rights to indemnification and all other
intangible property of every nature (other than Accounts).

 

“Governmental Authority” shall mean the
United States of America, any state, territory or district thereof, and any
other political subdivision or body politic created pursuant to any applicable
Law, and any court, agency, department, commission, board, bureau or
instrumentality of any of the foregoing.

 

“Hazardous Substances” shall mean (i) any
hazardous or toxic substance, chemical or waste, or any pollutant or
contaminant defined as such in any now or hereafter existing Environmental Law,
(ii) asbestos, (iii) radon, (iv) petroleum, its derivative by-products and
other hydrocarbons, (v) polychlorinated biphenyls, (vi) explosives, (vii)
radioactive materials and (viii) any additional substances or materials which
at any time are classified or considered to be hazardous or toxic under any
Environmental Laws.

 

“Intellectual Property”
means all past, present and future: 
trade secrets, know-how and other proprietary information; trademarks,
Internet domain names, service marks, trade dress, trade names, business names,
designs, logos, slogans (and all translations, adaptations, derivations and
combinations of the foregoing) indicia and other source and/or business
identifiers, and the goodwill of the business relating thereto and all
registrations or applications for registrations which have heretofore been or
may hereafter be issued thereon throughout the world; copyrights (including
copyrights for computer programs) and copyright registrations or applications
for registrations which have heretofore been or may hereafter be issued
throughout the world and all tangible property embodying the copyrights;
unpatented inventions (whether or not patentable); patent applications and
patents; industrial designs, industrial design applications and registered
industrial designs; license agreements related to any of the foregoing and
income therefrom; books, records, writings, computer tapes or disks, flow
diagrams, specification sheets, computer software, source codes, object codes,
executable code, data, databases and other physical manifestations, embodiments
or incorporations of any of the foregoing; the right to sue for all past,
present and future infringements of any of the foregoing; all other
intellectual property; and all common law and other rights throughout the world
in and to all of the foregoing.

 

“Laws” shall mean any federal, state or
local law, statute, ordinance, order, decree, rule or regulation.

 

“Letter of Credit” shall have the meaning
specified in Section 2.01(E).

 

“Loan” shall mean the Revolving Credit
Loan.

 

“Net Earnings” shall mean, with respect to
any Person and for any period, the amount of such Person’s net income after
taxes, determined in accordance with GAAP, excluding therefrom any gains and
losses from dispositions of fixed assets, income and losses from discontinued
operations, gains and losses from disposition of discontinued operations and
extraordinary items.

 

“Non-Tangible Collateral” means, with respect to any Debtor,
collectively, such Debtor’s Accounts, Contract Rights and General Intangibles.

 

“Note” shall mean the Revolving Credit
Note.

 

“Obligations” shall mean, with respect to
any Person, all of such Person’s liabilities, obligations and indebtedness to
the Bank of any and every kind and nature, including the Loans, such Person’s
other liabilities and obligations to the Bank under this Agreement, and such
Person’s liabilities and obligations to the Bank under any other agreement,
document or instrument,

 

3

 

(including any guaranty of another Person’s Obligations), whether
heretofore, now or hereafter owing, arising, due or payable by or from such
Person to the Bank, howsoever evidenced, created, incurred, acquired or owing,
and whether joint, several, primary, secondary, direct, contingent, fixed or
otherwise.

 

“Permitted Liens” shall mean (1) liens and
security interest securing Obligations owed by Borrower to Bank; (2) liens for
taxes, assessments, or similar charges either not yet due to being contested in
good faith; (3) liens of materialmen, mechanics, warehouseman, or carriers, or
other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (4) purchase money liens or purchase
money security interests upon or in any property acquired or held by Borrower
to secure indebtedness outstanding on the date of this Agreement or permitted
to be incurred under this Agreement; (5) liens and security interests which, as
of the date of this Agreement, have been disclosed to and approved by the Bank
in writing; (6) those liens and security interests which in the aggregate constitute
an immaterial and insignificant monetary amount with respect to the net value
of Borrower’s assets and (7) a lien in favor of Craig Wm. Earnshaw and Colleen
Earnshaw on the Stock of Lifelink Corporation, a subsidiary of Borrower.

 

“Person” shall mean any individual,
corporation, partnership, association, joint-stock company, trust,
unincorporated association, joint venture, court, Governmental Authority, or
any other similar entity.

 

“Premises” shall mean the Borrower’s
principal place of business located at 1900 E. Golf Road, Suite 1200,
Schaumburg, Illinois, 60173.

 

“Prime Rate” shall mean the rate of
interest referred to by the Bank from time to time as its prime rate, as fixed
by the management of the Bank for the guidance of its loan officers, whether or
not such rate is otherwise published, with each change in such prime rate to
take effect on the same day as the determination of each change by the
Bank.  Such rate is not necessarily the
most favorable rate offered by the Bank to its borrowers.

 

“Revolving Credit Loan” shall have the
meaning specified in Section 2.01(A).

 

“Revolving Credit Loan Commitment” shall
have the meaning specified in Section 2.01(A).

 

“Revolving Credit Loan Termination Date”
shall have the meaning specified in Section 2.01(A).

 

“Revolving Credit Note” shall have the
meaning specified in Section 2.01(D).

 

“Special Collateral” shall have the meaning
specified in Section 4.06.

 

“Stock” shall mean all shares, options,
interests, participations or other equivalents, howsoever designated, of or in
a corporation, partnership or similar entity, whether voting or nonvoting,
including common stock, warrants, preferred stock, convertible debentures,
partnership interests and all agreements, instruments and documents
convertible, in whole or in part, into any one or more of the foregoing.

 

“Stockholders” shall mean those parties who
own stock in Borrower.

 

“Subsidiary” shall mean, with respect to
any Person, any corporation, partnership or similar entity of which fifty
percent (50%) or more of the outstanding Stock having ordinary voting power is
at the time, directly or indirectly, owned by such Person and/or one or more of
such Person’s Subsidiaries (irrespective of whether, at the time, Stock of any
other class or classes of such entity shall have or might have voting power by
reason of the happening of any contingency).

 

“Supplemental Documentation” means all
agreements, instruments, documents, financing statements, warehouse receipts,
schedules of accounts assigned, mortgages, certificates of title and other
written matter necessary or requested by the Bank to create, evidence, enforce,
perfect or maintain perfected the Bank’s security interest in the Collateral
and the Premises and to consummate the transactions contemplated in or by this
Agreement and the other Documents.

 

“Tangible Net Worth” shall mean Borrower’s
tangible assets less liabilities, prepaids (including without limitation
prepaid rents and prepaid bonuses), and amounts due from officers, employees,
shareholders and Affiliates, determined in

 

4

 

accordance with GAAP.  Without
limiting in any way those assets which are generally deemed to be “intangible”
and therefore not included in a calculation of “tangible assets,” the parties
specifically acknowledge that organization costs and non-competition agreements
are “intangible assets.”

 

“UCC” means the Uniform
Commercial Code as in effect in the State of Illinois on the date of this
Agreement, as may be amended or otherwise modified, including by the UCC
Revisions;

 

“UCC Revisions”
means, the revisions to Article 9 and other Articles of the Uniform
Commercial Code, as adopted by the State of Illinois, effective July 1,
2001.

 

“Unused Balance” shall have the
meaning specified in Section 2.05.

 

1.02         Any accounting terms used in this Agreement
which are not specifically defined shall have the meaning customarily given
them in accordance with GAAP; provided, however, that, in the
event that changes in generally accepted accounting principles shall be
mandated by the Financial Accounting Standards Board, or any similar accounting
body of comparable standing, or shall be recommended by the Borrower’s
certified public accountants, to the extent that such changes would modify such
accounting terms or the interpretation or computation thereof, such changes
shall be followed in defining such accounting terms only from and after such
date as the Borrower and the Bank shall have amended this Agreement to the
extent necessary to reflect any such changes in the financial covenants and
other terms and conditions of this Agreement.

 

1.03         All other terms contained in this Agreement
shall, when the context so indicates, have the meanings provided for by the UCC
or UCC Revisions, to the extent the same are used or defined therein.

 

ARTICLE II.

THE LOAN.

 

2.01         (A)          Subject to the terms and conditions of this
Agreement, the Bank will make a revolving credit facility (the “Revolving
Credit Loan Commitment”) available to the Borrower, pursuant to which the Bank
may from time to time make revolving credit advances (each, a “Revolving Credit
Loan”) to the Borrower.  The aggregate
amount of advances outstanding under the Revolving Credit Loan Commitment shall
at no time exceed the sum of $5,000,000.00 (the “Revolving Loan Commitment
Amount”), minus the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). 
Amounts borrowed under this Section may be repaid and reborrowed during
the term of this Agreement.  The
Revolving Credit Loan Commitment shall terminate on October 31, 2005 (the
“Revolving Credit Loan Termination Date”).

 

(A)          On the Closing Date, a Revolving Credit
Loan in the amount of Three Million Dollars ($3,000,000.00) shall be deposited
into an interest bearing account at the Bank for the benefit of Borrower (“Cash
Account”).  The Cash Account shall be
opened in the name of Borrower but shall be pledged to the Bank as additional
security for the Revolving Credit Loan and will not be available for use by
Borrower.

 

(B)           The proceeds of Revolving Credit Loans
(excluding the amount deposited into the Cash Account) shall be disbursed by
deposit to the Borrower’s account maintained at the Bank or otherwise in
accordance with the written instructions of the Borrower or the other
provisions of this Agreement.  Revolving
Credit Loans shall be used by the Borrower solely for working capital purposes.

 

(C)           All outstanding Revolving Credit Loans
together with any accrued but unpaid interest thereon shall be repaid in full
on the Revolving Credit Loan Termination Date. 
In addition, outstanding Revolving Credit Loans shall be repaid upon
demand if and to the extent that they exceed the limitations imposed by
Section 2.01(A) above.  Borrower
may repay and reborrow under the Revolving Credit Loan Commitment subject to
the terms and conditions of this Agreement.

 

(D)          The Revolving Credit Loans shall be
evidenced by a Revolving Credit Note in the form attached as Exhibit A.

 

(E)           The Bank may issue letter(s) of credit
(“Letter(s) of Credit”) for Borrower’s account not exceeding in the aggregate
the lesser of (i) the “Revolving Loan Commitment Amount”; or (ii) One Million
Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (including drawn but
unreimbursed Letters of Credit).  Each
Letter of Credit will have an expiry date of

 

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no later than 365 days after the Revolving Credit Loan Termination Date
but will be secured by cash on terms acceptable to Bank at any time after the
Revolving Credit Loan Termination Date, if the Revolving Loan is not extended
by Bank.  Borrower agrees to execute any
further documentation in connection with the Letters of Credit as Bank may
reasonably request.

 

2.02         (A)          Except as provided in Section 2.02(B)
below, the Revolving Credit Loans shall bear interest at a floating per-annum
rate equal to the Prime Rate.  Interest
shall be adjusted daily and calculated on the basis of a 360-day year, counting
the actual number of days elapsed, and shall be paid monthly in arrears
commencing on May 1, 2004 and continuing on the first day of each month
thereafter.

 

(B)           Any Obligation of the Borrower which is not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest payable on demand at an interest rate equal to the Prime Rate
then in effect plus five percent (5%) per annum until paid.  In addition, after the occurrence of any
Event of Default and delivery to the Borrower of the Bank’s notice to charge
post-default interest, all Obligations of the Borrower shall bear interest at
the highest rate provided for in the immediately preceding sentence.

 

2.03         If, at any time, the interest rate and
other charges imposed hereunder shall be deemed by any competent Governmental
Authority to exceed the maximum rate of interest permitted by any applicable
Laws, for such time as the interest and such charges would be deemed excessive,
its application shall be suspended and there shall be charged instead the
maximum rate of interest and charges permissible under such Laws.

 

2.04         All payments, which are not prepayments,
received from the Borrower for payment on the Loans shall be applied by the
Bank first to unpaid interest due and payable on the Revolving Credit Loans,
second to any unpaid fees or expenses incurred by or owed to the Bank, third to
any late charges or fees, and fourth to the reduction of the principal
outstanding on the Loan.

 

2.05         The Borrower shall pay to Bank a
non-refundable usage fee in an amount equal to the product of .25% times the
per annum average Unused Balance.  The
unused balance means the result of (i) the Revolving Line Commitment Amount
minus (ii) the aggregate amount of all Revolving Credit Loans, and minus (iii)
the face amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit).

 

2.06         All payments received from the Borrower
hereunder shall be paid directly to the Bank without setoff or counterclaim in
immediately available funds.  The Bank
shall send the Borrower statements of all amounts due hereunder, which
statements shall be considered correct and conclusively binding on the Borrower
absent manifest error.

 

2.07         (A)
If (x) Regulation D of the Board of Governors of the Federal
Reserve System, or (y) the adoption of any applicable law, treaty, rule,
regulation or guideline, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Bank or its lending branch with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, (a) shall subject Bank, its lending
branch or any Loan to any tax, duty, change, stamp tax, fee, deduction,
withholding or other charge in respect of this Agreement, any Loan or the
obligation of Bank to make or maintain any Loan, or shall change the basis of
taxation of payments to Bank of the principal of or interest on any Loan or any
other amounts due under this Agreement in respect of any Loan or its obligation
to make or maintain any Loan (except for changes in the rate of tax on the
overall net income of Bank imposed by the federal, state or local jurisdiction
in which Bank’s principal executive office or its lending branch is located);
(b) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System), special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, Bank; or
(c) shall impose on Bank any penalty with respect to the foregoing or any
other condition affecting this Agreement, the Loan or the obligation of Bank to
make or maintain the Loan; and the result of any of (a) through (c) above
is to increase the cost to (or to impose a cost on) Bank of making or
maintaining the Loan, or to reduce the amount of any sum received or receivable
by Bank under this Agreement then Bank shall notify Borrowers after it receives
final notice of any of the foregoing and, within 45 days after demand by
Bank (which demand shall be accompanied by a statement setting forth the basis
of such demand), Borrowers shall pay directly to Bank such additional amount or
amounts as will compensate the Bank for such increased cost or such reduction.

 

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(B)  If either (i) the introduction of or
any change in or change in the interpretation of any law or regulation or
(ii) compliance by Bank with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
affects or would affect the amount of capital required or expected to be
maintained by Bank or any corporation controlling Bank and Bank determines that
the amount of such capital is increased solely by or solely based upon the
existence of Bank’s commitment to lend hereunder and other commitments of this
type, then, upon demand by Bank, Borrower shall immediately pay to Bank, from
time to time as specified by Bank, additional amounts sufficient to compensate
Bank in the light of such circumstances, to the extent that Bank reasonably
determines such increase in capital to be allocable to the existence of Bank’s
commitment to lend hereunder.

 

ARTICLE III.

CONDITIONS PRECEDENT

 

The obligation of the Bank to make the Loans is
subject to the following conditions precedent:

 

3.01         The Borrower shall have delivered or caused
to be delivered to the Bank on the Closing Date the following Documents, each
to be satisfactory to the Bank in all respects:

 

(A)          The Revolving Credit Note duly executed by
the Borrower.

 

(B)           A certificate of the secretary or an
assistant secretary of the Borrower, dated the date of the Closing Date, as to
incumbency, resolutions, charter, bylaws, and such other matters as Bank shall
require.

 

(C)           A certificate, dated within 30 days of the
Closing Date, of the Secretary of State of Delaware evidencing the good
standing of the Borrower.

 

(D)          UCC Financing Statements regarding all
Collateral, duly executed by the Borrower, as debtor, in a form acceptable to
the Bank and filed in such offices as Bank shall require.

 

(E)           Pledge Agreement in favor of Bank pledging
the Cash Account.

 

(F)           Evidence of insurance in the amounts and in
form required under this Agreement.

 

(G)           Such other documents, certificates or
evidence as the Bank may request to consummate the transactions contemplated
hereby.

 

3.02         At the time of the Closing, at the time of
each subsequent disbursement under the Revolving Credit Loan Commitment and on
the last day of each fiscal quarter of the Borrower after the date hereof, each
of the following statements shall be true.

 

(A)          The representations and warranties set
forth in this Agreement are true and correct as of such date.

 

(B)           No Event of Default shall have occurred and
be continuing, and no event shall have occurred and be continuing that, with
the giving of notice or passage of time or both, would be an Event of Default.

 

(C)           No material adverse change shall have
occurred in the financial condition of the Borrower since the date of this
Agreement.

 

(D)          All liens on
Collateral are and remain valid first priority liens (subject only to Permitted
Liens) in full force and effect.

 

7

 

ARTICLE IV.

SECURITY AGREEMENT

 

4.01         The property in which a security interest
is granted pursuant to the provisions of Sections 4.02 and 4.03 is herein
collectively called the “Collateral.” 
The Collateral, together with all of the Borrower’s other property of
any kind held by the Bank, shall stand as one general, continuing collateral
security for all Obligations of the Borrower and may be retained by the Bank
until all such Obligations have been satisfied in full, and this Agreement is
terminated.

 

4.02         As security for the prompt satisfaction of
all Obligations of the Borrower, the Borrower hereby assigns, transfers and
sets over to the Bank all of its right, title and interest in and to, and
grants the Bank a lien on and a security interest in, all amounts that may be
owing from time to time by the Bank to the Borrower in any capacity, including,
but without limitation, any balance or share belonging to the Borrower of any
deposit or other account with the Bank, which lien and security interest shall
be independent of any right of set-off which the Bank may have.

 

4.03         Grant of Security Interest.  As
security for the payment of all Obligations of the Borrower, the Borrower
hereby assigns to Bank, and grants to Bank a continuing security interest in,
the following, whether now or hereafter existing or acquired:

 

All of Borrower’s:

 

(i)            Accounts;

 

(ii)           Certificated Securities;

 

(iii)          Chattel Paper;

 

(iv)          Computer Hardware and Software and all rights
with respect thereto, including, any and all licenses, options, warranties,
service contracts, program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications, and any
substitutions, replacements, additions or model conversions of any of the
foregoing;

 

(v)           Contract Rights;

 

(vi)          Deposit Accounts;

 

(vii)         Documents;

 

(viii)        Financial Assets;

 

(ix)           General Intangibles, including Payment
Intangibles and Software;

 

(x)            Goods (including all of its Equipment,
Fixtures and Inventory), and all accessions, additions, attachments,
improvements, substitutions and replacements thereto and therefor;

 

(xi)           Instruments;

 

(xii)          Intellectual Property;

 

(xiii)         Investment Property;

 

(xiv)        money (of every jurisdiction whatsoever);

 

(xv)         Letter-of-Credit Rights;

 

8

 

(xvi)        Security Entitlements;

 

(xvii)       Supporting Obligations;

 

(xviii)      Uncertificated Securities; and

 

(xix)         to the extent not included in the foregoing,
other personal property of any kind or description;

 

together with all books, records, writings,
data bases, information and other property relating to, used or useful in
connection with, or evidencing, embodying, incorporating or referring to any of
the foregoing, and all Proceeds, products, offspring, rents, issues, profits
and returns of and from any of the foregoing; provided that to the extent that
the provisions of any lease or license of Computer Hardware and Software or
Intellectual Property expressly prohibit (which prohibition is enforceable
under applicable law) the assignment thereof, and the grant of a security
interest therein, Bank will not enforce its security interest in Borrower’s
rights under such lease or license (other than in respect of the Proceeds thereof)
for so long as such prohibition continues, it being understood that upon
request of the Bank, Borrower will in good faith use reasonable efforts to
obtain consent for Bank’s enforcement of such security interest in Borrower’s
rights under such lease or license.

 

Borrower
warrants that:  (i) no financing
statement (other than “Permitted Liens”) covering any of the Collateral
is on file in any public office; (ii) Borrower is and will be the lawful
owner of all Collateral, free of all liens and claims whatsoever, other than
the security interest hereunder and Permitted Liens, with full power and
authority to execute this Agreement and perform Borrower’s obligations
hereunder, and to subject the Collateral to the security interest hereunder;
(iii) all information with respect to Collateral and Account Debtors set
forth in any schedule, certificate or other writing at any time heretofore or
hereafter furnished by Borrower to Bank is and will be true and correct in all
material respects as of the date furnished; (iv) Borrower’s state of
incorporation or organization, Type of Organization, Organizational I.D. Number
and place of business (or, if Borrower has more than one place of business, its
chief executive office) are as set forth on Schedule 4.03(a) hereto
(and Borrower has not changed its state of incorporation or organization, nor
maintained its place of business (or, if Borrower has more than one place of
business, its chief executive office) at any other location at any time);
(v) each other location where Borrower maintains a place of business is
set forth on Schedule 4.03(b) hereto; (vi) except as set forth
on Schedule 4.03(c) hereto, Borrower is not now known and during
the five years preceding the date hereof has not previously been known by any
trade name; (vii) Debtor’s exact legal name is as set forth on the
signature pages of this Agreement, except as set forth on Schedule 4.03(c)
hereto, during the five years preceding the date hereof Borrower has not been
known by any legal name different from the one set forth on the signature pages
of this Agreement nor has Borrower been the subject of any merger or other
corporate or organizational reorganization; (viii) Schedule 4.03(d)
hereto contains a complete listing of all of Borrower’s Intellectual Property
which is subject to registration statutes; (ix) Schedule 4.03(e)
hereto contains a complete listing of all of Borrower’s Instruments, Deposit
Accounts, Investment Property, Letter-of-Credit Rights, Chattel Paper,
Documents and Commercial Tort Claims; (x) except as set forth on Schedule 4.03(f)
hereto, Debtor has no tangible Collateral located outside of the United States;
(xi) Schedule 4.03(g) hereto contains a complete listing of
Debtor’s tangible Collateral located with any bailee, warehousemen or other third
parties; and (xii) Schedule 4.03(h) hereto contains a complete
listing of all of such Collateral which is subject to certificate of title
statutes.

 

4.04         The liens created in Sections 4.02 and 4.03
shall be first and prior liens, subject only to Permitted Liens.

 

4.05         With respect to Accounts, except as
otherwise disclosed by the Borrower to the Bank in writing:

 

(i)            the Accounts are
genuine, in all respects what they purport to be and are not evidenced by a
judgment;

 

(ii)           the Accounts
represent undisputed, bona fide transactions completed in accordance with the
terms and provisions contained in the invoices and other documents evidencing
same;

 

(iii)          the amounts
thereof, which are shown on all such invoices and statements, are actually and
absolutely owing to the Borrower and are not contingent for any reason;

 

(iv)          there are no
setoffs, counterclaims or disputes existing or asserted with respect to the
Accounts and the Borrower has not made any agreement with any Account Debtor
thereof for any deduction therefrom;

 

9

 

(v)           there are no
facts, events or occurrences which in any way impair the validity or
enforceability of the Accounts or tend to reduce the amount payable thereunder
from the amount thereof;

 

(vi)          to the best of
the Borrower’s knowledge, all of the Account Debtors have the capacity to
contract and are solvent;

 

(vii)         none of the
Accounts is pursuant to an invoice requiring payment in more than thirty (30)
days.

 

4.06         Immediately upon the Borrower’s receipt of
that portion of the Collateral, if any, which is evidenced by an instrument
and/or document, including promissory notes, documents of title, certificated
securities and warehouse receipts (collectively the “Special Collateral”) for
the purpose of perfecting the Bank’s security interest in such Special
Collateral, the Borrower shall deliver the original thereof to the Bank,
together with appropriate endorsements and/or specific evidence of the
assignment thereof to the Bank, in form and substance acceptable to the Bank.

 

4.07         If and to the extent that any of the
Collateral is evidenced by, or arises under, any contract with the United
States of America or any agency or instrumentality thereof, the Borrower will
immediately notify the Bank.

 

4.08         The Borrower covenants and agrees with the
Bank as follows:

 

(A)          The Borrower will not hereafter grant a
security interest in the Collateral, or transfer the Collateral to any other
Person, except as specifically permitted by this Agreement.

 

(B)           The Borrower will at all times defend the
Collateral against any and all claims of any Person adverse to the claims of
the Bank.

 

(C)           All Collateral covered by this Agreement is
and will be kept only at Borrower’s Principal Place of Business.  Collateral shall not be removed to, or kept
at, and Borrower shall not establish a place of business at, any other place
without the prior written consent of the Bank. 
If Collateral is at any time kept or located at locations other than
Borrower’s Principal Place of Business, the Bank’s security interest therein
shall continue.

 

(D)          The Borrower will promptly notify the Bank
in writing of the Borrower’s acquisition of any Non-Tangible Assets hereafter
occurring.

 

(E)           The Equipment will not at any time be
affixed or attached to any real estate in such a manner that it will become a
fixture, unless the Bank shall have a first priority, perfected lien on such
real estate as security for the Obligations of the Borrower.  The Equipment will be used or bought for use
solely for business purposes.

 

(F)           The Borrower shall permit the Bank to
inspect and evaluate the Collateral and any books and records of the Borrower
relating thereto at all reasonable times and to verify any Accounts by any
method satisfactory to the Bank, all at the expense and risk of the Borrower.

 

(G)           The Borrower will keep its records
concerning the Non-Tangible Collateral in such a manner as will enable Bank or
its designees to determine at any time the status of the Non-Tangible
Collateral;

 

(H)          By identifying Accounts on any
schedule or other document delivered to Bank the Borrower shall be deemed
to be making the representations and warranties contained in Section 4.05
with respect to such Accounts.

 

(I)            With respect to
Accounts, the Borrower shall:

 

(i)            promptly upon the
Borrower’s learning thereof, inform the Bank in writing of any delay in the
Borrower’s performance of any of its obligations to any Account Debtor and of
any assertion of any claims, offsets or counterclaims by any Account Debtor and
of any extraordinary allowances, credits and/or other monies granted by the
Borrower to any Account Debtor;

 

10

 

(ii)           not permit or
agree to any extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Eligible Accounts,
including any of the terms relating thereto;

 

(iii)          not permit or
agree to any extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account other than
Eligible Accounts;

 

(iv)          promptly upon the
Borrower’s receipt or learning thereof, furnish to and inform the Bank of all
material adverse information relating to the financial condition of any Account
Debtor; and

 

(v)           keep all goods
returned by any Account Debtor and all goods repossessed or stopped in transit
by the Borrower from any Account Debtor segregated from the other property of
the Borrower, immediately notify the Bank of the Borrower’s possession of such
goods and hold the same as trustee for the Bank until otherwise directed in
writing by the Bank.

 

(J)            With respect to
Inventory, the Borrower shall from and after the date hereof keep correct and
accurate records itemizing and describing the type and quantity of Inventory,
the Borrower’s cost therefor and the selling price thereof, all of which
records shall be available at all reasonable times, upon demand, to any of the
Bank’s officers, employees or agent for inspection and copying thereof.

 

(K)          The Borrower shall keep and maintain the
Equipment in good operating condition and repair and shall make all necessary
replacements thereof and renewals thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved.

 

(L)           The Borrower shall, immediately on demand
by the Bank, deliver to the Bank any and all evidence of ownership of any
Equipment, including any certificates of title and/or applications for title
thereto.

 

(M)         The Borrower shall notify the Bank within
10 days after the Borrower acquires any vehicles or other property covered by a
certificate of title and shall deliver to the Bank, upon demand by the Bank,
certificates of title relating to such vehicles or other property and
appropriate financing statements, if required by applicable law, duly completed
by the Borrower, to enable the Bank to perfect its lien in such property.

 

4.09         The Borrower shall, at its sole cost and
expense, keep and maintain the Collateral insured for the greater of the full
insurable value or the full replacement value thereof against loss or damage by
fire, theft, explosions, sprinklers and all other hazards and risks (i) covered
by extended coverage and/or (ii) ordinarily insured against by other owners or
users of properties in similar businesses. 
All such policies of insurance shall be in form, with insurers and in
such amounts as may be satisfactory to the Bank.  The Borrower shall deliver to the Bank a certificate of insurance
with respect to each policy of insurance and evidence of payment of all
premiums for each such policy.  Such
policies of insurance shall contain a lender’s loss payable endorsement, in
form and substance acceptable to the Bank, showing loss payable to the
Bank.  Such endorsement or an
independent instrument furnished to the Bank shall provide that all insurance
companies shall give the Bank at least thirty (30) days prior written notice
before any such policy or policies of insurance shall be altered or cancelled
and that no act or default of the Borrower or any other Person shall affect the
right of the Bank to recover under such policy or policies of insurance in case
of loss or damage.  The Borrower hereby
directs all insurers under such policies of insurance to pay all proceeds
payable thereunder directly to the Bank. 
The Borrower irrevocably appoints the Bank and all officers, employees
or agents designated by the Bank as the Borrower’s true and lawful attorney and
agent in fact for the purpose of making, settling and adjusting claims under
such policies of insurance, endorsing the name of the Borrower on any check,
draft, instrument or other item of payment for the proceeds of such policies of
insurance and for making all determinations and decisions with respect to such
policies of insurance.  If Borrower at
any time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required above, or to pay any premium in whole or in part
relating thereto, the Bank, without waiving or releasing any of the Obligations
of the Borrower or any Event of Default, may at any time or times thereafter,
but shall be under no obligation to do so, obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which the Bank deems necessary or advisable. 
All sums so disbursed by the Bank, including attorney’s fees, court
costs, expenses and other charges relating thereto, shall be part of the
Obligations, payable by the Borrower to the Bank on demand.

 

11

 

4.10         The Bank may, at any time or times
hereafter, in its sole discretion, without waiving or releasing any obligation,
liability or duty of the Borrower under this Agreement or the other Documents,
or any Event of Default, pay, acquire and/or accept an assignment of any security
interest, lien, claim or encumbrance asserted by any Person against the
Collateral.  All sums paid by the Bank
in respect thereof and all costs, fees and expenses, including, without
limitation, attorneys’ fees, court costs, expenses and other charges relating
thereto, which are incurred by the Bank on account thereof, shall be payable,
upon demand, by the Borrower to the Bank and shall be additional Obligations of
the Borrower hereunder secured by the Collateral.

 

4.11         Each of the representations, warranties and
agreements set forth in this Article IV shall survive the execution and
delivery of this Agreement and shall remain effective until this Agreement
shall have been terminated and all Obligations of the Borrower shall have been
paid and satisfied in full.

 

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

 

To induce the Bank to consummate the transactions
contemplated hereby, the Borrower represents and warrants to the Bank as
follows:

 

5.01         The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has the lawful power and authority to own its properties and to carry
on its business as now conducted, is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction wherein the nature of
the business transacted or to be transacted by it or property owned or to be
owned by it makes such qualification necessary and where the failure to be so
qualified would have a material adverse effect on its business, properties or
condition, financial or otherwise and possesses all material permits necessary
to operate the business it conducts.

 

5.02         The Borrower is empowered to perform all
acts and things undertaken and done pursuant to this Agreement and has taken
all corporate or other action necessary to authorize the execution, delivery
and performance of the Documents.  The
officers of Borrower executing the Documents have been duly elected or
appointed and have been fully authorized to execute such Documents at the time executed.  The Documents, when executed and delivered,
will be the legal, valid and binding obligations of the Borrower, enforceable
against it in accordance with their respective terms.

 

5.03         The Financial Statements are complete and
accurate, fairly present the financial condition of the Borrower at the
respective dates thereof and the results of operations for the respective
periods covered thereby, and (subject to normal year-end adjustments with
respect to interim Financial Statements) were prepared in accordance with
GAAP.  The Borrower does not have any
material liabilities or obligations (contingent or otherwise), liability for
taxes or unusual forward or long-term commitments, except as disclosed in the
Financial Statements.

 

5.04         Since the date of Borrower’s most recent
Financial Statements, there has been no material change in the assets,
liabilities or condition, financial or otherwise, of Borrower, other than
changes arising from transactions in the ordinary course of business and the
financing transactions contemplated by this Agreement, and none of such changes
has been materially adverse.

 

5.05         Other than as set forth in the Financial
Statements, there are no actions, suits or proceedings pending, or, to the best
of the knowledge of the Borrower, threatened against or affecting the Borrower
at law or in equity or before or by any Governmental Authority or any foreign
equivalent thereof, which involve the possibility of any material judgment or
liability, or which are, in the aggregate, material in light of the financial
condition and assets of the Borrower. 
There are no actions, suits, investigations or proceedings pending, or
to the best of the knowledge of the Borrower, threatened against the Borrower or
its properties regarding Environmental Laws, the manufacture, storage or
treatment of Hazardous Substances or products liability.

 

5.06         The Borrower is not in violation of, and
the execution and delivery of the Documents and the performance by the Borrower
of its obligations under the Documents, do not and will not result in the
Borrower being in violation of or in conflict with, or constitute a default
under any of, the Borrower’s organizational documents, any term or provision of
any note, mortgage, indenture, contract, agreement, instrument, judgment or Law
applicable to the Borrower, or result in the creation or imposition of any
mortgage, lien, charge or encumbrance of any nature whatsoever (other than
those in favor of Bank) upon any of the assets of the Borrower pursuant to any
such term or provision.  The Borrower is
not in default, after the expiration of any

 

12

 

applicable grace or cure periods, in any respect in the performance or
fulfillment of any of its obligations, covenants or conditions contained in any
agreement or instrument to which it is a party or by which any of its
properties may be bound, and the Borrower does not know of any dispute
regarding any such agreement or instrument.

 

5.07         The Borrower’s uses of the proceeds of the
Loans are, and will continue to be, legal and proper corporate uses which are
consistent with all applicable Laws, with Borrower’s Articles of Incorporation,
its By-Laws, the resolutions of its Board of Directors, and the terms of this
Agreement.

 

5.08         The Borrower does not have outstanding any
Debt (except to Bank, if any) or other obligation for borrowed money, or for
the deferred purchase price of property or services and the Borrower is not
obligated as guarantor, co-signer or otherwise on any Debt or other obligation
of any kind of any other Person, except and to the extent shown on the
Financial Statements at the date of this Agreement or incurred in the ordinary
course of business.  No Person is in
default under any of said obligations.

 

5.09         All tax returns and reports of the Borrower
required by law to be filed, have been duly filed, and all taxes, assessments,
fees and other governmental charges (other than those presently payable without
penalty or interest) upon the Borrower or upon any of its properties or assets,
which are due and payable, have been paid. 
The charges, accruals and reserves on the books of the Borrower in
respect of taxes are considered adequate by the Borrower, and the Borrower does
not know of any assessment of a material nature against it.

 

5.10         Except to the extent that failure to comply
would not materially interfere with the conduct of the business of the
Borrower, or affect in any way the Borrower’s obligations (or Bank’s rights)
under the Documents, the Borrower has complied with all applicable laws with
respect to: (i) any restrictions, specifications or other requirements
pertaining to the services Borrower performs, (ii) the conduct of its business
and (iii) the use, maintenance, and operation of the real and personal properties
owned or leased by it in the conduct of its business.

 

5.11         No authorization, consent, license or
approval of, or filing or registration with, or notification to, any
Governmental Authority is required in connection with the execution, delivery or
performance of the Documents by the Borrower, except for filings necessary to
perfect Bank’s Lien on the Collateral.

 

5.12         The Borrower has good and marketable title
to all of its assets, all subject to no security interest, encumbrance, lien or
claim of any Person excepting only Permitted Liens, and there are no financing
statements or other evidence of any such security interest, encumbrance or lien
or any claim of any Person on file in any public office other than those
evidencing Permitted Liens.

 

5.13         Except as set forth on Schedule 5.13,
the Borrower does not own, directly or indirectly, any Stock.  All outstanding shares of the Borrower have
been duly authorized, validly issued, fully paid and are nonassessable.

 

5.14         The Borrower has no liability in respect of
any Defined Benefit Pension Plan, as defined in ERISA, and is not a party to
any such plan.

 

5.15         The Borrower is solvent, no transaction
under or contemplated by this Agreement renders or will render the Borrower
insolvent, the Borrower retains sufficient capital for the business and
transactions in which it engages or intends to engage, no obligation incurred
hereby is beyond the ability of the Borrower to pay as such obligation matures,
the Borrower is not contemplating either the filing of a petition under any
state or federal bankruptcy or insolvency laws or the liquidating of all or a
major portion of any of its property, and Borrower has no knowledge of any
person contemplating the filing of any such petition against it.

 

5.16         There exists no actual or to Borrower’s
knowledge, threatened termination, cancellation or limitation of, or any
modification or change in, the proposed business relationship of Borrower with
any customer or group of customers whose purchases individually or in the aggregate
are material to the current business of Borrower, or in the proposed business
relationship of Borrower with any material supplier, and Borrower reasonably
anticipates that all such customers and suppliers will continue a business
relationship with Borrower on a basis no less favorable to the Borrower than
that heretofore conducted; and there exists no other condition or state of
facts or circumstances which would materially adversely affect the current

 

13

 

operation of the business of Borrower after the consummation of the
transactions contemplated by this Agreement on a basis no less favorable to the
Borrower than that on which it has heretofore been conducted by Borrower.

 

5.17         No representation or warranty by the
Borrower contained herein or in any certificate or other document furnished by
or on behalf of the Borrower in connection with the transactions hereunder
contains any untrue statement of material fact or omits to state a material
fact necessary to make such representation or warranty not misleading in light
of the circumstances under which it was made.

 

5.18         All of the representations and warranties
set forth in this Article V shall survive and continue to be true,
complete and correct until all Obligations of the Borrower hereunder are paid
and satisfied in full and this Agreement shall have been terminated.

 

ARTICLE VI.

NEGATIVE COVENANTS

 

The Borrower covenants that until all Obligations
of Borrower are paid and satisfied in full, and the Bank’s obligations
hereunder have terminated, the Borrower will not, directly or indirectly,
without the prior consent in writing of the Bank:

 

6.01         Except as provided in this Agreement,
create, assume, incur or suffer or permit to exist any mortgage, pledge,
encumbrance, security interest, assignment, lien or charge of any kind or
character upon any of its assets, including its inventory and equipment,
whether owned at the date hereof or hereafter acquired, excepting only
Permitted Liens.

 

6.02         Make any loans, or advances, whether
secured or unsecured, to, or make any guaranty of, or otherwise become
obligated on behalf of any other Person for, any such loans or advances to, any
Person, except for guaranties in favor of the Bank.

 

6.03         Dispose by sale, assignment, lease, sale
and leaseback or otherwise any Collateral (other than obsolete or worn out
Equipment not used or useful in its business), whether now owned or hereafter
acquired, except that, so long as no Event of Default shall have occurred and
be continuing, such Person may sell its Inventory in the ordinary course of
business as conducted by it on the date of this Agreement.

 

6.04         Transfer, directly or indirectly, any of
its assets or pay out, directly or indirectly, money or property or provide services
or do any other act, or fail to do any act, which would have the effect of
materially and adversely affecting its ability to perform its obligations
hereunder.

 

6.05         Except as set forth on Schedule 5.13,
own, hold, purchase or acquire Stock, bonds, debentures or other securities of,
or make any capital contribution to, any Person, or form any Subsidiary.

 

6.06         Make any material change in its financial
structure, make any material change in its management (except on prior notice
to the Bank), change its name (except on 90 days prior notice to the Bank),
enter into any merger, consolidation, dissolution, liquidation, reorganization
or recapitalization, or reclassification of its Stock, or issue any Stock or
issue any warrant, right or option pertaining thereto or other security
convertible into any of the foregoing.

 

6.07         Engage in business activities or operations
substantially different from and unrelated to its business activities on the
date of this Agreement.

 

6.08         Declare or pay any dividends, or redeem or
repurchase any of, or make any other payment or distribution on account of, any
Stock.

 

6.09         Enter into any sale-leaseback transaction.

 

6.10         Prepay any Debt (except as expressly
permitted hereunder) or enter into or modify any agreement as a result of which
the terms of payment of any Debt are waived or modified.

 

14

 

6.11         Directly or indirectly apply any part of
the proceeds of the Loans for any purpose other than as set forth herein.

 

6.12         Directly or indirectly apply any part of
the proceeds of the Loans to the purchasing or carrying of any “margin stock”
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings thereunder.

 

6.13         Engage in any “prohibited transaction”
within the meaning of Section 4975 of the Internal Revenue Code or
Section 406 of ERISA with respect to any “employee benefit plan,” as
defined in Section 3(3) of ERISA; or effect any termination of any Plan
which would result in a liability to Borrower.

 

6.14         Create, incur or assume any Debt other than
(i) the Loan, and (ii) Debt disclosed in Financial Statements provided to the
Bank on or before the date hereof.

 

6.15         Enter into, or be a party to, any transaction
with any Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of its business and upon fair and reasonable terms
which are fully disclosed in writing to the Bank and are no less favorable to
such Person than would be obtained in a comparable arm’s length transaction
with a person not an Affiliate.

 

6.16         Maintain deposit accounts jointly with any
Affiliate or commingle any funds with funds of any Affiliate.

 

6.17         Change its fiscal year.

 

6.18         Furnish the Bank any certificate or other
document that will contain any untrue statement of material fact or that will
omit to state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished.

 

ARTICLE VII.

AFFIRMATIVE COVENANTS

 

The Borrower covenants that until all Obligations
of the Borrower are paid and satisfied in full, and the Bank’s obligations
hereunder have terminated, the Borrower will:

 

7.01         Furnish and deliver to the Bank:

 

(i)            as soon as practicable, and in any event
within ninety (90) days after the end of each fiscal year, the Financial
Statements of Borrower, audited by certified public accountants selected by the
Borrower and reasonably acceptable to the Bank;

 

(ii)           as soon as
practicable, and in any event within forty-five  (45) days after the end of the each fiscal quarter of Borrower,
(a) a statement of cash flows of the Borrower for such month and the portion of
the fiscal year then ended, (b) an income statement of the Borrower for such
month and the portion of the fiscal year then ended and (c) a balance sheet of
the Borrower as of the end of such month; all in reasonable detail and
certified by an Authorized Borrower Representative as complete and accurate in
all material respects, fairly presenting the financial condition of the
Borrower and prepared in accordance with GAAP;

 

(iii)          within 5 days of filing, copies of all statements, reports and
notices made available to Borrower’s security holders and all reports on
Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;

 

(iv)          prompt notice of any material change in the composition of the
Intellectual Property, including any subsequent ownership right of Borrower in
or to any copyright, patent or trademark or knowledge of an event that materially
adversely affects the value of the Intellectual Property;

 

15

 

(v)           with each set of
Financial Statements delivered hereunder, a certificate of an Authorized
Borrower Representative (a) calculating Borrower’s compliance (or lack thereof)
with the financial covenants in Article VIII hereof, in reasonable detail,
and (b) stating that no Event of Default has occurred and is continuing or if
an Event of Default has occurred and is continuing setting forth a description
of such event and the steps being taken to remedy such event;

 

(vi)          upon request by
the Bank, evidence satisfactory to the Bank of the insurance coverages required
under this Agreement; and

 

(vii)         with reasonable
promptness, such other information materially concerning the business,
properties, conditions or operations, financial or otherwise, of the Borrower,
or compliance by the Borrower with any of the covenants in the Documents, as
the Bank may from time to time reasonably request.

 

7.02         Furnish and deliver to Bank:

 

(i)            immediately after
the occurrence thereof, notice of any Event of Default or of any fact,
condition or event that with the giving of notice or passage of time or both,
could become an Event of Default, or of the failure by the Borrower to observe
any of its respective undertakings hereunder;

 

(ii)           immediately after
the occurrence thereof, notice of any default under any Debt, or under any
indenture, mortgage or other agreement relating thereto for which the Borrower
is liable;

 

(iii)          immediately after
obtaining knowledge thereof, notice of any litigation or proceeding in which
the Borrower is a party involving potential claims in excess of $100,000.00
(whether or not the claim is considered to be covered by insurance);

 

(iv)          immediately after
receipt of notice thereof, notice of the institution of any other suit or
proceeding involving the Borrower that might materially and adversely affect
the Borrower’s business, properties or conditions or operations, financial or
otherwise; and

 

(v)           immediately after
the occurrence thereof, notice of any other matter which has resulted in, or
might result in, a materially adverse change in the business, properties, or
the conditions or operations, financial or otherwise, of the Borrower.

 

7.03         Promptly pay and discharge when due all
taxes, assessments and other governmental charges imposed upon it, or upon its
income, profits or property, and all claims for labor, material or supplies
which, if unpaid, might by law become a lien or charge upon its property;
provided, however, that it shall not be required to pay any tax, assessment,
charge or claim if so permitted by law, so long as the validity thereof shall
be contested in good faith by appropriate proceedings and adequate reserves
therefor in accordance with GAAP shall be maintained on its books.

 

7.04         Maintain its inventory, equipment, real
estate and other properties in good condition and repair (normal wear and tear
excepted), pay and discharge or cause to be paid and discharged when due, the
costs of repairs to or maintenance of the same, and pay or cause to be paid all
rental or mortgage payments due on the same except if it is in good faith
contesting by appropriate proceedings such amounts due and is maintaining
adequate reserves for such liability in accordance with GAAP.

 

7.05         Maintain and comply with leases covering
real property, if any, used by it in accordance with the respective terms
thereof so as to prevent any default thereunder which may result in the
exercise or enforcement of any landlord’s or other lien against it or its
property; provided, however, that it may contest any matters in connection with
such leases in good faith and by appropriate proceedings if it makes such
payments as are required by law and maintains adequate reserves on its books in
accordance with GAAP in connection therewith.

 

7.06         Maintain its corporate existence, maintain
all rights, privileges, franchises, permits and approvals necessary or
desirable for the continuation of its business, and comply with the
requirements of all material agreements to which it is a party

 

16

 

or by which any of its assets is bound, and all applicable Laws,
including Environmental Laws, and orders of any Governmental Authority,
noncompliance with which would materially adversely affect its business,
properties, condition, financial or otherwise, or ability to repay its
Obligations.

 

7.07         Keep adequate records and books of account
and inventory, in which complete entries will be made in accordance with its
past practices and consistent with sound business practice, reflecting all of
its financial transactions, and collect its accounts only in the ordinary
course of business.

 

7.08         Permit any of the Bank’s representatives to
examine and inspect the Collateral, the Premises, all other of its properties
and operations, and all books of account, records, reports and other papers and
to make copies and extracts therefrom, and to discuss its affairs, finances and
accounts with its officers and employees or its independent public accountants
(and by this provision the Borrower authorizes said accountants to discuss the
finances and affairs of the Borrower) all at such reasonable times and as often
as may be reasonably requested.  The Borrower
shall pay all of Bank’s expenses incurred in connection with such examinations
and inspections.

 

7.09         Pay when due all of its Debt except if
(with respect to Debt other than the Obligations) it is in good faith
contesting by appropriate proceedings such amounts due and has maintained
adequate reserves for such liability in accordance with GAAP.

 

7.10         At the Bank’s request, execute and/or
deliver to the Bank, at any time or times hereafter, all Supplemental
Documentation that the Bank may request, in form and substance acceptable to
the Bank, and pay the costs of any recording or filing of the same.  The Borrower hereby irrevocably makes,
constitutes and appoints the Bank (and all Persons designated by the Bank for
that purpose) as Borrower’s true and lawful attorney, effective immediately
upon the failure or refusal of the Borrower to execute and/or deliver to the
Bank any Supplemental Documentation required hereby, to sign the name of the
Borrower on any of the Supplemental Documentation and to deliver any of the
Supplemental Documentation to such Persons as the Bank, in its sole discretion,
may elect.  The Borrower agrees that a
carbon, photographic, photostatic, or other reproduction of this Agreement or
of a financing statement is sufficient as a financing statement and may be
filed by the Bank in any filing office.

 

7.11         Maintain, in addition to the insurance on
Collateral required pursuant to Section 4.09 above, liability insurance in
form, with insurers and in amounts as may be reasonably satisfactory to the
Bank, showing the Bank as an additional insured and with insurers and in
amounts as may be satisfactory to the Bank.

 

7.12         Maintain its
principal banking accounts with the Bank.

 

ARTICLE VIII.

FINANCIAL COVENANTS

 

The Borrower covenants that until all Obligations
of Borrower have been paid and satisfied in full, and the Bank’s obligations
hereunder have terminated, the Borrower will:

 

(A)          Tangible Net
Worth.  Maintain a Tangible Net Worth
of at least $3,750,000.00, measured quarterly based upon the Financial
Statements to be delivered pursuant to Section 7.01(ii) of this Agreement.

 

(B)           Profitability.  Maintain a minimum net income of at least
$100,000.00 for each fiscal year ended December 31 during the term of this
Agreement, as reported on the Financial Statements.

 

ARTICLE IX.

EVENTS OF DEFAULT

 

9.01         The occurrence of any of the following
events or acts shall constitute an Event of Default (“Event of Default”):

 

(A)          The Borrower defaults in the payment of any
of its Obligations or any part thereof when the same shall become due and
payable, either by their terms or as otherwise herein provided which is not cured within 5 days.

 

17

 

(B)           Any Financial Statement, representation or
warranty made by the Borrower herein or delivered by the Borrower pursuant
hereto or otherwise made in writing by the Borrower in connection with this
Agreement proves to have been false in any material respect as of the date on
which it was made or deemed made.

 

(C)           The Borrower defaults in the performance of
any of the covenants, conditions or agreements contained in this Agreement
which is not cured within thirty (30) days, other than as set forth in 9.01(A)
and 9.01(B).

 

(D)          The Borrower fails to pay any Debt when
due, or suffers to exist any other event of default giving rise to any
obligation under any agreement binding the Borrower and such failure or event
of default continues beyond any applicable grace period.

 

(E)           The Borrower files a petition under any
section or chapter of the United States Bankruptcy Code or any similar
federal or state law or regulation, the Borrower admits its inability to pay
debts as they mature, the Borrower makes an assignment for the benefit of one
or more of its creditors, the Borrower makes an application for the appointment
of a receiver, trustee or custodian for any of its assets, or the Borrower
files any case or proceeding for its reorganization, dissolution or liquidation
or for relief from creditors.

 

(F)           The Borrower is enjoined, restrained or in
any way prevented by court order from conducting all or any material part of
its business affairs, a petition under any section or chapter of the
United States Bankruptcy Code or any similar federal or state law or regulation
is filed against the Borrower, any case or proceeding is filed against the
Borrower for its reorganization, dissolution or liquidation or for creditor
relief, or an application is made by any Person other than the Borrower for the
appointment of a receiver, trustee, or custodian for any of the Borrower’s
assets, and such injunction, restraint, petition or application is not
dismissed or stayed within forty-five (45) days after the entry or filing
thereof.

 

(G)           The Borrower conceals or removes or permits
to be concealed or removed any part of its property with intent to hinder,
delay or defraud its creditors or any of them, or makes or suffers to be made a
transfer of any of its property that may be fraudulent under any federal or
state bankruptcy, fraudulent conveyance or similar law.

 

(H)          The Borrower permits any of its assets to
be attached, seized, subjected to a writ or distress warrant, or levied upon,
or to come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors and does not cause the same to be
terminated within thirty (30) days thereafter.

 

(I)            Other than
Permitted Liens, a notice of any charge is filed of record with respect to all
or any of the Borrower’s assets or any charge becomes a lien or encumbrance
upon any such assets and the same is not released within thirty (30) days after
the same becomes a lien or encumbrance.

 

(J)            The occurrence of
any of the following events:  (i) the
happening of a Reportable Event with respect to any Plan which the Bank
determines in good faith might constitute grounds for the termination by the
PBGC of such Plan or for the appointment by the appropriate United States
district court of a trustee to administer such Plan; (ii) any Plan which is not
“sufficient for benefit liabilities” (as determined under
Section 4041(d)(1) of ERISA) shall be terminated; (iii) the Borrower or
any ERISA Affiliate shall effect a complete or partial withdrawal from any
Multiemployer Plan without the prior written consent of the Bank and shall have
a withdrawal liability (as determined under the Multiemployer Pension Plan
Amendments Act of 1980); (iv) the Borrower or any ERISA Affiliate shall,
without the prior written consent of the Bank, withdraw from a Plan under which
liability may be imposed pursuant to Section 4063 of ERISA; (v) the
appointment of a trustee by an appropriate United States district court to
administer any Plan; or (vi) the institution of any proceedings by the PBGC to
terminate any Plan or to appoint a trustee to administer any Plan.

 

(K)          The Borrower suffers a final judgment for
payment of money which shall not be on appeal and does not discharge the same
within a period of thirty (30) days.

 

(L)           A judgment creditor of the Borrower obtains
possession of any Collateral by any means, including without limitation, levy,
distraint, replevin or self-help.

 

18

 

(M)         The occurrence of a default or an Event of
Default under any of the other Documents which is not cured within the time, if
any, specified therefor in such other Document; or the actual or attempted
unilateral termination, modification or abrogation by any Person other than the
Bank of any obligation under, or of any right or remedy of Bank under, any of
the Documents.

 

9.02         Upon the occurrence of any Event of
Default, and at any and all times while any Event of Default shall be
continuing, the Bank shall have all rights and remedies provided by this
Agreement or any other Document and by applicable law and, without limiting the
generality of the foregoing, may, at its option, declare the Revolving Credit
Loan Commitment to be terminated by giving written notice thereof to the
Borrower, and upon such declaration, all Obligations of the Borrower shall
thereupon be and become forthwith, due and payable, without any presentment,
demands, protest or other notice of any kind, all of which are hereby expressly
waived.  Further, in addition to all the
rights and remedies provided in Article 9 of the UCC and any other
applicable law, the Bank may (but is under no obligation to do so):  take physical possession of any of the
Collateral and sell, lease or otherwise dispose of the Collateral in whole or
in part; require the Borrower to assemble the Collateral to which the Borrower
has or is entitled to possession at a place designated by the Bank, which is
reasonably convenient to both parties; collect any money due or to become due
and enforce in the Borrower’s name all rights with respect to the Collateral;
receive and open mail addressed to the Borrower; and/or notify any Account
Debtors (whether or not such Account Debtors are in default) to make payments
directly to the Bank.  The Borrower
agrees to deliver to the Bank promptly upon receipt thereof, in the form in
which received (together with all necessary endorsements), all payments
received by the Borrower in respect of any Account.  The Bank may apply all such payments against the Borrower’s
Obligations or at the Bank’s option to any of the Borrower’s accounts
maintained at the Bank.

 

9.03         In exercising its right to sell, lease or
otherwise dispose of the Collateral, the Bank may sell, lease or otherwise
dispose of all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, all as the Bank, in
its sole discretion, may deem advisable; such sales may be adjourned from time
to time with or without notice.  The
Bank shall have the right to conduct such sales on the Borrower’s premises or
elsewhere and shall have the right to use the Borrower’s premises without
charge for such sales for such time or times as the Bank may see fit.  The Bank is hereby granted a license or other
right to use, without charge, the Borrower’s labels, patents, copyrights,
rights of use of any name, trade secrets, tradenames, trademarks, service marks
and advertising matter, or any property of a similar nature, as it pertains to
the Collateral, in advertising for sale and selling any Collateral and the
Borrower’s rights under all licenses and all franchise agreements shall inure
to the Bank’s benefit.  The Bank shall
have the right to sell, lease or otherwise dispose of the Collateral, or any
part thereof, for cash, credit or any combination thereof, and the Bank may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Borrower’s Obligations.  The proceeds realized from the sale of any
Collateral shall be applied first to the costs, expenses and attorneys’ fees
and expenses incurred by the Bank for collection and for acquisition,
completion, protection, removal, storage, sale and delivery of the Collateral;
second to interest due upon any of the Borrower’s Obligations; and third to the
principal of the Borrower’s Obligations. 
If any deficiency shall arise, the Borrower shall remain liable to the
Bank therefor.

 

9.04         Any notice of any sale, lease, other disposition,
or other intended action by the Bank shall be reasonable if it is given to the
Borrower at least ten (10) days in advance of the intended disposition or other
intended action.

 

9.05         Upon and after the occurrence of an Event
of Default, the Borrower irrevocably designates, makes, constitutes and
appoints the Bank (and all persons designated by the Bank) as the Borrower’s
true and lawful attorney, and the Bank or its agent, may, without notice to the
Borrower, and at such time or times thereafter as the Bank or said agent, in
its sole discretion, may determine, in the Borrower’s or the Bank’s name:  (i) demand payment of the Accounts; (ii)
enforce payment of the Accounts, by legal proceedings or otherwise; (iii)
exercise all of the Borrower’s rights and remedies with respect to the
collection of the Accounts and Special Collateral; (iv) settle, adjust,
compromise, extend or renew the Accounts; (v) settle, adjust or compromise any
legal proceedings brought to collect the Accounts or any other dispute with
respect thereto; (vi) if permitted by applicable law, sell or assign the
Accounts and Special Collateral upon such terms, for such amounts and at such
time or times as the Bank deems advisable; (vii) discharge and release the
Accounts and Special Collateral; (viii) prepare, file and sign the Borrower’s
name on a Proof of Claim in Bankruptcy or similar document against any Account
Debtor; (ix) prepare, file and sign the Borrower’s name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with the
Accounts and Special Collateral; (x) do all acts and things necessary, in the
Bank’s sole discretion, to fulfill the Borrower’s obligations under this
Agreement; (xi) endorse the name of the Borrower upon any item of payment or
proceeds and

 

19

 

deposit the same to the account of the Bank on account of the
Borrower’s Obligations; (xii) endorse the name of the Borrower upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts, Inventory and Special
Collateral; (xiii) use the Borrower’s stationery and sign the name of the
Borrower to verifications of the Accounts and notices thereof to Account Debtors;
and (xiv) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts,
Inventory and Special Collateral to which the Borrower has access.

 

9.06         The Borrower agrees that in any sale of
Collateral consisting of securities, the Bank is hereby authorized to comply
with any limitation or restriction in connection with such sale as Bank may be
advised by counsel is necessary or advisable in order to avoid any violation of
applicable Law (including, without limitation, compliance with such procedures
as may restrict the number of prospective bidders and purchasers, require that
such prospective bidders and purchasers have certain qualifications, and
restrict such prospective bidders and purchasers to Persons who will represent
and agree that they are purchasing for their own account for investment and not
with a view to the distribution or resale of that portion of the Collateral
consisting of securities), or in order to obtain any required approval of the
sale or of the purchaser by any governmental regulatory authority or official,
and the Borrower further agrees that such compliance shall not result in such
sale being considered commercially unreasonable, nor shall the Bank be liable
or accountable to the Borrower for any discount allowed by reason of the fact
that Collateral was sold in compliance with any such limitation or restriction.

 

ARTICLE X.

MISCELLANEOUS

 

10.01       No failure or delay on the part of the Bank
in exercising any right, power or remedy hereunder or under any other Documents
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder or under any
other Document.  The remedies herein
provided and under any other Document are cumulative and not exclusive of any
remedies provided by law.

 

10.02       This Agreement and the other Documents
constitute the entire agreement between the parties and there are no promises
expressed or implied unless contained herein and therein.  No amendment, modification, termination or
waiver of any provision of the Documents nor consent to any departure by the
Borrower therefrom shall in any event be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only for the specific purpose for which given, and shall not be
deemed a waiver of or consent to any other matter or to the same matter in a
different instance.  No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.

 

10.03       The Borrower will pay any documentary,
stamp or similar taxes payable in respect of the Documents or the Collateral
granted hereby or in connection herewith. 
The Borrower will, on demand, reimburse the Bank for the fees and
expenses of legal counsel for the Bank incurred by the Bank in connection with
the preparation of the Documents, and the negotiation and closing of the
transactions contemplated hereby.  The
Borrower will further, on demand, reimburse the Bank for all expenses,
including the fees and expenses of legal counsel for the Bank, incurred by the Bank
in connection with any amendment or modification of the Documents, the
administration of the Loans and the enforcement of the Documents and the
collection or attempted collection of the Obligations of the Borrower.

 

10.04       (A) 
For the purposes of any action or proceeding involving the Documents or
any other agreement or document referred to therein, the Borrower hereby
expressly submits to the jurisdiction of all federal and state courts located
in the State of Illinois and consents that any order, process, notice of motion
or other application to or by any of said courts or a judge thereof may be
served within or without such court’s jurisdiction by registered mail or by
personal service, provided a reasonable time for appearance is allowed.  The Borrower hereby irrevocably waives any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Document brought in any federal or state court sitting in Cook County, State of
Illinois, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.

 

(B)           THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY OF ANY

 

20

 

DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT, THE NOTE, ANY
OTHER OF THE DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT REFERRED TO HEREIN OR
THEREIN AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING
WITHOUT A JURY.

 

10.05       The Borrower agrees to indemnify the Bank
from and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against the Bank in
any litigation, proceeding or investigation instituted or conducted by any
governmental agency or instrumentality or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement, whether or not the Bank is a party thereto, except
to the extent that any of the foregoing arises out of the gross negligence or
willful misconduct of the Bank.

 

10.06       The Borrower acknowledges and agrees that
this Agreement constitutes a commitment on the part of the Bank to make
advances, incur obligations and otherwise to give value to the Borrower and
that all financing statements filed hereunder shall remain in full force and
effect until this Agreement shall have been terminated even if, at any time or
times prior to such termination, no Loans or other Obligations shall be
outstanding hereunder.  Accordingly, the
Borrower waives any rights which it may have under Section 9-404(1) of the
UCC to demand the filing of termination statements with respect to the Collateral,
and agrees that the Bank shall not be required to send such termination
statements to the Borrower, or to file them with any filing office, unless and
until this Agreement shall have been terminated and all Obligations of the
Borrower shall have been paid in full in immediately available funds.

 

10.07       Any notices or consents required or
permitted by this Agreement shall be in writing and shall be delivered in
person or sent by certified mail, postage prepaid, return receipt requested, or
delivered by facsimile, or delivered by a nationally recognized overnight
express delivery service, in any case addressed as follows, unless such address
is changed by written notice hereunder:

 

	
  (i)

  	
   

  	
  If to the Borrower:

  	
   

  	
  Ebix, Inc., a Delaware corporation, f/k/a Ebix.com,
  Inc.

  
	
   

  	
   

  	
   

  	
   

  	
  1900 E. Golf Road, Suite 1200

  
	
   

  	
   

  	
   

  	
   

  	
  Schaumburg, Illinois  60173

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  If to the Bank:

  	
   

  	
  LaSalle Bank, N.A., national banking association

  
	
   

  	
   

  	
   

  	
   

  	
  135
  S. LaSalle Street

  
	
   

  	
   

  	
   

  	
   

  	
  Chicago,
  Illinois  60603

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:
  William J. Robertson

  

 

Any such notice or communication shall be deemed
to have been given either at the time of personal delivery, or in the case of
overnight express delivery, as of the date delivery was first attempted, or in
the case of facsimile, upon receipt or in the case of certified mail, five (5)
days after delivery to the United States Postal Service.

 

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

 

10.09       This Agreement shall become effective when
it shall have been executed by the Borrower and the Bank, and thereafter shall
be binding upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Bank.

 

10.10       This Agreement has been, and any other
Documents will be, delivered and accepted in and shall be deemed to be,
contracts made under and governed by the laws of the State of Illinois, and for
all purposes shall be construed in accordance with the laws of said State.

 

10.11       Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions

 

21

 

hereof or affecting the validity or enforceability of such provision in
any other jurisdiction; wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable Law.

 

10.12       All covenants, agreements, representations
and warranties made by the Borrower herein and any and all certificates and
instruments delivered by the Borrower in connection herewith shall,
notwithstanding any investigation by the Bank, be deemed material and relied on
by the Bank and shall survive the execution and delivery to the Bank of this
Agreement, the Notes, the other Documents, and any extension or renewal
thereof.

 

10.13       This Agreement shall secure and govern the
terms of any amendments, extensions or renewals to the Note and the Documents.

 

10.14       From time to time, the Borrower will
execute and deliver to Bank such additional documents and will provide such
additional information as the Bank may reasonably require to carry out the
terms of this Agreement and be informed of the Borrower’s status and affairs.

 

10.15       All Exhibits and Schedules attached to this
Agreement shall be deemed incorporated herein by this reference.

 

10.16       Whenever under the terms of this Agreement,
the time for performance of a covenant or condition falls upon a day which is
not a Business Day, such time for performance shall be extended to the next
Business Day.  Unless otherwise stated,
all references herein to “days” shall mean calendar days.

 

10.17       This Agreement and the other Documents
supersede all prior negotiations, understandings and agreements of the parties
hereto and thereto in respect of the transactions contemplated hereby,
including without limitation those expressed in any commitment or proposal
letter.

 

 

[Signature Page to Follow]

 

22

 

IN WITNESS WHEREOF, the parties have hereunto
caused this Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.

 

 

	
   

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EBIX, INC., A DELAWARE
  CORPORATION, F/K/A

  EBIX.COM, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R. J. Baum

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
  R. J. BAUM

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  BANK:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LaSALLE BANK, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wm Robertson 

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  	
  WM ROBERTSON

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  S.V.P.

  
						

 

23

 

Schedule Index

 

	
  Schedule 4.03(a)-

  	
   

  	
  State
  of Incorporation or Organization

  
	
  Schedule 4.03(b)-

  	
   

  	
  Addresses
  of Borrower’s Other Locations

  
	
  Schedule 4.03(c)-

  	
   

  	
  Trade
  Names, Prior Legal Names, etc.

  
	
  Schedule 4.03(d)-

  	
   

  	
  Patents,
  Trademarks, Copyrights

  
	
  Schedule 4.03(e)-

  	
   

  	
  Borrower’s
  Instruments, Deposit Accounts, etc.

  
	
  Schedule 4.03(f)-

  	
   

  	
  Collateral
  Not Located in the United States

  
	
  Schedule 4.03(g)-

  	
   

  	
  Collateral
  Located with Third Parties

  
	
  Schedule 4.03(h)-

  	
   

  	
  Collateral
  Subject to Certificates of Title

  
	
  Schedule 5.13

  	
   

  	
  Stock Owned by Borrower

  

 

24

 

SCHEDULE 4.03(a)

 

STATE OF INCORPORATION OR ORGANIZATION

 

	
  Information Required

  	
   

  	
  Company

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exact
  Legal Name

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  State
  of Organization

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Type
  of Organization

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Organizational
  I.D. Number

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Place
  of Business (or, if more than one, the Chief Executive Office)

  	
   

  	
   

  	
   

  

 

[ALL SCHEDULES TO BE COMPLETED FOR EACH DEBTOR]

 

25

 

SCHEDULE 4.03(b)

 

ADDRESSES OF BORROWER’S
OTHER LOCATIONS

 

26

 

SCHEDULE 4.03(c)

 

TRADE NAMES, PRIOR LEGAL NAMES,
ETC.

 

27

 

SCHEDULE 4.03(d)

 

PATENTS

 

	
  Patent/Serial No.

  	
   

  	
  Country

  	
   

  	
  Co. Name
  Held In

  	
   

  	
  Issue Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

TRADEMARKS

 

	
  Trademark Name

  	
   

  	
  Registration/Serial
  No.

  	
   

  	
  Country

  	
   

  	
  Co. Name
  Held In.

  	
   

  	
  Issue Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

COPYRIGHTS

 

	
  Copyright Name

  	
   

  	
  Country

  	
   

  	
  Co. Name
  Held In.

  	
   

  	
  Issue Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

28

 

SCHEDULE 4.03(e)

 

	
  Instruments:

  
	
   

  
	
  Deposit
  Accounts:

  
	
   

  
	
  Investment
  Property:

  
	
   

  
	
  Letter-of-Credit
  Rights:

  
	
   

  
	
  Chattel
  Paper:

  
	
   

  
	
  Documents:

  
	
   

  
	
  Commercial
  Tort Claims:

  

 

29

 

SCHEDULE 4.03(f)

 

COLLATERAL NOT LOCATED IN
THE UNITED STATES

 

30

 

SCHEDULE 4.03(g)

 

COLLATERAL
LOCATED WITH THIRD PARTIES

 

31

 

SCHEDULE 4.03(h)

 

COLLATERAL SUBJECT TO CERTIFICATE
OF TITLE

 

32

 

SCHEDULE 5.13

 

STOCK OWNED
BY BORROWER

 

33

 

PLEDGE
AGREEMENT

(DEPOSIT
ACCOUNT)

 

THIS PLEDGE AGREEMENT (the “Pledge Agreement”) is made and dated
this 21ST day of April, 2004, by and among EBIX, INC., a Delaware corporation f/k/a EBIX.COM, INC. (the “Borrower”), and LaSALLE BANK NATIONAL ASSOCATION, a
national banking association (“Borrower”).

 

RECITALS

 

WHEREAS, Bank has agreed to extend credit to Borrower from time to time on the
terms and subject to the conditions set forth in that certain Amended and Restated Loan And Security Agreement
and the documents, instruments, and agreements ancillary thereto, as amended,
extended or replaced from time to time, (collectively, the “Loan Agreement”);
and

 

WHEREAS, to induce Bank to extend such credit, and as a condition of Bank
entering into the Loan Agreement, Borrower has agreed to pledge and to grant to
Bank a security interest in and lien upon certain property of Borrower
described more particularly herein.

 

NOW, THEREFORE, in consideration of the above Recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 

1.             Terms and Definitions.  Capitalized
terms not otherwise defined herein have the same meanings as in the Loan
Agreement.

 

2.             Pledge.  Borrower hereby pledges, assigns and grants
to Bank a security interest in the property described in Paragraph 2 below
(collectively and severally, the “Collateral”) to secure payment and
performance of the Obligations.

 

3.             Collateral.  The Collateral shall consist of all right,
title and interest of Borrower in and to, whether now existing or hereafter
acquired, deposit account no.
                  maintained by
Borrower with Bank (together with all substitution, additional, and replacement
accounts, the “Account”), all interest, earnings and accruals thereon, all
certificates and instruments evidencing the Account, and all proceeds of the
foregoing.

 

4.             Obligations.  The Obligations secured by this Pledge
Agreement shall consist of any and all debts, obligations, and liabilities of
Borrower to Bank arising out of or related to the Loan Agreement (whether
principal, interest, fees or otherwise, whether now existing or hereafter
arising, whether voluntary or involuntary, whether or not jointly owed with
others, whether direct or indirect, absolute or contingent, contractual or
tortious, liquidated or unliquidated, arising by operation of law or otherwise,
whether or not from time to time decreased or extinguished and later increased,
created or incurred and whether or not extended, modified, rearranged,
restructured, refinanced, or replaced, including without limitation,
modifications to interest rates or other payment terms of such debts,
obligations, or liabilities).

 

5.             Representations and Warranties. 
Borrower hereby represents and warrants that: (a) except for the
security interest granted hereunder, Borrower (i) is and will at all times
continue to be the direct and beneficial owner of the Collateral, (ii) holds
the same free and clear of all liens except the lien created by this Pledge
Agreement and those permitted by the Loan Agreement; and (iii) will not dispose
of or make any assignment, pledge, hypothecation or transfer of, or create or
permit to exist any security

 

 

interest in or other lien on, the Collateral, other than in accordance
with the terms of this Pledge Agreement or the Loan Agreement; (b) Borrower (i)
has the power and authority to pledge the Collateral in the manner hereby done
or contemplated and (ii) will defend its title or interest thereto or therein
against any and all liens (other than the liens created by this Pledge
Agreement or by the Loan Agreement), however arising, of all persons
whomsoever; (c) no consent of any other person (including stockholders or
creditors of Borrower) and no consent or approval of any governmental authority
or any securities exchange was or is necessary to the validity or
enforceability of the pledge effected hereby, except such consents as have been
obtained and are in full force and effect; and (d) by virtue of the execution
and delivery by Borrower of this Pledge Agreement Bank will have a first
priority perfected security interest in the Collateral perfected by control.

 

6.             Covenants. Borrower agrees (a) not to make or permit to be made any withdrawals
or transfers from the Account; and (b) not to close or terminate the Account.

 

7.             Default.  A default under this Pledge Agreement shall
be deemed to exist upon the occurrence of (i) Borrower’s breach of any of the
terms of this Pledge Agreement; or (ii) an Event of Default under the Loan
Agreement (an “Event of Default”).

 

8.             Remedies.

 

a.             Upon the occurrence of an Event of Default,
Bank may, without notice to or demand on Borrower and in addition to all rights
and remedies available to Bank under the Loan Agreement with respect to the
Obligations, at law, in equity or otherwise, do any one or more of the
following:

 

(1)           Withdraw or cause to be withdrawn all amounts on deposit in the Account
and close the Account or otherwise foreclose or otherwise enforce Bank’s
security interest in any manner permitted by law or provided for in this Pledge
Agreement.

 

(2)           Recover from Borrower all costs and expenses, including, without
limitation, reasonable attorneys’ fees (including the allocated cost of
internal counsel), incurred or paid by Bank in exercising any right, power or
remedy provided by this Pledge Agreement.

 

b.             Any deficiency with respect to the
Obligations which exists after the disposition or liquidation of the Collateral
shall be a continuing liability of Borrower to Bank and shall be immediately
paid by Borrower to Bank.

 

9.             Cumulative Rights.  The rights,
powers, and remedies of Bank under this Pledge Agreement shall be in addition
to all rights, powers, and remedies given to Bank by virtue of any statute or
rule of law, the Loan Agreement or any other agreement, all of which rights,
powers, and remedies shall be cumulative and may be exercised successively or
concurrently without impairing Bank’s security interest in the Collateral.

 

10.          Setoff.  Borrower agrees that Bank may
exercise its rights of setoff with respect to the Obligations in the same
manner as if the Obligations were unsecured.

 

11.          Waiver.  Any waiver, forbearance or
failure or delay by Bank in exercising any right, power, or remedy shall not
preclude the further exercise thereof, and every right, power, or remedy of
Bank shall continue in full force and effect until such right, power or remedy
is specifically waived in a writing executed by Bank. Borrower waives any right
to require Bank to proceed against any person or to exhaust any Collateral or
to pursue any remedy in Bank’s power.

 

2

 

12.          Binding Upon Successors.  All rights of
Bank under this Pledge Agreement shall inure to the benefit of its successors
and assigns, and all obligations of Borrower shall bind its heirs, executors,
administrators, successors, and assigns.

 

13.          Entire Agreement; Severability.  This Pledge
Agreement contains the entire agreement between Bank and Borrower with regards
to the Collateral. If any of the provisions of this Pledge Agreement shall be
held invalid or unenforceable, this Pledge Agreement shall be construed as if
not containing those provisions and the rights and obligations of the parties
hereto shall be construed and enforced accordingly.

 

14.          References.  The singular includes the
plural. If more than one Borrower executes this Pledge Agreement, the term
Borrower shall be deemed to refer to each of the undersigned Borrowers as well
as to all of them, and their obligations and agreements hereunder shall be
joint and several.

 

15.          Choice of Law.  This Pledge Agreement shall be construed in
accordance with and governed by the laws of Illinois, without giving effect to
choice of law rules.

 

16.          Amendment.  This Pledge Agreement may not be amended or
modified except in writing signed by each of the parties hereto.

 

17.          Addresses for Notices.  All demands,
notices, and other communications to Borrower or Bank provided for hereunder
shall be in writing mailed, delivered, or sent by facsimile, addressed or sent
to it to the address or facsimile number, as the case may be, of Borrower or
Bank set forth below:

 

	
  (i)

  	
  If
  to the Borrower:

  	
  Ebix,
  Inc., a Delaware corporation,

  
	
   

  	
   

  	
  f/k/a
  Ebix.com, Inc.

  
	
   

  	
   

  	
  1900
  E. Golf Road, Suite 1200

  
	
   

  	
   

  	
  Schaumburg,
  Illinois  60173

  
	
   

  	
   

  	
  Attn:

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone:

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
  If
  to the Bank:

  	
  LaSalle
  Bank, N.A.,

  
	
   

  	
   

  	
  a
  national banking association

  
	
   

  	
   

  	
  135
  S. LaSalle Street

  
	
   

  	
   

  	
  Chicago,
  Illinois  60603

  
	
   

  	
   

  	
  Attention:
  William J. Robertson

  
	
   

  	
   

  	
  Telephone:

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
   

  	
   

  
								

 

All
such demands, notices, and other communications shall, when mailed or sent by
facsimile, be effective when deposited in the mails, delivered or so sent, as the
case may be, addressed as aforesaid.

 

18.          Execution in Counterparts.  This Pledge
Agreement may be executed in counterparts each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same agreement

 

[Signature
Page to Follow]

 

3

 

IN
WITNESS WHEREOF, the parties have hereunto caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.

 

 

	
   

  	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
   

  	
  EBIX, INC., A DELAWARE CORPORATION,

  F/K/A EBIX.COM, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ R. J. Baum

  
	
   

  	
   

  
	
   

  	
  Print
  Name:

  	
   

  	
  R. J. BAUM

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  BANK:

  
	
   

  	
   

  
	
   

  	
   

  	
  LaSALLE BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wm Robertson

  
	
   

  	
   

  
	
   

  	
  Print
  Name:

  	
   

  	
  WM ROBERTSON

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  S.V.P.

  
					

 

4EXHIBIT
10.1

 

PROMISSORY
NOTE

 

	
  $150,000.00

  	
   

  	
  Dallas,
  Texas

  
	
   

  	
   

  	
  April 22, 2004

  

 

FOR VALUE RECEIVED, ADVANCED MATERIALS GROUP, INC., a Nevada
corporation (“Debtor”), hereby promises to pay to [ROBERT E. DELK] [TIMOTHY R.
BUSCH] or his assigns (“Holder”), the sum of One Hundred Fifty Thousand Dollars
($150,000.00) in immediately available funds and in lawful money of the United
States of America as provided below. 
The principal amount of this Promissory Note (this “Note”), together
with interest accrued on such principal amount as provided in Section 1
hereof, is due and payable in full on July 21, 2004 (the “Maturity Date”).

 

1.                                       Interest.  Commencing on the date hereof, Debtor shall
pay simple interest on the unpaid principal balance of this Note from the date
hereof until fully paid computed on the basis of the actual number of days
elapsed from the date of this Note to and including the Maturity Date at a rate
per annum equal to ten percent (10%). Interest accrued on the outstanding
principal amount of this Note is due and payable together with the principal
amount of this Note on the Maturity Date, in accordance with the immediately
preceding paragraph of this Note. In the event any Event of Default (as defined
below) has occurred and is continuing, then, in any such event, the outstanding
principal amount and accrued interest on this Note shall bear interest at a
rate per annum equal to the lesser of twelve percent (12%) or the maximum
interest rate permitted by applicable law (the “Default Rate”) until such Event
of Default has been cured to the reasonable satisfaction of Holder. An Event of
Default shall no longer be continuing and shall be deemed to be cured for
purposes of this Note upon the cessation or correction of the circumstances which
caused the Event of Default; provided, however, that (x) Holder has not already
initiated or exercised its rights or remedies under this Note in such a manner
as to render the foregoing cessation and correction inapplicable in the
circumstances; (y) all interest, fees, costs, expenses and other obligations
due to Holder resulting from or caused by such Event of Default have been paid
to Holder; and (z) no other Event of Default has occurred and is continuing.

 

2.                                       Optional
Payments of Principal and Interest. 
At any time prior to the Maturity Date, Debtor may prepay the
outstanding balance of principal and accrued interest, in whole or in part,
without premium or penalty. All payments hereunder received from Debtor by the
Holder shall be applied first to interest and then to principal.

 

3.                                       Issuance
of Warrants. On or prior to May 14, 2004, Debtor shall execute and issue to
the Holder a Warrant in the form attached hereto as Exhibit A pursuant
to which Holder shall have the right to acquire up to 50,000 shares of Common
Stock of Debtor, subject to and in accordance with the terms and conditions set
forth therein. In addition to and cumulative with such other rights and
remedies as Holder may have hereunder and under applicable law, upon the
occurrence of an Event of Default under clause (i) of Section 4
hereof, Debtor shall execute and issue to the Holder another Warrant in the
form attached hereto as Exhibit A pursuant to which Holder shall have
the right to acquire up to an additional 50,000 shares of Common Stock of
Debtor, subject to and in accordance with the terms and conditions set forth
therein.

 

 

4.                                       Events
of Default. Upon the occurrence of any of the following events of default
(each, an “Event of Default”), unless Debtor shall have cured such default to
the reasonable satisfaction of the Holder within ten (10) business days after
the occurrence of such event of default, then, at the option of the Holder, the
entire balance of principal and interest shall be automatically accelerated and
immediately become due and payable without notice, presentment for payment,
demand, protest, notice of protest or notice of dishonor or other act of any
kind by or on behalf of the Holder, all of which are hereby expressly waived,
and Holder shall be entitled to exercise any and all of its rights and remedies
available to it pursuant to this Note or at law:

 

(i)                                     Debtor
fails to make any payment of principal and interest when due in accordance with
the provisions of this Note;

 

(ii)                                  the
making of an assignment for the benefit of creditors by Debtor or any other
party liable for the payment of this Note, or the voluntary appointment (at the
request of any such party or with the consent of any such party) of a receiver,
custodian, liquidator or trustee in bankruptcy of any such party’s property or
the filing by and such party of a petition in bankruptcy or other similar
proceeding under any law for relief of debtors; or

 

(iii)                               the
filing against any party liable for the payment of this Note of a petition in
bankruptcy or other similar proceeding under any law for relief of debtors, or
the involuntary appointment of a receiver, custodian, liquidator or trustee in
bankruptcy of any such party’s property, where such petition or appointment is
not vacated or discharged within sixty (60) days after the filing or making
thereof.

 

5.                                       Manner
of Payment.  Payments of principal
and interest shall be made in lawful money of the United States of America (by
wire transfer in funds immediately available at the place of payment) to such
account as Holder may designate in writing to Debtor. Any payments due
hereunder which are due on a day which is not a business day shall be payable
on the first succeeding business day and such extension of time shall be
included in the computation of interest due hereunder.

 

6.                                       Debtor
Liable.  Debtor shall remain
primarily liable on this Note until full payment hereof in accordance with the
terms hereof, unaffected by any forbearance or extension of time, any guaranty
or assumption by others, or by any other matter, as to all of which notice is
hereby waived by Debtor. Without limiting the generality of the foregoing, the
granting or allowance of any extension or extension of time for the payment of
any sum or sums due hereunder, or for the performance of any covenant,
condition or agreement thereof or hereof, or any other action or failure to act
by Holder shall in no way release or discharge the liability of Debtor, except
upon full payment of this Note in accordance with the terms of this Note or as
expressly agreed to in writing by Holder. 
The failure of Holder to exercise any right or remedy under this Note
shall not constitute a waiver thereof, unless expressly waived in writing by
Holder.

 

7.                                       Severability.  The terms and provisions of this Note are
severable. In the event of the unenforceabilty or invalidity of any one or more
of the terms, covenants, conditions or provisions of this Note under any
applicable law, such terms, covenant, condition or provision shall be deemed
stricken from this Note and such unenforceability or invalidity shall not
render any other term, covenant, condition or provision hereof unenforceable or
invalid. In the event any waiver by Debtor hereunder is prohibited by
applicable law, such waiver shall be deemed to be deleted herefrom.

 

2

 

8.                                       Extension
of Time.  Holder, at its option, may
extend the time for payment of this Note, postpone the enforcement hereof, or
grant any other indulgences without affecting or diminishing Holder’s right to
recourse against Debtor, which right is expressly reserved.

 

9.                                       Attorneys’
Fees.  If this Note is collected by or
through an attorney at law on behalf of Holder, then Debtor shall be obligated
to pay, in addition to the principal balance and accrued interest hereof,
reasonable attorneys’ fees incurred by Holder and court costs.

 

10.                                 Time
is of the Essence. Time is of the essence with respect to this Note.

 

11.                                 Governing
Law.  The terms and provision of
this Note are governed by and shall be construed in accordance with the laws of
the State of Nevada, without reference to the choice of law principles thereof.

 

 

IN WITNESS WHEREOF, Debtor has executed this Note on the date first
above written.

 

	
   

  	
  ADVANCED MATERIALS GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Robert E. Delk, President and CEO

  

 

3

 

EXHIBIT A

 

FORM OF WARRANT

 

Attached.

 

4

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