Document:

exv10w2

 

Exhibit 10.2

EXECUTION
COPY

SECURITY AGREEMENT

     This Security Agreement (this “Agreement”), dated as of December 27, 2006, is made by
MBI FINANCIAL INC., a Nevada corporation (“Borrower”), in favor of OLD MASTER GIOTTO FUND
LIMITED, a Cayman Islands exempt company (“Lender”).

W I T N E S S E T H

     WHEREAS, pursuant to that certain Credit Agreement dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the “Credit Agreement”) entered into
by and among Borrower and Lender, Lender has agreed to make a loan (collectively with any other
loan made to Borrower under the Credit Agreement, the “Loan”) to Borrower, upon the terms
and subject to the conditions set forth therein, to be evidenced by a promissory note issued by
Borrower thereunder (the “Note”).

     WHEREAS, as a condition to extending the Loan to Borrower, Lender has required Borrower to
execute and deliver this Agreement and certain other security documents to secure Borrower’s
Obligations (as defined below) under the Credit Agreement.

     ACCORDINGLY, in consideration of the mutual covenants contained in the Credit Agreement and
herein, the parties hereby agree as follows:

     1. Definitions. All terms defined in the UCC and not otherwise defined herein have the
meanings assigned to them in the UCC. In addition, the following terms have the meanings set forth
below or in the referenced Section of this Agreement:

     “Accounts” and “Accounts Receivable” means all of Borrower’s
“accounts”, as such term is defined in the UCC, including each and every right of Borrower
to the payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition of goods or
other property, out of a rendering of services, out of a loan, out of the overpayment of
taxes or other liabilities, or otherwise arises under any contract or agreement, whether
such right to payment is created, generated or earned by Borrower or by some other Person
who subsequently transfers such Person’s interest to Borrower, whether such right to payment
is or is not already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all Liens) which Borrower
may at any time have by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any property of such account debtor or other
obligor; all including but not limited to all present and future Accounts, Contract Rights,
loans and obligations receivable, credit card receivables, Health-Care-Insurance
Receivables, Chattel Paper, bonds, notes and other debt instruments, tax refunds and rights
to payment in the nature of general intangibles.

     “Account Control Agreement” has the meaning given that term in the Credit
Agreement.

     “Affiliate” shall mean, with respect to any specified Person, any other Person
that directly or indirectly, through one or more intermediaries, has control of, is
controlled by, or is under common control with, such specified Person. For these purposes,
“control” means the possession, directly or indirectly, of the power to direct or cause the
direction of the

 

 

management of any Person, whether through the ownership of voting securities, by
contract or otherwise.

     “Business Day” means a day of the year other than a Saturday or Sunday on which
banks are not required or authorized to close in New York, New York.

     “Chattel Paper” has the meaning given that term in the UCC.

     “Collateral” means all of Borrower’s Accounts (including Health Care Insurance
Receivables), Accounts Receivable, Contract Rights, Commercial Tort Claims, Chattel Paper
(whether Tangible or Electronic), Deposit Accounts, Documents, Equipment, General
Intangibles (including Payment Intangibles and Software), Goods, Instruments (including any
Promissory Notes), Inventory, Investment Property, Letter-of-Credit Rights, all Patents
(including all patent applications), all Patent Licenses, all Trademarks (including all
trademark applications), all Trademark Licenses, Vehicles and all Supporting Obligations;
together with (i) all substitutions and replacements for and products of any of the
foregoing; (ii) in the case of all goods, all accessions; (iii) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in
connection with any goods; (iv) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods; (v) any money, or other assets of Borrower
that now or hereafter come into Lender’s possession, custody, or control; and (vi) proceeds
of any and all of the foregoing.

     “Commercial Tort Claims” has the meaning given that term in the UCC.

     “Contract Rights” includes, without limitation, “contract rights” as now or
formerly defined in the UCC and also any right to payment under a contract not yet earned by
performance and not evidenced by an instrument or Chattel Paper.

     “Contractual Obligations” has the meaning given that term in the Credit
Agreement.

     “Deposit Accounts” means a demand, time, savings, passbook, or other similar
account maintained by a bank. The term does not include investment property or accounts
evidenced by an instrument.

     “Documents” has the meaning given that term in the UCC.

     “Electronic Chattel Paper” means Chattel Paper evidenced by a record or records
consisting of information stored in an electronic medium.

     “Equipment” means all of Borrower’s equipment, as such term is defined in the
UCC, whether now owned or hereafter acquired, including but not limited to all present and
future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies, and including specifically the
goods described in any equipment schedule or list herewith or hereafter furnished to Lender
by Borrower.

     “Event of Default” has the meaning given in Section 5.

     “Facility Documents” has the meaning given that term in the Credit Agreement.

2

 

     “Farm Products” has the meaning given that term in the UCC.

     “Financial Assets” has the meaning given such term in the UCC.

     “General Intangibles” means all of Borrower’s general intangibles, as such term
is defined in the UCC, whether now owned or hereafter acquired; and also all rights to
payment for credit extended; deposits; amounts due to Borrower; credit memoranda in favor of
Borrower; warranty claims; tax refunds and abatements; insurance refunds and premium
rebates; all means and vehicles of investment or hedging, including, without limitation,
options, warrants, and futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other agreement;
literary rights; rights to performance; royalties; license and/or franchise fees; rights of
admission; licenses; franchises; license agreements, including all rights of Borrower to
enforce same; permits, certificates of convenience and necessity, and similar rights granted
by any governmental authority; patents, patent applications, patents pending, and other
intellectual property; developmental ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals; technical data;
computer software programs (including the source and object codes therefor), computer
records, computer software, rights of access to computer record service bureaus, service
bureau computer contracts, and computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, mask work rights and interests, and derivative
works and interests; user, technical reference, and other manuals and materials; trade
names, trademarks, service marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible property of Borrower in the
nature of intellectual property; proposals; cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter related to, or connected with,
the design, development, manufacture, sale, marketing, leasing, or use of any or all
property produced, sold, or leased, by Borrower or credit extended or services performed, by
Borrower, whether intended for an individual customer or the general business of Borrower,
or used or useful in connection with research by Borrower.

     “Goods” has the meaning given that term in the UCC.

     “Health-Care-Insurance Receivables” means an interest in, or claim under, a
policy of insurance which is a right to payment of a monetary obligation for healthcare
goods or services provided.

     “Instruments” has the meaning given that term in the UCC.

     “Inventory” means all of Borrower’s inventory, as such term is defined in the
UCC, whether now owned or hereafter acquired, whether consisting of whole goods, spare parts
or components, supplies or materials, whether acquired, held or furnished for sale, for
lease or under service contracts or for manufacture or processing, and wherever located.

     “Investment Property” means all of Borrower’s investment property, as such term
is defined in the UCC, whether now owned or hereafter acquired, including but not limited to
all securities, security entitlements, securities accounts, commodity contracts, commodity
accounts, stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.

3

 

     “Letter-of-Credit Rights” means a right to payment or performance under a
letter of credit, whether or not the beneficiary has demanded or is at the time entitled to
demand payment or performance. The term does not include the right of a beneficiary to
demand payment or performance under a letter of credit.

     “Lien” means any security interest, mortgage, deed of trust, pledge, lien,
charge, encumbrance, title retention agreement or analogous instrument or device, including
the interest of each lessor under any capitalized lease and the interest of any bondsman
under any payment or performance bond, in, of or on any assets or properties of a Person,
whether now owned or hereafter acquired and whether arising by agreement or operation of
law.

     “Material Adverse Effect” has the meaning given the term in the Credit
Agreement.

     “Obligations” means the unpaid principal amount of, and interest on, the Loan
and all other obligations and liabilities of Borrower to Lender, whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Credit Agreement, the Note, the other
Facility Documents, the Loan or this Agreement and any other document executed and delivered
in connection therewith or herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of counsel to Lender), or otherwise.

     “Patents” means (a) all letters patent of the United States and all reissues
and extension thereof, including, without limitation, any thereof referred to in Schedule I
hereto, and (b) all applications for letters patent of the United States and all divisions,
continuations and continuations-in-part thereof or any other country, including, without
limitation, any thereof referred to in Schedule I thereto.

     “Patent License” means all agreements, whether written or oral, providing for
the grant by Borrower of any right to manufacture, use or sell any invention covered by a
Patent, including, without limitation, any thereof referred to in Schedule I hereto.

     “Payment Intangibles” means a General Intangible under which the Account
debtor’s principal obligation is a monetary obligation.

     “Permitted Liens” means (i) the Security Interest and (ii) Liens permitted
under Section 5.02(b) of the Credit Agreement.

     “Person” shall mean any individual, partnership, corporation, limited liability
company, unincorporated organization or association, trust or other entity.

     “Promissory Notes” means an instrument that evidences a promise to pay a
monetary obligation, does not evidence an order to pay, and does not contain an
acknowledgment by a bank that the bank has received for deposit a sum of money of funds.

     “Quarterly Cash Reserve Account” has the meaning given in Section 3(r).

     “Securities” has the meaning given that term in the UCC.

     “Security Interest” has the meaning given in Section 2.

4

 

     “Software” means a computer program and any supporting information provided in
connection with a transaction relating to the program. The term does not include a computer
program that is included in the definition of Goods.

     “Supporting Obligations” means a Letter-of-Credit Right, or secondary
obligation that supports the payment or performance of an Account, Chattel Paper, a
Document, a General Intangible, an Instrument or Investment Property.

     “Tangible Chattel Paper” means Chattel Paper evidenced by a record or records
consisting of information that is inscribed on a tangible medium.

     “Trademarks” means (a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks, logos and
other source or business identifiers, and the goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State thereof or any
other country or any political subdivision thereof, or otherwise, including, without
limitation, any thereof referred to in Schedule II hereto, and (b) all renewals thereof.

     “UCC” means Uniform Commercial Code as in effect from time to time in the State
of New York; provided, however, if by mandatory provisions of law, the perfection or the
effect of perfection or non-perfection of the security interest granted hereunder in the
Collateral is governed by the Uniform Commercial Code of a jurisdiction other than New York,
“UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes
of provisions hereof relating to such perfection or effect of perfection of non-perfection.

     “Vehicles” means all cars, trucks, trailers, construction and earth moving
equipment and other vehicles covered by a certificate of title law or any state and, in any
event, shall include, without limitation, the vehicles listed on Schedule III hereto and all
tires and other appurtenances to any of the foregoing.

     2. Grant of Security Interest. As security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations, Borrower hereby grants to Lender a security interest (the “Security Interest”)
in the Collateral now owned or at any time hereafter acquired by Borrower or in which Borrower now
has or at any time in the future may acquire any right, title or interest.

     3. Representations, Warranties and Agreements. Borrower hereby represents, warrants
and agrees as follows:

     (a) Power and Authority; Authorization. Borrower has the corporate power and authority
and the legal right to execute and deliver, to perform its obligations under, and to grant
the Security Interest in the Collateral pursuant to, this Agreement and has taken all
necessary corporate action to authorize its execution, delivery and performance of, and
grant of the Security Interest in the Collateral pursuant to, this Agreement.

5

 

     (b) Enforceability. This Agreement constitutes a legal, valid and binding obligation
of Borrower enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally.

     (c) No Conflict. The execution, delivery and performance by Borrower of this Agreement
and the grant of the security interest contemplated hereby with respect to the Collateral
are within its corporate powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene Borrower’s constitutive documents, (ii) contravene any
contractual restriction binding on it or require any consent under any agreement or
instrument to which it or any of its Affiliates is a party or by which any of its properties
or assets is bound which has not been obtained, (iii) result in or require the creation or
imposition of any Liens upon any property or assets of Borrower other than Liens permitted
by Section 5.02, or (iv) violate any Law. Borrower shall not be deemed to be in violation
of any such Law or in breach of any contractual restriction binding upon it, unless such
violation or breach could reasonably be expected to cause a Material Adverse Effect.

     (d) No Consent, Etc. Except for any filings specifically provided for herein or in the
Credit Agreement, no order, consent, approval, license, authorization or validation of, or
filing, recording or registration with, or exemption or waiver by, any Governmental
Authority or any other third-party (except such as have been obtained or made and are in
full force and effect) is required to authorize, or is required in connection to which it is
a party with, (i) the execution, delivery and performance by Borrower of any Facility
Document or (ii) the legality, validity, binding effect or enforceability of any Facility
Document to which it is a party.

     (e) No Litigation. There is no pending or threatened action or proceeding affecting
Borrower or any Subsidiary of Borrower before any court, governmental agency or arbitrator
which (i) is reasonably likely to have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of this Agreement, the Credit Agreement, the Note
or any other Facility Document.

     (f) Title. Borrower (i) has absolute title to each item of Collateral in existence on
the date hereof, free and clear of all Liens except the Security Interest and the Permitted
Liens, (ii) will have, at the time Borrower acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free and clear of all Liens except
Permitted Liens, (iii) will keep all Collateral free and clear of all Liens except Permitted
Liens, and (iv) will defend the Collateral against all claims or demands of all Persons
other than Lender. Without the prior written consent of Lender, Borrower will not sell or
otherwise dispose of, or grant any option with respect to, the Collateral or any interest
therein, outside the ordinary course of business.

     (g) First Priority Security Interest. This Agreement creates a valid and perfected
first priority security interest in the Collateral, securing the payment of the Obligations,
and all filings and other actions necessary or desirable to perfect and protect such
security interest have been duly taken. No certificate or other instrument has been issued
at any time to evidence any Securities included in the Collateral that has not been
delivered to Lender pursuant to Section 3(s)(i) of this Agreement;

6

 

     (h) Chief Executive Office; Identification Number. Borrower’s chief executive office
and principal place of business is located at the address set forth under its signature
below. Borrower’s federal employer identification number is correctly set forth under its
signature below.

     (i) Changes in Name or Location. Borrower will not change its name without prior
written notice to Lender. Borrower will not change its chief executive office, principal
business address or jurisdiction of organization without prior written notice to Lender.

     (j) Fixtures; Real Property. Borrower will not permit any tangible Collateral to
become part of or to be affixed to any real property without first assuring to the
reasonable satisfaction of Lender that the Security Interest will be prior and senior to any
Lien then held or thereafter acquired by any mortgagee of such real property or the owner or
purchaser of any interest therein. Borrower does not own any interest in any real property
except as previously disclosed in writing to Lender.

     (k) Accounts. The amount represented by Borrower to Lender from time to time as owing
by each Account debtor or by all Account debtors in respect of the Accounts will at such
time be the correct amount actually owing by such Account debtor or debtors thereunder. No
amount payable to Borrower under or in connection with any Account is evidenced by any
Instrument or Chattel Paper which has not been delivered to Lender.

     (l) Rights to Payment. Each right to payment and each instrument, document, chattel
paper and other agreement constituting or evidencing Collateral is (or will be when arising,
issued or assigned to Lender) the valid, genuine and legally enforceable obligation, subject
to no defense, setoff or counterclaim (other than those arising in the ordinary course of
business), of the account debtor or other obligor named therein or in Borrower’s records
pertaining thereto as being obligated to pay such obligation. Other than in the ordinary
course of business, Borrower will neither agree to any material modification or amendment
nor agree to any forbearance, release or cancellation of any such obligation, and will not
subordinate any such right to payment to claims of other creditors of such account debtor or
other obligor.

     (m) Farm Products, Fixtures, As-extracted Collateral. None of the Collateral
constitutes, or is the Proceeds of, Farm Products, Fixtures or As-extracted Collateral.

     (n) Patents and Trademarks. Schedule I hereto includes all Patents and Patent Licenses
owned by Borrower in its own name as of the date hereof. Schedule II hereto includes all
Trademarks and Trademark Licenses owned by Borrower in its own name as of the date hereof.
To the best of Borrower’s knowledge, each Patent and Trademark is valid, subsisting,
unexpired, enforceable and has not been abandoned. Except as set forth in either such
Schedule, none of such Patents and Trademarks is the subject of any licensing or franchise
agreement. No holding, decision or judgment has been rendered by any governmental authority
which would limit, cancel or question the validity of any Patent or Trademark. No action
or proceeding is pending (i) seeking to limit, cancel or question the validity of any Patent
or Trademark, or (ii) which, if adversely determined, would have material adverse effect on
the value of any Patent or Trademark.

7

 

     (o) Vehicles. Schedule III is a complete and correct list of all Vehicles owned by
Borrower.

     (p) Governmental Obligors. None of the obligors on any Accounts, and none of the
parties to any agreements with Borrower constituting Collateral, is a governmental
authority.

     (q) Miscellaneous Covenants. Borrower will:

     (i) keep all tangible Collateral in good repair, working order and condition,
normal wear and tear and depreciation excepted, and will, from time to time, replace
any worn, broken or defective parts thereof;

     (ii) file all income tax returns and all other material tax returns which are
required to be filed by it with Governmental Authorities, and will pay all material
taxes, assessments, claims, governmental charges or levies imposed on it or its
properties by any Governmental Authority, except for taxes contested in good faith as
to which adequate reserves have been provided in accordance with GAAP;

     (iii) permit representatives of Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of Borrower with
officers and employees of Borrower during regular business hours and with its
independent certified public accountants; provided that so long as no Default or
Event of Default has occurred, any visits or inspections in excess of once per
Quarter shall be at Lender’s expense;

     (iv) keep accurate and complete records pertaining to the Collateral and
pertaining to Borrower’s business and financial condition and submit to Lender such
periodic reports concerning the Collateral and Borrower’s business and financial
condition as Lender may from time to time reasonably request;

     (v) promptly notify Lender of any loss of or material damage to any Collateral
or of any adverse change, known to Borrower, in the prospect of payment of any
material sums due on or under any Instrument, Chattel Paper, or Account constituting
Collateral;

     (vi) promptly deliver to Lender any Instrument, Document or Chattel Paper
constituting Collateral, duly endorsed or assigned by Borrower;

     (vii) maintain with financially sound and reputable companies, insurance
policies (i) insuring all tangible Collateral against loss by fire, explosion, theft
and such other casualties as may be reasonably satisfactory to Lender and (ii)
insuring Borrower and Lender against liability for personal injury and property
damage relating to such tangible Collateral, such policies to be in such form and
amounts and having such coverage as may be reasonably satisfactory to Lender, with
losses payable to Borrower and Lender as their respective interests may appear. All
such insurance shall (i) contain a breach of warranty clause in favor of Lender, (ii)
provide that no cancellation, material reduction in amount or material change in
coverage

8

 

thereof shall be effective until at least thirty (30) days after receipt by
Lender of written notice thereof, (iii) name Lender as an insured and (iv) be
reasonably satisfactory in all other respects to Lender.

     (viii) from time to time execute such financing statements as Lender may
reasonably require in order to perfect the Security Interest and, if any Collateral
consists of a Vehicle, execute such documents as may be required to have the Security
Interest properly noted on a certificate of title;

     (ix) pay, discharge or otherwise satisfy at or before maturity, or before they
become delinquent, as the case may be, all payment obligations of whatever nature
under any Contractual Obligations, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of Borrower
or its Subsidiaries, as the case may be, or where the failure to satisfy such payment
obligations could not reasonably be expected to have a Material Adverse Effect;

     (x) execute, deliver or endorse any and all instruments, documents, assignments,
security agreements and other agreements and writings, at the sole expense of
Borrower, which Lender may at any time reasonably request in order to secure,
protect, perfect or enforce the Security Interest and Lender’s rights under this
Agreement;

     (xi) not use or keep any Collateral, or permit it to be used or kept, for any
unlawful purpose or in violation of any material federal, state or local law, statute
or ordinance;

     (xii) Other than in the ordinary course of business as generally conducted by
Borrower over a period of time, Borrower will not grant any extension of the time of
payment of any of the Accounts, compromise, compound or settle the same for less than
the full amount thereof, release, wholly or partially, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon; and

     (xiii) not exercise any right or take any action with respect to the Collateral
that would materially, adversely affect Lender’s rights in the Collateral, or impose
any restrictions upon the sale, transfer or disposition thereof, other than in the
ordinary course of Borrower’s business.

     (r) Deposit Accounts. If Borrower maintains any Deposit Account at any depository
bank, Borrower shall promptly notify Lender thereof and, upon Lender’s request, cause the
depository bank to comply at any time with instructions of Lender directing the direction of
funds credited to such deposit account without further consent of Borrower, pursuant to a
control agreement in form and substance satisfactory to Lender in Lender’s sole discretion.
Borrower shall cause Bank to enter into an Account Control Agreement in form and substance
satisfactory to Lender in Lender’s sole discretion relating to the Quarterly Cash Reserve
Account and each other deposit account and securities account of the Borrower as soon as
possible and in no event later than ninety (90) days from the dater hereof.

9

 

     (s) Investment Property.

     (i) Certificated Securities. If Borrower shall now or hereafter at any
time hold or acquire any certificated Securities, Borrower shall forthwith endorse,
assign and deliver the same to Lender, accompanied by such instruments of transfer of
assignment duly executed in blank as Lender may from time to time specify.

     (ii) Uncertificated Securities; Financial Assets. If any Securities now
or hereafter acquired by Borrower are uncertificated and are issued to Borrower or
its nominee directly by the issuer thereof, Borrower shall immediately notify Lender
thereof and, at Lender’s request and option, pursuant to an agreement in form and
substance satisfactory to Lender, cause the issuer to agree to comply with
instructions from Lender as to such Securities, without further consent of Borrower
or such nominee. If any Securities, whether certificated or uncertificated,
Financial Assets or other Investment Property now or hereafter acquired by Borrower
are held by Borrower or its nominee through a securities intermediary or commodity
intermediary, Borrower shall immediately notify Lender thereof and, at Lender’s
request and option, pursuant to a control agreement in form and substance
satisfactory to Lender, cause such securities intermediary or (as the case may be)
commodity intermediary to agree to comply with entitlement orders or other
instructions from Lender to such securities intermediary as to such Securities,
Financial Assets or other Investment Property (including securities entitlements), or
(as the case may be) to apply any value distributed on account of any commodity
contract as directed by Lender to such commodity intermediary, in each case without
further consent of Borrower or such nominee.

     (t) Collateral in the Possession of a Bailee. If any Goods of material value are at
any time in the possession of a bailee, Borrower shall promptly notify Lender thereof and,
if reasonably requested by Lender, shall promptly obtain an acknowledgement from the bailee,
in form and substance satisfactory to Lender, that the bailee holds such Collateral for the
benefit of Lender and shall act upon the instructions of Lender, without the further consent
of Borrower.

     (u) Electronic Chattel Paper and Transferable Records. If Borrower at any time holds
or acquires an interest in any electronic chattel paper or any “transferable record,” as
that term is defined in Section 201 of the Electronic Signatures in Global and National
Commerce Act, or in §16 of the Uniform Electronic Transactions Act as in effect in any
relevant jurisdiction, Borrower shall promptly notify Lender thereof and, at the request of
Lender , shall take such action as Lender may reasonably request to vest in Lender control
under UCC §9-105 of such electronic chattel paper or control under Section 201 of the
Electronic Signatures in Global and National Commerce Act or, as the case may be, §16 of the
Uniform Electronics Transactions Act, as so in effect in such jurisdiction, of such
transferable record.

     (v) Letter-of-Credit Rights. If Borrower is at any time a beneficiary under a Letter
of Credit now or hereafter issued in favor of Borrower, Borrower shall promptly notify
Lender thereof and, at the request and option of Lender, Borrower shall, pursuant to an
agreement in form and substance satisfactory to Lender, arrange for the issuer and any

10

 

confirmer of such Letter of Credit to consent to an assignment to Lender of the
proceeds of any drawing under the Letter of Credit.

     (w) Patents and Trademarks.

     (i) Borrower (either itself or through licensees) will, except with respect to
any Trademark that Borrower shall reasonably determine is of negligible economic
value to it, (i) continue to use each Trademark on each and every trademark class of
goods applicable to its current line as reflected in its current catalogs, brochures
and price lists in order to maintain such Trademark in full force free from any claim
of abandonment for non-use, (ii) maintain as in the past the quality of products and
services offered under such Trademark, (iii) employ such Trademark with the
appropriate notice of registration, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless Lender shall
obtain a perfected security interest in such mark pursuant to this Agreement, and (v)
not (and not permit any licensee or sublicensee thereof to) do any act or knowingly
omit to do any act whereby any Trademark may become invalidated.

     (ii) Borrower will not, except with respect to any Patent that Borrower shall
reasonably determine is of negligible economic value to it, do any act, or omit to do
any act, whereby any Patent may become abandoned or dedicated.

     (iii) Borrower will notify Lender immediately if it knows, or has reason to
know, that any application or registration relating to any Patent or Trademark may
become abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office or
any court or tribunal in any country) regarding Borrower’s ownership of any Patent or
Trademark or its right to register the same or to keep and maintain the same.

     (iv) Whenever Borrower, either by itself or through any agent, employee,
licensee or designee, shall file an application for the registration of any Patent or
Trademark with the United States Patent and Trademark Office or any similar office or
agency in any other country or any political subdivision thereof, Borrower shall
report such filing to Lender within five (5) Business Days after the last day of the
fiscal quarter in which such filing occurs. Upon request of Lender, Borrower shall
execute and deliver any and all agreements, instruments, documents, and papers as
Lender may request to evidence Lender’s security interest in any Patent or Trademark
and the goodwill and general intangibles of Borrower relating thereto or represented
thereby, and Borrower hereby constitutes Lender its attorney-in-fact to execute and
file all such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed; such power being coupled with an interest is
irrevocable until the Obligations are paid in full.

     (v) Borrower will take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark Office,
or any similar office or agency in any other country or any political subdivision
thereof, to maintain and pursue each application (and to obtain the

11

 

relevant registration) and to maintain each registration of the Patents and
Trademarks, including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.

     (vi) In the event that any Patent or Trademark included in the Collateral is
infringed, misappropriated or diluted by a third party, Borrower shall promptly
notify Lender after it learns thereof and shall, unless Borrower shall reasonably
determine that such Patent or Trademark is of negligible economic value to Borrower,
promptly sue for infringement, misappropriation or dilution, to seek injunctive
relief where appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as Borrower shall reasonably
deem appropriate under the circumstances to protect such Patent or Trademark.

     (x) Commercial Tort Claims. If Borrower shall at any time hold or acquire a commercial
tort claim, Borrower shall immediately notify Lender in writing signed by Borrower of the
details thereof and grant to Lender in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and
substance satisfactory to Lender.

     (y) Lender’s Right to Take Action. Borrower authorizes Lender to file such financing
statements and continuation statements without the signature of Borrower as Lender deems
reasonably necessary to perfect (or continue the perfection of) the Security Interest in the
Collateral. Borrower hereby ratifies its authorization for Lender to have filed any
financing or continuation statements or amendments thereto if such have been filed prior to
the date hereof. Further, if Borrower at any time fails to perform or observe any agreement
contained in Section 3(f), and if such failure continues for a period of ten (10) Business
Days after Lender gives Borrower written notice thereof, Lender may (but need not) perform
or observe such agreement on behalf and in the name, place and stead of Borrower (or, at
Lender’s option, in Lender’s own name) and may (but need not) take any and all other actions
which Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of security interests, liens, or
encumbrances, the performance of obligations under contracts or agreements with account
debtors or other obligors, the procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and the procurement of repairs or
transportation); and, except to the extent that the effect of such payment would be to
render any loan or forbearance of money usurious or otherwise illegal under any applicable
law, Borrower shall thereupon pay Lender on demand the amount of all moneys expended and all
costs and expenses (including reasonable attorneys’ fees) incurred by Lender in connection
with or as a result of Lender’s performing or observing such agreements or taking such
actions, together with interest thereon from the date expended or incurred by Lender at the
highest rate then applicable to any of the Obligations.

     (z) Power of Attorney. Borrower hereby irrevocably appoints (which appointment is
coupled with an interest) Lender, or its delegate, as the attorney-in-fact of Borrower with
the right (but not the duty) from time to time, following the occurrence and during the
continuance of an Event of Default, to: (a) create, prepare, complete, execute, deliver,
endorse or file, in the name and on behalf of Borrower, any and all instruments, documents,
financing statements, applications for insurance and other agreements and writings required
to be obtained, executed, delivered or endorsed by Borrower under this Section 3; (b) to

12

 

convert the Collateral into cash, including, without limitation, the sale (either
public or private) of all or any portion or portions of the Collateral; (c) to enforce
collection of the Collateral, either in its own name or in the name of Borrower, including,
without limitation, executing releases, compromising or settling with any Account debtors
and prosecuting, defending, compromising or releasing any action relating to the Collateral;
(d) to receive, open and dispose of all mail addressed to Borrower and to take therefrom any
remittances or proceeds of Collateral in which Lender has a security interest; (e) to notify
post office authorities to change the address for delivery of mail addressed to Borrower to
such address as Lender shall designate; (f) to endorse the name of Borrower in favor of
Lender upon any and all checks, drafts, money orders, notes, acceptances or other
instruments of the same or different nature; (g) to sign and endorse the name of Borrower on
and to receive as secured party any of the Collateral, any invoices, schedules of
Collateral, freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title of the same or different nature relating to the
Collateral; (h) to sign the name of Borrower on any notice to the Account debtors or on
verification of the Collateral; and (i) to sign and file or record on behalf of Borrower any
financing or other statement in order to perfect or protect Lender’s security interest.
Lender shall not be obliged to do any of the acts or exercise any of the powers hereinabove
authorized, but if Lender elects to do any such act or exercise any such power, it shall not
be accountable for more than it actually receives as a result of such exercise of power, and
it shall not be responsible to Borrower except for willful misconduct in bad faith. All
powers conferred upon Lender by this Agreement, being coupled with an interest, shall be
irrevocable so long as any Obligation of Borrower to Lender shall remain unpaid.

     4. Assignment of Insurance. Borrower hereby assigns to Lender, as additional security
for the payment of the Obligations, any and all moneys (including but not limited to proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all other rights of
Borrower under or with respect to, any and all policies of insurance covering the Collateral, and
Borrower hereby directs the issuer of any such policy to pay any such moneys directly to Lender,
following the occurrence and during the continuance of an Event of Default. After the occurrence
of an Event of Default, Lender may (but need not), in its own name or in Borrower’s name, execute
and deliver proofs of claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release any claim against
the issuer of any such policy.

     5. Events of Default. Each of the following occurrences shall constitute an event of
default under this Agreement (herein called “Event of Default”): (i) an Event of Default
shall occur under (and as defined in) the Credit Agreement; or (ii) Borrower shall fail to observe
or perform any covenant or agreement herein binding on it and such failure is not cured within
eight (8) Business Days after notice thereof is given to Borrower.

     6. Remedies upon Event of Default. Upon the occurrence and during the continuance of
an Event of Default, Lender may exercise any one or more of the following rights and remedies: (i)
declare all unmatured Obligations to be immediately due and payable, and the same shall thereupon
be immediately due and payable, without presentment or other notice or demand; (ii) exercise and
enforce any or all rights and remedies available upon default to a secured party under the UCC,
including but not limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice thereof, which Borrower

13

 

hereby expressly waives), and the right to sell, lease or otherwise dispose of any or all of
the Collateral, and in connection therewith, Lender may require Borrower to make the Collateral
available to Lender at a place to be designated by Lender which is reasonably convenient to both
parties, and if notice to Borrower of any intended disposition of Collateral or any other intended
action is required by law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 10 at least ten (10) days prior to the date
of intended disposition or other action; and (iii) exercise or enforce any or all other rights or
remedies available to Lender by law or agreement against the Collateral, against Borrower or
against any other Person or property. Subject to the occurrence, and only during the continuance
of an Event of Default, Lender is hereby granted a nonexclusive, worldwide and royalty-free license
to use or otherwise exploit all intellectual property owned by or licensed to Borrower that Lender
deems necessary or appropriate to the disposition of any Collateral.

     7. Other Personal Property. Unless, at the time Lender takes possession of any
tangible Collateral, or within seven (7) days thereafter, Borrower gives written notice to Lender
of the existence of any goods, papers or other property of Borrower, not affixed to or constituting
apart of such Collateral, but which are located or found upon or within such Collateral, describing
such property, Lender shall not be responsible or liable to Borrower for any action taken or
omitted by or on behalf of Lender with respect to such property.

     8. Security Interest Absolute. All rights of Lender hereunder, the grant of a
security interest in the Collateral and all obligations of Borrower hereunder, shall be absolute
and unconditional irrespective of (i) any lack of validity or enforceability of the Credit
Agreement, any of the other Facility Documents, the Loan, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the foregoing, (ii) any change
in time, manner or place of payment of, or in any other term of, all or any of the Obligations, or
any other amendment or waiver of or any consent to any departure from the Credit Agreement, other
Facility Documents or any other agreement or instrument, (iii) any exchange, release or
non-perfection of any other collateral, or any release or amendment or waiver of or consent to or
departure from any guarantee, for all or any of the Obligations, or (iv) any other circumstance
which might otherwise constitute a defense available to (other than the defense of indefeasible
payment), or a discharge of, Borrower in respect of the Obligations or in respect of this
Agreement.

     9. Continuing Security Interest. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until the indefeasable
payment in full of the Obligations and all other amounts payable under this Agreement. Upon the
indefeasable payment in full of the Obligations and all other amounts payable under this Agreement,
the Security Interest granted in this Agreement shall terminate and all rights to the Collateral
shall revert to Borrower. Upon any such termination, Lender shall (i) return to Borrower such of
the Collateral as shall not have been sold or otherwise applied pursuant to the terms of this
Agreement, and (ii) execute and deliver to Borrower such documents as Borrower shall reasonably
request to evidence such termination.

     10. Notice. All notices and other communications hereunder shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by facsimile, in each case addressed
or telecopied to the party to whom notice is being given at its address or telecopier number as set
forth below its signature or, as to each party, at such other address or facsimile number as may
hereafter be designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section.

14

 

     All such notices, requests, demands and other communications shall be deemed to have been
given on (i) the date received if personally delivered, (ii) five (5) days after being deposited in
the mail if delivered by mail, (iii) the date received if sent by overnight courier, or (iv) the
date of receipt if delivered by facsimile.

     11. Miscellaneous. This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly in a writing signed by
Lender, and, in the case of amendment or modification, in a writing signed by both parties. A
waiver signed by Lender shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any
of Lender’s rights or remedies. All rights and remedies of Lender shall be cumulative and may be
exercised singularly or concurrently, at Lender’s option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any
other. Lender’s duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if Lender exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a bailee or other third
Person, exercises reasonable care in the selection of the bailee or other third Person, and Lender
need not otherwise preserve, protect, insure or care for any Collateral. Lender shall not be
obligated to preserve any rights Borrower may have against prior parties, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral
in any particular order of application. This Agreement shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns and shall take effect
when signed by Borrower and delivered to Lender, and Borrower waives notice of Lender’s acceptance
hereof. A carbon, photographic or other reproduction of this Agreement or of any financing
statement signed by Borrower shall have the same force and effect as the original for all purposes
of a financing statement. This Agreement shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of New York, except to the extent that the
validity or perfection of the Security Interest hereunder, or remedies hereunder, in respect of any
particular Collateral are governed by the laws of a jurisdiction other than the State of New York.
If any provision or application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or applications which can be
given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All representations and
warranties contained in this Agreement shall survive the execution, delivery and performance of
this Agreement and the creation and payment of the Obligations. Borrower hereby submits to the
non-exclusive jurisdiction of the courts of the State of New York sitting in New York City and the
United States District Court for the Southern District of New York with respect to all suits and
actions arising under or out of this Agreement and hereby waives any objection to the venue of any
such court with respect to any such suit or action and any claim that any such suit or action
brought in such court has been brought in an inconvenient forum.

     THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS AGREEMENT.

[SIGNATURE PAGE FOLLOWS]

15

 

     IN WITNESS WHEREOF, Borrower has executed this Agreement as of the date and year first above
written.

	 	 	 	 	 	 	 
	 	 	MBI FINANCIAL INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	1845 WOODALL RODGERS FRWY	 	 
	 	 	SUITE 1225	 	 
	 	 	DALLAS TX 75201	 	 
	 	 	Tel: (214) 468-0000	 	 

ACCEPTED AND AGREED TO:

OLD MASTER GIOTTO FUND LIMITED

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 

	 	c/o Maricorp Services Ltd.,	 	 
	 

	 	4th Floor, West Wind Building	 	 
	 

	 	70 Harbour Drive	 	 
	 

	 	PO Box 2075GT	 	 
	 

	 	George Town, Grand Cayman	 	 
	 

	 	Cayman Islands, British West Indies	 	 
	 
	 	 	 	 
	 

	 	with a copy to each of:	 	 
	 
	 	 	 	 
	 

	 	Old Master Capital, LLC	 	 
	 

	 	152 West 57th Street 6th Floor	 	 
	 

	 	New York, New York 10038	 	 
	 

	 	Fax: (212) 974-0404	 	 
	 

	 	Attn: Matt Kishlansky	 	 
	 
	 	 	 	 
	 

	 	Katten Muchin Rosenman LLP	 	 
	 

	 	575 Madison Avenue	 	 
	 

	 	New York, New York 10025	 	 
	 

	 	Fax: (212) 940-8876	 	 
	 

	 	Attn: Jack P. Governale, Esq.	 	 
	 

	 	          Marilyn S. Okoshi, Esq.	 	 

16

 

	 	 	 	 	 
	STATE OF
	 	 	 	 
	COUNTY OF

	 	 

	 	 
	 

	 	 	 	 

     On ___, 200[ ], before me, the undersigned, personally appeared                     ,
personally known to me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that he/she executed the
same, and that by his/her signature on the instrument the person executed the instrument.

WITNESS my hand and official seal.

	 	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Notary Public
	 	[Affix Seal]	 	 
	 
	 	 	 	 	 	 
	 

	 	My Commission Expires: 	 	 	 	 
	 

	 	 	 	 

	 	 

17

 

Schedule I

Patents and Patent Licenses

[None]

18

 

Schedule II

Trademarks and Trademarks Licenses

[None]

19

 

Schedule III

Vehicles

[None]

20exv10w3

 

Exhibit 10.3

EXECUTION COPY

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNLESS SUCH SALE OR DISPOSITION IS
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

Warrant No. 1

Date of Issuance: December 27, 2006

MBI FINANCIAL INC.

Warrant to Purchase Shares of Common Stock

MBI FINANCIAL INC, a Nevada corporation (the “Company”), for value received, hereby
certifies that Old Master Cimabue Holdings, Limited, or its registered assigns (the “Registered
Holder”), is entitled, subject to the terms set forth below, to purchase from the Company at
any time on or before December 27, 2013 (the “Expiration Date”) up to 1,720,595 shares of
common stock of the Company (the “Shares”), subject to adjustment as provided herein (the
“Initial Warrant Amount”), at a purchase price of $0.27 per Share. For purposes hereof,
the term “registered assigns” shall mean, with respect to Old Master Cimabue Holdings Limited,
those entities that are affiliates of the Registered Holder (including without limitation, any
investment fund managed by the Registered Holder’s investment manager, and any investor in any such
investment fund). The Shares, and the purchase price per Share, each as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the “Warrant
Shares” and the “Exercise Price,” respectively.

This Warrant is issued to the Registered Holder pursuant to a credit agreement (the “Credit
Agreement”) dated as of December 27, 2006 between the Company and the Registered Holder. All
capitalized terms used but not defined in this Warrant shall have the respective meanings given to
them in the Credit Agreement.

     1. Exercise.

          (a) This Warrant may be exercised by the Registered Holder, at any time on or prior to the
Expiration Date, in whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder’s
duly authorized attorney, at the principal office of the Company, or at such other office or agency
as the Company may designate, accompanied by payment in full by cash, check or wire transfer of the
Exercise Price payable in respect of the number of Warrant Shares purchased upon such exercise.

          (b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to
the close of business on the day on which this Warrant shall have been surrendered to the Company
as provided in Section 1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such

 

 

exercise as provided in Section 1(d) below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.

          (c) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the
Registered Holder may elect to receive Shares equal to the value of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to such Registered
Holder a number of Warrant Shares computed using the following formula:

X =
Y (A - B)

      A

	 	 	 	 	 	 	 
	Where

	 	X
	 	=
	 	The number of Warrant Shares to be issued to the Registered Holder.
	 
	 	 	 	 	 	 
	 

	 	Y
	 	=
	 	The number of Warrant Shares purchasable under this Warrant
or if only a portion of this Warrant is being exercised, the portion of this
Warrant being cancelled (at the date of such calculation).
	 
	 	 	 	 	 	 
	 

	 	A
	 	=
	 	The fair market value of one Warrant Share (at the date of
such calculation).
	 
	 	 	 	 	 	 
	 

	 	B
	 	=
	 	The Exercise Price (as adjusted to the date of such
calculation).

          For purposes of this Section 1(c), the fair market value of Warrant Shares on the date of
calculation shall mean with respect to each Warrant Share, the average of the last traded price of
the Shares on the ten (10) business days prior to exercise, or if no such price is available, the
fair market value of Warrant Shares shall be at the highest price per Share which the Company could
obtain on the date of calculation from a willing buyer (not a current employee, manager or director
of the Company) for Shares sold by the Company, from authorized but unissued Shares, as determined
in good faith by the Board of Directors (or other body exercising similar functions), unless the
Company is at such time subject to a merger, acquisition or sale of all or substantially all of the
assets of the Company, in which case the fair market value of Warrant Shares shall not be less than
the value determined in connection with such merger, acquisition or sale.

          (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense will cause to be issued in the
name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct:

               (i) a certificate or certificates for the number of Warrant Shares to which such Registered
Holder shall be entitled or evidence that such number of Warrant Shares have been credited to a
brokerage account in the name of the Registered Holder, and

               (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof)
of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant
Shares equal (without giving effect to any adjustment therein) to the number of such Shares called
for on the face of this Warrant minus the number of such Shares purchased by the Registered Holder
upon such exercise as provided in Section 1(a) above.

-2-

 

     2. Adjustments.

          (a) If outstanding Shares shall be subdivided into a greater number of Shares or a dividend in
Shares shall be paid in respect of outstanding Shares, the Exercise Price in effect immediately
prior to such subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding Shares shall be combined into a smaller number of Shares,
the Exercise Price in effect immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any adjustment is required
to be made in the Exercise Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount equal to the
number of Shares issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Exercise Price in effect immediately prior to such adjustment, by (ii) the
Exercise Price in effect immediately after such adjustment.

          (b) In case of any reclassification or change of the outstanding securities of the Company or
of any reorganization of the Company or any similar company reorganization on or after the date
hereof, then and in each such case the holder of this Warrant, upon the exercise hereof at any time
after the consummation of such reclassification, change or reorganization, shall be entitled to
receive, in lieu of the Shares or other securities and property receivable upon the exercise hereof
prior to such consummation, the stock or other securities or property to which such holder would
have been entitled upon such consummation if such holder had exercised this Warrant immediately
prior thereto, all subject to further adjustment as provided in this Section 2; and in each such
case, the terms of this Section 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.

          (c) If at any time while this Warrant, or any portion hereof, is outstanding and unexpired
there shall be (i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another company or other entity in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the Shares outstanding
immediately prior to the merger are converted by virtue of the merger into other property, whether
in the form of securities, cash, or otherwise, or (iii) a sale or transfer of the Company’s
properties and assets as, or substantially as, an entirety to any other person or entity, then, as
a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be
made so that the holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the Exercise Price then in
effect, the number of shares of stock or other securities or property of the successor company or
entity resulting from such reorganization, merger, consolidation, sale or transfer that a holder of
Shares deliverable upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 2. The foregoing provisions of this Section 2(c)
shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers
and to the stock or securities of any other company or entity that are at the time receivable upon
the exercise of this Warrant. If the per-Share consideration payable to the Registered Holder for
Shares in connection with any such transaction is in a form other than cash

-3-

 

or marketable securities, then the value of such consideration shall be determined in good
faith by the Company’s Board of Directors (or other body exercising similar functions), as
applicable. In all events, appropriate adjustment (as determined in good faith by the Company’s
Board of Directors (or other body exercising similar functions), as applicable) shall be made in
the application of the provisions of this Warrant with respect to the rights and interests of the
Registered Holder after the transaction, to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.

          (d) If the Company (A) issues or sells any Shares or convertible securities, warrants, options
or other rights to subscribe for or to purchase or exchange for, Shares (“Convertible Securities”),
or (B) directly or indirectly effectively reduces the conversion, exercise or exchange price for
any Convertible Securities which are then outstanding, at or to an effective Per Share Selling
Price (as defined below) which is less than the then current Exercise Price, then in each such case
the Exercise Price in effect immediately prior to such issue or sale or record date, as applicable,
shall be automatically reduced effective concurrently with such issue or sale to an amount
determined by multiplying the Exercise Price then in effect by a fraction, (x) the numerator of
which shall be the sum of (1) the number of Shares outstanding immediately prior to such issue or
sale, plus (2) the number of Shares which the aggregate consideration received by the Company for
such additional Shares or Convertible Securities would purchase at such Exercise Price and (y) the
denominator of which shall be the number of Shares outstanding immediately after such issue or
sale; provided, however that no such fraction shall in any event be greater than one (1). For the
purposes of the foregoing adjustments, in the case of the issuance of any Convertible Securities,
the maximum number of Shares issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further adjustment shall be made
upon the actual issuance of Shares upon exercise, exchange or conversion of such Convertible
Securities, and provided further that to the extent such Convertible Securities expire or terminate
unconverted or unexercised, then at such time the Exercise Price shall be readjusted as if such
portion of such Convertible Securities had not been issued. “Per Share Selling Price” shall
include the amount actually paid by third parties for each Share in a sale or issuance by the
Company. In the event a fee is paid by the Company in connection with such transaction directly or
indirectly to such third party or its affiliates, any such fee shall be deducted from the selling
price pro rata to all Shares sold in the transaction to arrive at the Per Share Selling Price. A
sale of Shares shall include the sale or issuance of Convertible Securities, and in such
circumstances the Per Share Selling Price of the Shares covered thereby shall also include the
exercise, exchange or conversion price thereof (in addition to the consideration received by the
Company upon such sale or issuance less the fee amount as provided above). In case of any such
security issued in a transaction in which the purchase price or the conversion, exchange or
exercise price is directly or indirectly subject to adjustment or reset based on a future date or
specified or contingent events directly or indirectly related to the business of the Company or
otherwise (but excluding standard stock split anti-dilution provisions), the Per Share Selling
Price shall be deemed to be the lowest conversion, exchange, exercise or reset price at which such
securities are converted, exchanged, exercised or rest or might have been converted, exchanged,
exercised or reset, or the lowest adjustment, as the case may be, over the life of such securities.
If Shares are issued for a consideration other than cash, the Per Share Selling Price shall be the
fair value of such consideration as determined in good faith by independent certified public
accountants mutually acceptable to the Company and the

-4-

 

Registered Holder. In the event the Company directly or indirectly effectively reduces the
conversion, exercise or exchange price for any Convertible Securities which are then outstanding,
then the Per Share Selling Price shall equal such effectively reduced conversion, exercise or
exchange price.

          (d) When any adjustment or readjustment is required to be made in the Exercise Price or in the
kind and amount of stock or other securities or property into which this Warrant is exercisable,
the Company shall promptly mail to the Registered Holder a certificate setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock or other securities
or property into which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a), (b), (c) or (d) above.

     3. Default Warrant Share Increase.

          (a) If a Default (as defined in the Credit Agreement) occurs under the Credit Agreement, and
such Default is cured during the applicable grace period by the Borrower, then the number of
Warrant Shares represented by this Warrant shall automatically be increased to 3,624,708 shares,
which number of Shares shall be subject to adjustment as set forth in Section 2 hereof (the
“New Warrant Amount”), and the Exercise Price shall be equal to (a) the original exercise
price multiplied by (b) the quotient of the Initial Warrant Amount divided by the New Warrant
Amount.

          (b) If a Default (as defined in the Credit Agreement) occurs under the Credit Agreement, and
such Default is not cured by the Borrower during the applicable grace period, if any, then the
number of Warrant Shares represented by this Warrant shall automatically be increased to 32,691,313
Shares, which number of Shares shall be subject to adjustment as set forth in Section 2 hereof (the
“Default Warrant Amount”), and the Exercise Price shall be equal to (a) the Exercise Price
in effect prior to the occurrence of such Event of Default, multiplied by (b) the quotient of the
Initial Warrant Amount (or New Warrant Amount, as applicable) divided by the Default Warrant
Amount.

     4. Transfers.

          (a) Each holder of this Warrant acknowledges that this Warrant, the Warrant Shares have not
been registered under the Securities Act of 1933, as amended (the “Securities Act”), and
agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Warrant Shares issued upon its exercise except pursuant to (i) an effective
registration statement under the Securities Act as to this Warrant or such Warrant Shares and
registration or qualification of this Warrant or such Warrant Shares under applicable Blue Sky or
state securities law then in effect or (ii) an exemption from such registration and qualification.
Each certificate or other instrument for Warrant Shares issued upon the exercise of this Warrant
shall bear a legend substantially to the foregoing effect.

          (b) Subject to the provisions of Section 4(a) hereof, this Warrant and all rights hereunder
are transferable, in whole or in part, upon surrender of the Warrant with a properly

-5-

 

executed assignment (in the form of Exhibit B hereto) at the principal office of the
Company; provided that at no time will the number of Holders exceed four (4).

          (c) Until any transfer of this Warrant is made in the Company’s warrant register, the Company
may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes;
provided, however, that if and when this Warrant is properly assigned in blank, the
Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the contrary.

          (d) The Company will maintain a register containing the names and addresses of the Registered
Holders of this Warrant. Any Registered Holder may change such Registered Holder’s address as
shown on the warrant register by written notice to the Company requesting such change.

     5. No Impairment. The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of the holder of this
Warrant against impairment.

     6. Liquidating Dividends. If the Company pays a dividend or makes a distribution on
the Warrant Shares payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles) except for a dividend payable in Warrant
Shares ( a “Liquidating Dividend”), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the Warrant Shares
purchased upon such exercise, the Liquidating Dividend which would have been paid to such
Registered Holder if such Holder had been the owner of record of such Warrant Shares immediately
prior to the date on which a record was taken for such Liquidating Dividend or, if no record was
taken, the date as of which the record holders of Warrant Shares entitled to such dividends or
distribution were determined.

     7. Notices of Certain Transactions. In case:

          (a) the Company shall take a record of the holders of its Shares (or other stock or securities
at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling
them to receive any dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive any other right,
to subscribe for or purchase any shares of stock of any class or any other securities, or to
receive any other right, or

          (b) of any capital reorganization of the Company, any reclassification of the capital stock of
the Company, or any merger (other than a consolidation or merger in which the Company is the
surviving entity), or any transfer of all or substantially all of the assets of the Company, or

          (c) any tender offer for all or part of its outstanding Shares, or

-6-

 

          (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, or

          (e) of any redemption of the Shares or mandatory conversion of the Shares into other
securities of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder
of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, offering, dissolution, liquidation, winding-up,
redemption or conversion is to take place, and the time, if any is to be fixed, as of which the
holders of record of Shares (or such other stock or securities at the time deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, offering, dissolution,
liquidation, winding-up, redemption or conversion). Such notice shall be mailed at least ten (10)
days prior to the record date or effective date for the event specified in such notice.

     8. Reservation of Stock. The Company will at all times reserve and keep available,
solely for the issuance and delivery upon the exercise of this Warrant, such number of Shares and
other stock, securities and property, as from time to time shall be issuable upon the exercise of
this Warrant.

     9. Registration Rights. The Company shall, no later than 30 days after the
consummation of the New Financing, file a registration statement with the U.S. Securities and
Exchange Commission covering the Warrant Shares and use all commercially reasonable efforts to
cause such registration statement to become effective within 180 thereafter. In addition, as soon
as practicable after the date hereof, and on issuance of the New Warrants and the Default Warrants,
the Company shall register the additional Warrant Shares into which this Warrant is exercisable
under the Securities Act at no cost to the Registered Holder. The Registered Holder shall not be
required to make any representations or warranties or agree to any lock up or restrictions on sale
with respect to such registration. This registration right shall enure to the benefit of the
Registered Holder and its registered assigns.

     10. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant
or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company
will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such
Holder, at the Company’s expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for
the number of Warrant Shares called for on the face or faces of the Warrant or Warrants so
surrendered.

     11. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss,
theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required)
in an amount reasonably satisfactory to the Company, or (in the case of mutilation)

-7-

 

upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a
new Warrant of like tenor.

     12. Mailing of Notices. Any notice required or permitted pursuant to this Warrant
shall be in writing and shall be deemed sufficient when delivered personally or by overnight
courier or sent out and received by fax or three business days after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, addressed (a) if to the Registered
Holder, to: Old Master Cimabue Holdings, Limited, c/o Maricorp Services Ltd., 4th Floor, West Wind
Building, 70 Harbour Drive, PO Box 2075GT, George Town, Grand Cayman, Cayman Islands, British West
Indies, with a copy to Old Master Capital, LLC, 152 West 57th Street, 6th Floor, New York, New York
10038, Attention: Mr. Matt Kishlansky, Facsimile no.:(212) 974-0404 or to the address or facsimile
number of the Registered Holder most recently furnished in writing to the Company and (b) if to the
Company, to MBI Financial Inc., 1845 Woodall Rodgers Freeway, Suite 1225, Dallas, Texas 75201,
Facsimile no.: (214) 468-0001: attn: Patrick McGeeney, or to the address subsequently modified by
written notice to the Registered Holder.

     13. No Rights as Shareholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as a shareholder of
the Company.

     14. No Fractional Shares. No fractional Warrant Shares will be issued in connection
with any exercise hereunder.

     15. Amendment or Waiver. No term of this Warrant may be amended or waived without the
prior written consent of the Company and the Registered Holder.

     16. Representations of Holder. The Registered Holder hereby represents and warrants
to the Company that: (a) it has had access to and is familiar with information concerning the
Company’s business, affairs, financial condition, and prospects; (b) it is able to fend for itself
in the transactions contemplated by this Warrant and has the ability to bear the economic risks of
its investment; (c) it is acquiring the Warrant for investment and not with a view towards
distribution to the public within the meaning of the Securities Act; and (d) it is an “accredited
investor” within the meaning of Rule 501 under Regulation D promulgated under the Securities Act.

     17. Headings. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this Warrant.

     18. Governing Law. This Warrant shall be governed, construed and interpreted in
accordance with the laws of the State of New York, without giving effect to principles of conflicts
of law.

[signature page follows]

-8-

 

MBI FINANCIAL INC. 

	 	 	 	 	 
	By:

	 	 
	 	 
	 	 	 	 	 
	Name: 
	 	 	 	 
	 	 	 	 	 
	Title:
	 	 	 	 
	 	 	 	 	 

Accepted and Agreed:

Old Master Cimabue Holdings, Limited

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	 	 
	Title:
	 	 	 	 
	 

	 	 	 	 

 

 

EXECUTION COPY

EXHIBIT A

PURCHASE FORM

			
	To: MBI FINANCIAL INC.
	 	Dated:                              

     The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby
irrevocably elects to purchase ___ Warrant Shares covered
by Warrant Number ___ and herewith
makes payment of $___, representing the full purchase price for such shares at the price per
Share provided for in such Warrant.

	 	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

EXECUTION COPY

EXHIBIT B

ASSIGNMENT FORM

     FOR
VALUE RECEIVED, ___ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant with respect to the
number of Warrant Shares covered thereby set forth below, unto:

          Name of Assignee                                                            
 Address                                                            No. of Shares            
                  

	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Signature:	 	 	 	 
	 

	 	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 	 
	 

	 	 
	 	 	 	Witness:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00115-of-00352.parquet"}]]