Document:

Exhibit 10.1

 

PROMISSORY NOTE

 

	
  Principal

  	
   

  	
  Loan
  Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call /
  Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  9,000,000.00

  	
   

  	
  07-01-2008

  	
   

  	
  07-05-2009

  	
   

  	
  281007262

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  CPK

  	
   

  	
   

  
																

 

References in the
boxes above are for Lender’s use only and do not limit the applicability of
this document to any particular loan or item. Any item above containing “***”
has been omitted due to text length limitations.

 

	
  Borrower:

  	
   

  	
  NEW FRONTIER MEDIA, INC.

  	
   

  	
  Lender:

  	
   

  	
  First Community Bank

  
	
   

  	
   

  	
  7007 WINCHESTER CIR, STE 200

  	
   

  	
   

  	
   

  	
  Lakewood Loan Servicing Center

  
	
   

  	
   

  	
  BOULDER, CO 80301

  	
   

  	
   

  	
   

  	
  215 Union Blvd, Suite 150

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Lakewood, CO 80228

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (303) 988-2300

  

 

	
  Principal Amount:
  $9,000,000.00

  	
  Initial Rate:
  5.750%

  	
  Date of Note:
  July 1, 2008

  

 

PROMISE TO PAY. NEW
FRONTIER MEDIA, INC. (“Borrower”) promises to pay to First Community Bank (“Lender”),
or order, in lawful money of the United States of America, the principal amount
of Nine Million & 00/100 Dollars ($9,000,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance
of each advance. Interest shall be calculated from the date of each advance
until repayment of each advance.

 

PAYMENT. Borrower will
pay this loan in one payment of all outstanding principal plus all accrued
unpaid interest on July 5, 2009. In addition, Borrower will pay regular
monthly payments of all accrued unpaid interest due as of each payment date,
beginning August 5, 2008, with all subsequent interest payments to be due
on the same day of each month after that. Unless otherwise agreed or required
by applicable law, payments will be applied first to any accrued unpaid
interest; then to principal; then to any late charges; and  then to any
unpaid collection costs. The annual interest rate for this Note is computed on
a 365/360 basis; that is, by applying the ratio of the annual interest rate
over a year of 360 days, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender’s address shown above or at such other place
as Lender may designate in writing.

 

VARIABLE INTEREST RATE.
The interest rate on this Note is subject to change from time to time based on
changes in an independent index which is the The Prime Rate as quoted in the
Money Section of the Wall Street Journal, when a range of rates is
published the highest rate will be applied (the “Index”). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the Index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notifying Borrower. Lender will tell Borrower the
current Index rate upon Borrower’s request. The interest rate change will not
occur more often than each day. Borrower understands that Lender may make loans
based on other rates as well. The Index currently is 5.000% per annum. The
interest rate to be applied to the unpaid principal balance during this Note
will be at a rate of 0.125 percentage points under the Index, adjusted if
necessary for any minimum and maximum rate limitations described below,
resulting in an initial rate of 5.750% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be less than 5.750% per annum
or more than the maximum rate allowed by applicable law.

 

PREPAYMENT; MINIMUM
INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. In any event, even upon full prepayment of this
Note, Borrower understands that Lender is entitled to a minimum interest charge
of $25.00. Other than Borrower’s obligation to pay any minimum interest charge,
Borrower may pay without penalty all or a portion of the amount owed earlier
than it is due. Early payments will not, unless agreed to by Lender in writing,
relieve Borrower of Borrower’s obligation to continue to make payments of
accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked “paid in full”,
“without recourse”, or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender’s rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or
other payment instrument that indicates that the payment constitutes “payment
in full” of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or
delivered to: First Community Bank, Loan Administration Service Center, P O Box
3017 Albuquerque, NM 87190.

 

LATE CHARGE. If a payment
is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion
of the regularly scheduled payment or $2,500.00, whichever is less.

 

INTEREST AFTER DEFAULT.
Upon default, including failure to pay upon final maturity, the interest rate
on this Note shall be increased by adding a 3.000 percentage point margin (“Default
Rate Margin”). The Default Rate Margin shall also apply to each succeeding
interest rate change that would have applied had there been no default.
However, in no event will the interest rate exceed the maximum interest rate
limitations under applicable law.

 

DEFAULT. Each of the
following shall constitute an event of default (“Event of Default”) under this
Note: 

 

Payment Default. Borrower
fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to
perform any other term, obligation, covenant or condition contained in this
Note or in any of the related documents or to comply with or to perform any
term, obligation, covenant or condition contained in any other agreement
between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any
Grantor defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower’s property or
Borrower’s ability to repay this Note or perform Borrower’s obligations under
this Note or any of the related documents.

 

False Statements. Any warranty, representation or
statement made or furnished to Lender by Borrower or on Borrower’s behalf under
this Note or the related documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrower’s
existence as a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower’s property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of Borrower or by
any governmental agency against any collateral securing the loan. This includes
a garnishment of any of Borrower’s accounts, including deposit accounts, with
Lender. However, this Event of Default shall not apply if there is a good faith
dispute by Borrower as to the validity or reasonableness of the claim which is
the basis of the creditor or forfeiture proceeding and if Borrower gives Lender
written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, in its sole discretion, as being an adequate
reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding
events occurs with respect to any guarantor, endorser, surety, or accommodation
party of any of the indebtedness or any guarantor, endorser, surety, or
accommodation party dies or becomes incompetent, or revokes or disputes the
validity of, or liability under, any guaranty of the indebtedness evidenced by
this Note.

 

Change In Ownership. Any
change in ownership of twenty-five percent (25%) or more of the common stock of
Borrower.

 

Adverse Change. A
material adverse change occurs in Borrower’s financial condition, or Lender
believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in
good faith believes itself insecure.

 

LENDER’S RIGHTS. Upon
default, Lender may declare the entire unpaid principal balance under this Note
and all accrued unpaid interest immediately due, and then Borrower will pay
that amount.

 

ATTORNEYS’ FEES;
EXPENSES. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower will pay Lender the reasonable costs of such
collection. This includes, subject to any limits under applicable law, Lender’s
attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit,
including without limitation attorneys’ fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), and appeals. If not prohibited by applicable law, Borrower also
will pay any court costs, in addition to all other sums provided by law.

 

GOVERNING LAW. This Note
will be governed by federal law applicable to Lender and, to the extent not
preempted by federal law, the laws of the State of Colorado without regard to
its conflicts of law provisions. This Note has been accepted by Lender in the
State of Colorado.

 

CHOICE OF VENUE. If there
is a lawsuit, Borrower agrees upon Lender’s request to submit to the
jurisdiction of the courts of Jefferson County, State of Colorado.

 

RIGHT OF SETOFF. To the
extent permitted by applicable law, Lender reserves a right of setoff in all
Borrower’s accounts with Lender (whether checking, savings, or some other
account). This includes all accounts Borrower holds jointly with someone else
and all accounts Borrower may open in the future. However, this does not
include any IRA or Keogh accounts, or any trust accounts for which setoff would
be prohibited by

 

 

law.
Borrower authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all sums owing on the indebtedness against any and all such
accounts, and, at Lender’s option, to administratively freeze all such accounts
to allow Lender to protect Lender’s charge and setoff rights provided in this
paragraph.

 

COLLATERAL.
Borrower acknowledges this Note is secured by ALL ACCOUNTS AS MORE COMPLETELY
DESCRIBED IN THE COMMERCIAL SECURITY AGREEMENT OF EVEN DATE HEREWITH TOGETHER
WITH ALL MODIFICATIONS OF, CONSOLIDATIONS OF, ADDITIONS OF, REPLACEMENTS OF AND
SUBSTITUTIONS OF THE COLLATERAL.

 

LINE
OF CREDIT. This Note evidences a revolving line of credit. Advances under this
Note may be requested either orally or in writing by Borrower or as provided in
this paragraph. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender’s office shown
above. The following person or persons are authorized to request advances and
authorize payments under the line of credit until Lender receives from
Borrower, at Lender’s address shown above, written notice of revocation of such
authority: MICHAEL WEINER, CEO of NEW FRONTIER MEDIA, INC. Borrower agrees to
be liable for all sums either: (A) advanced in accordance with the
instructions of an authorized person or (B) credited to any of Borrower’s
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender’s internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (A) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (B) Borrower or any guarantor ceases doing business
or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor’s guarantee of this Note or any other
loan with Lender; (D) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender; or (E) Lender in
good faith believes itself insecure.

 

CONSENT
TO LOAN PARTICIPATION AND CONSENT TO RELEASE OF INFORMATION TO PURCHASERS AND
POTENTIAL PURCHASERS. Borrower agrees and consents to Lender’s sale or
transfer, whether now or later, of one or more participation interests in the
Loan to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy Borrower may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation interests,
as well as all notices of any repurchase of such participation interests.
Borrower also agrees that the purchasers of any such participation interests
will be considered as absolute owners of such interests in the Loan and will
have all rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against Lender
or against any purchaser of such participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower’s obligation
under the Loan irrespective of the failure or insolvency of any holder of any
interest in the Loan. Borrower further agrees that the purchaser of any such
participation interest may enforce its interest irrespective of any personal
claims or defenses that the Borrower may have against the Lender.

 

CERTIFICATION
OF FINANCIAL INFORMATION. Borrower certifies that all financial statements
supplied to Lender are true, complete and correct and fairly present the
financial condition of the Borrower as of such dates for the periods covered by
such statements, and there has been no material adverse change in the condition
(financial or otherwise), business or operations of the Borrower. There are no
liabilities of the Borrower, fixed or contingent, which are material but are
not reflected in the financial statements or in the notes thereto. No
information, exhibit, or report furnished by the Borrower to Lender in
connection with the Note and Related Documents contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statement contained therein not materially misleading. Borrower
warrants and represents that financial statements and other information
furnished to Lender in the future in connection with Borrower’s obligations
under the Note and Related Documents shall meet the foregoing standards of
correctness, completeness and accuracy.

 

PRIOR
NOTE. THIS IS A RENEWAL AND INCREASE OF THAT CERTAIN PROMISSORY NOTE DATED JULY
1, 2007, IN THE ORIGINAL PRINCIPAL AMOUNT OF $7,500,000.00, BY AND BETWEEN
BORROWER AND LENDER. THIS PROMISSORY NOTE IS A MODIFICATION, NOT A
CANCELLATION, REPAYMENT, OR NOVATION OF THE ORIGINAL PROMISSORY NOTE.

 

SUCCESSOR
INTERESTS. The terms of this Note shall be binding upon Borrower, and upon
Borrower’s heirs, personal representatives, successors and assigns, and shall
inure to the benefit of Lender and its successors and assigns.

 

GENERAL
PROVISIONS. If any part of this Note cannot be enforced, this fact will not
affect the rest of the Note. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive presentment, demand for payment, and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender’s security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING
THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE,
INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS
OF THE NOTE.

 

BORROWER
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  NEW FRONTIER MEDIA, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Michael Weiner

  	
   

  
	
   

  	
  MICHAEL WEINER, CEO of NEW FRONTIER MEDIA,

  	
   

  
	
   

  	
  INC.

  	
   

  
				

 

LASER PRO Lending. Ver. 5.40.00.003 Corp. Harland
Financial Solutions, Inc 1997, 2008. All Rights Reserved. Co L:\ILLEGIBLE

2

 

BUSINESS LOAN AGREEMENT (ASSET BASED)

 

	
  Principal

  	
   

  	
  Loan
  Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call /
  Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  9,000,000.00

  	
   

  	
  07-01-2008

  	
   

  	
  07-05-2009

  	
   

  	
  281007262

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  CPK

  	
   

  	
  [/s/ CK]

  
																

 

References in the
boxes above are for Lender’s use only and do not limit the applicability of
this document to any particular loan or item. Any item above containing “***”
has been omitted due to text length limitations.

 

	
  Borrower:

  	
   

  	
  NEW FRONTIER MEDIA, INC.

  	
   

  	
  Lender:

  	
   

  	
  First Community Bank

  
	
   

  	
   

  	
  7007 WINCHESTER CIR, STE 200

  	
   

  	
   

  	
   

  	
  Lakewood Loan Servicing Center

  
	
   

  	
   

  	
  BOULDER, CO 80301

  	
   

  	
   

  	
   

  	
  215 Union Blvd, Suite 150

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Lakewood, CO 80228

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (303) 988-2300

  

 

THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) dated July 1, 2008, is made and executed between
NEW FRONTIER MEDIA, INC. (“Borrower”) and First Community Bank (“Lender”) on
the following terms and conditions. Borrower has received prior commercial
loans from Lender or has applied to Lender for a commercial loan or loans or
other financial accommodations, including those which may be described on any
exhibit or schedule attached to this Agreement. Borrower understands and agrees
that: (A) in granting, renewing, or extending any Loan, Lender is relying
upon Borrower’s representations, warranties, and agreements as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender
at all times shall be subject to Lender’s sole judgment and discretion; and (C) all
such Loans shall be and remain subject to the terms and conditions of this
Agreement.

 

TERM. This Agreement
shall be effective as of July 1, 2008, and shall continue in full force
and effect until such time as all of Borrower’s Loans in favor of Lender have
been paid in full, including principal, interest, costs, expenses, attorneys’
fees, and other fees and charges, or until such time as the parties may agree
in writing to terminate this Agreement.

 

ADVANCE AUTHORITY. The
following person or persons are authorized to request advances and authorize
payments under the line of credit until Lender receives from Borrower, at
Lender’s address shown above, written notice of revocation of such authority:
MICHAEL WEINER, CEO of NEW FRONTIER MEDIA, INC.

 

LINE OF CREDIT. Lender
agrees to make Advances to Borrower from time to time from the date of this
Agreement to the Expiration Date, provided the aggregate amount of such
Advances outstanding at any time does not exceed the Borrowing Base. Within the
foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow
under this Agreement as follows:

 

Conditions Precedent to Each Advance. Lender’s
obligation to make any Advance to or for the account of Borrower under this
Agreement is subject to the following conditions precedent, with all documents,
instruments, opinions, reports, and other items required under this Agreement
to be in form and substance satisfactory to Lender:

 

(1)   Lender
shall have received evidence that this Agreement and all Related Documents have
been duly authorized, executed, and delivered by Borrower to Lender.

 

(2)   Lender
shall have received such opinions of counsel, supplemental opinions, and
documents as Lender may request.

 

(3)   The
security interests in the Collateral shall have been duly authorized, created,
and perfected with first lien priority and shall be in full force and effect.

 

(4)   All
guaranties required by Lender for the credit facility(ies) shall have been
executed by each Guarantor, delivered to Lender, and be in full force and
effect.

 

(5)   Lender,
at its
option and for its sole benefit, shall have conducted an
audit of Borrower’s Accounts, books, records, and operations, and Lender shall
be satisfied as to their condition.

 

(6)   Borrower
shall have paid to Lender all fees, costs, and expenses specified in this
Agreement and the Related Documents as are then due and payable.

 

(7)   There
shall not exist at the time of any Advance a condition which would constitute
an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance
certificate called for in the paragraph below titled “Compliance Certificate.”

 

Making Loan Advances. Advances under this credit
facility, as well as directions for payment from Borrower’s accounts, may be
requested orally or in writing by authorized persons. Lender may, but need not,
require that all oral requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit of
Borrower (l) when credited to any deposit account of Borrower maintained with
Lender or (2) when advanced in accordance with the instructions of an
authorized person. Lender, at its option, may set a cutoff time, after which
all requests for Advances will be treated as having been requested on the next
succeeding Business Day.

 

Mandatory Loan Repayments. If at any time the
aggregate principal amount of the outstanding Advances shall exceed the
applicable Borrowing Base, Borrower, immediately upon written or oral notice
from Lender, shall pay to Lender an amount equal to the difference between the
outstanding principal balance of the Advances and the Borrowing Base.  On
the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid
principal amount of all Advances then outstanding and all accrued unpaid
interest, together with all other applicable fees, costs and charges, if any,
not yet paid.

 

Loan Account. Lender shall maintain on its books a
record of account in which Lender shall make entries for each Advance and such
other debits and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of Borrower’s
account, which statements shall be considered to be correct and conclusively
binding on Borrower unless Borrower notifies Lender to the contrary within
thirty (30) days after Borrower’s receipt of any such statement which Borrower
deems to be incorrect.

 

COLLATERAL. To secure
payment of the Primary Credit Facility and performance of all other Loans,
obligations and duties owed by Borrower to Lender, Borrower (and others, if
required) shall grant to Lender Security Interests in such property and assets
as Lender may require. Lender’s Security Interests in the Collateral shall be
continuing liens and shall include the proceeds and products of the Collateral,
including without limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to Lender:

 

Perfection of Security Interests. Borrower agrees to
execute all documents perfecting Lender’s Security Interest and to take
whatever actions are requested by
Lender to perfect and continue Lender’s Security Interests in the Collateral.
Upon request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender’s interest upon any and all chattel paper and instruments if not
delivered to Lender for possession by Lender. Contemporaneous with the
execution of this Agreement, Borrower will execute one or more UCC financing
statements and any similar statements as may be required by applicable law, and
Lender will file such financing statements and all such similar statements in
the appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at any
time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for use
as a financing statement. Borrower will reimburse Lender for all expenses for
the perfection, termination, and the continuation of the perfection of Lender’s
security interest in the Collateral. Borrower promptly will notify Lender
before any change in Borrower’s name including any change to the assumed
business names of Borrower. Borrower also promptly will notify Lender before
any change in Borrower’s Social Security Number or Employer Identification
Number. Borrower further agrees to notify Lender in writing prior to any change
in address or location of Borrower’s principal governance office or should
Borrower merge or consolidate with any other entity.

 

Collateral Records. Borrower does now, and at all
times hereafter shall, keep correct and accurate records of the Collateral, all
of which records shall be available to Lender or Lender’s representative upon
demand for inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible Accounts
and Account balances and agings. Records related to Accounts (Receivables) are
or will be located at. The above is an accurate and complete list of all
locations at which Borrower keeps or maintains business records concerning
Borrower’s collateral.

 

Collateral Schedules. Concurrently with the execution
and delivery of this Agreement, Borrower shall execute and deliver to Lender
schedules of Accounts and schedules of Eligible Accounts in form and substance
satisfactory to the Lender. Thereafter supplemental schedules shall be
delivered according to the following schedule:

 

Representations and Warranties Concerning Accounts.
With respect to the Accounts, Borrower represents and warrants to Lender: (l)
Each Account represented by Borrower to be an Eligible Account for purposes of
this Agreement conforms to the requirements of the definition of an Eligible
Account; (2) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (3) Lender,
its assigns, or agents shall have the right at any time and at Borrower’s
expense to inspect, examine, and audit Borrower’s records and to confirm with
Account Debtors the accuracy of such Accounts.

 

CONDITIONS PRECEDENT TO
EACH ADVANCE. Lender’s obligation to make the initial Advance and each
subsequent Advance under this

 

 

Agreement shall be
subject to the fulfillment to Lender’s satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.

 

Loan Documents. Borrower shall provide to Lender the
following documents for the Loan: (1) the Note; (2) Security Agreements
granting to Lender security interests in the Collateral; (3) financing
statements and all other documents perfecting Lender’s Security Interests; (4) evidence
of insurance as required below; (5) together with all such Related Documents as
Lender may require for the Loan; all in form and substance satisfactory to
Lender and Lender’s counsel.

 

Borrower’s Authorization. Borrower shall have provided
in form and substance satisfactory to Lender properly certified resolutions,
duly authorizing the execution and delivery of this Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other
resolutions, authorizations, documents and instruments as Lender or its
counsel, may require.

 

Fees and Expenses Under This Agreement. Borrower shall
have paid to Lender all fees, costs, and expenses specified in this Agreement
and the Related Documents as are then due and payable.

 

Representations and Warranties. The representations
and warranties set forth in this Agreement, in the Related Documents, and in
any document or certificate delivered to Lender under this Agreement are true
and correct.

 

No Event of Default. There shall not exist at the time
of any Advance a condition which would constitute an Event of Default under
this Agreement or under any Related Document.

 

REPRESENTATIONS AND
WARRANTIES. Borrower represents and warrants to Lender, as of the date of this
Agreement, as of the date of each disbursement of loan proceeds, as of the date
of any renewal, extension or modification of any Loan, and at all times any
Indebtedness exists:

 

Organization. Borrower is a corporation for profit
which is, and at all times shall be, duly organized, validly existing, and in
good standing under and by virtue of the laws of the State of Colorado.
Borrower is duly authorized to transact business in all other states in which
Borrower is doing business, having obtained all necessary filings, governmental
licenses and approvals for each state in which Borrower is doing business.
Specifically, Borrower is, and at all times shall be, duly qualified as a
foreign corporation in all states in which the failure to so qualify would have
a material adverse effect on its business or financial condition. Borrower has
the full power and authority to own its properties and to transact the business
in which it is presently engaged or presently proposes to engage. Borrower
maintains its principal office at 7007 WINCHESTER CIR, STE 200, BOULDER, CO
80301. Unless Borrower has designated otherwise in writing, this is the
principal office at which Borrower keeps its books and records including its
records concerning the Collateral. Borrower will notify Lender prior to any
change in the location of Borrower’s state of organization or any change in
Borrower’s name. Borrower shall do all things necessary to preserve and to keep
in full force and effect its existence, rights and privileges, and shall comply
with all regulations, rules, ordinances, statutes, orders and decrees of any
governmental or quasi-governmental authority or court applicable to Borrower
and Borrower’s business activities.

 

Assumed Business Names. Borrower has filed or recorded
all documents or filings required by law relating to all assumed business names
used by Borrower. Excluding the name of Borrower, the following is a complete
list of all assumed business names under which Borrower does business: None.

 

Authorization. Borrower’s execution, delivery, and
performance of this Agreement and all the Related Documents have been duly
authorized by all necessary action by Borrower and do not conflict with, result
in a violation of, or constitute a default under (1) any provision of (a) Borrower’s
articles of incorporation or organization, or bylaws, or (b) any agreement
or other instrument binding upon Borrower or (2) any law, governmental
regulation, court decree, or order applicable to Borrower or to Borrower’s properties.

 

Financial Information. Each of Borrower’s financial
statements supplied to Lender truly and completely disclosed Borrower’s
financial condition as of the date of the statement, and there has been no
material adverse change in Borrower’s financial condition subsequent to the
date of the most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.

 

Legal Effect. This Agreement constitutes, and any
instrument or agreement Borrower is required to give under this Agreement when
delivered will constitute legal, valid, and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.

 

Properties. Except as contemplated by this Agreement
or as previously disclosed in Borrower’s financial statements or in writing to
Lender and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable. Borrower owns and has good title to all of
Borrower’s properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower’s properties are titled in Borrower’s legal name,
and Borrower has not used or filed a financing statement under any other name
for at least the last five (5) years.

 

Hazardous Substances. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that: (1) During
the period of Borrower’s ownership of the Collateral, there has been no use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substance by any person on, under, about or from any
of the Collateral. (2) Borrower has no knowledge of, or reason to believe
that there has been  (a) any breach or violation
of any Environmental Laws; (b) any use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any Hazardous Substance
on, under, about or from the Collateral by any prior owners or occupants of any
of the Collateral; or (c) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (3) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the Collateral
shall use, generate, manufacture, store, treat, dispose of or release any
Hazardous Substance on, under, about or from any of the Collateral; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation all Environmental Laws. Borrower authorizes Lender and its agents to
enter upon the Collateral to make such inspections and tests as Lender may deem
appropriate to determine compliance of the Collateral with this section of the
Agreement. Any inspections or tests made by Lender shall be at Borrower’s
expense and for Lender’s purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other person.
The representations and warranties contained herein are based on Borrower’s due
diligence in investigating the Collateral for hazardous waste and Hazardous
Substances. Borrower hereby (1) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower becomes
liable for cleanup or other costs under any such laws, and (2) agrees to
indemnify, defend, and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release of a hazardous waste or substance on the
Collateral. The provisions of this section of the Agreement, including the
obligation to indemnify and defend, shall survive the payment of the
Indebtedness and the termination, expiration or satisfaction of this Agreement
and shall not be affected by Lender’s acquisition of any interest in any of the
Collateral, whether by foreclosure or otherwise.

 

Litigation and Claims. No litigation, claim,
investigation, administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower’s financial condition
or properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.

 

Taxes. To the best of Borrower’s knowledge, all of
Borrower’s tax returns and reports that are or were required to be filed, have
been filed, and all taxes, assessments and other governmental charges have been
paid in full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate reserves
have been provided.

 

Lien Priority. Unless otherwise previously disclosed
to Lender in writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security Interests on
or affecting any of the Collateral directly or indirectly securing repayment of
Borrower’s Loan and Note, that would be prior or that may in any way be
superior to Lender’s Security Interests and rights in and to such Collateral.

 

Binding Effect. This Agreement, the Note, all Security
Agreements (if any), and all Related Documents are binding upon the signers
thereof, as well as upon their successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.

 

AFFIRMATIVE COVENANTS.
Borrower covenants and agrees with Lender that, so long as this Agreement
remains in effect, Borrower will:

 

Notices of Claims and Litigation. Promptly inform
Lender in writing of (1) all material adverse changes in Borrower’s financial
condition, and (2) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions affecting
Borrower or any Guarantor which could materially affect the financial condition
of Borrower or the financial condition of any Guarantor.

 

Financial Records. Maintain its books and records in
accordance with GAAP, applied on a consistent basis, and permit Lender to
examine and audit Borrower’s books and records at all reasonable times.

 

Financial Statements.
Furnish Lender with the following:

 

2

 

Annual Statements. As soon as available, but in no
event later than ninety (90) days after the end of each fiscal year, Borrower’s
balance sheet and income statement for the year ended, audited by a certified
public accountant satisfactory to Lender.

 

Interim Statements. As soon as available, but in no
event later than thirty (30) days after the end of each fiscal quarter,
Borrower’s balance sheet and profit and loss statement for the period ended,
prepared by Borrower.

 

All financial reports required to be provided under
this Agreement shall be prepared in accordance with GAAP, applied on a
consistent basis, and certified by Borrower as being true and correct.

 

Additional Information.
Furnish such additional information and statements, as Lender may request from
time to time. 

 

Financial Covenants and
Ratios. Comply with the following covenants and ratios:

 

Working Capital
Requirements. Borrower shall comply with the following working capital ratio
requirements:

 

Current Ratio. Maintain a Current Ratio in excess of
1.250 to 1.000. The term “Current Ratio” means Borrower’s total Current Assets
divided by Borrower’s total Current Liabilities.

 

Tangible Net Worth Requirements. Other Net Worth
requirements are as follows: Total Liabilities to Tangible Net Worth. Customer’s
“Leverage Ratio” shall not at any time exceed 1.0 to 1.0. For purposes hereof, “Leverage
Ratio” shall mean the ratio of (i) Customer’s total liabilities less any
subordinated debt of customer, to (ii) the sum of Customer’s Tangible Net
Worth plus any subordinated debt of customer. The term “Tangible Net Worth”
shall mean Customer’s net worth as shown on Customer’s regular financial
statements prepared in accordance with GAAP, including net prepaid distribution
rights, but excluding an amount equal to: (i) any Intangible Assets, and (ii)
any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer. “Intangible Assets” shall
mean the total amount of goodwill, patents, trade names, trade or service
marks, copyrights, experimental expense, organization expense, un-amortized debt
discount and expense, the excess of cost of shares acquired over book value of
related assets, and such other assets as are properly classified as “intangible
assets” of the Customer determined in accordance with GAAP. Subordinated debt
shall mean any debt of Customer for borrowed money which is subordinated in
right of payment and is payable on terms and conditions junior to First
Community Bank, and in a form and manner acceptable to First Community Bank.

 

Except as provided above, all computations made to
determine compliance with the requirements contained in this paragraph shall be
made in accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.

 

Insurance. Maintain fire and other risk insurance,
public liability insurance, and such other insurance as Lender may require with
respect to Borrower’s properties and operations, in form, amounts, coverages
and with insurance companies acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or certificates
of insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least fifteen (15)
days prior written notice to Lender. Each insurance policy also shall include
an endorsement providing that coverage in favor of Lender will not be impaired
in any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest for the Loans, Borrower will provide Lender with
such lender’s loss payable or other endorsements as Lender may require.

 

Insurance Reports. Furnish to Lender, upon request of
Lender, reports on each existing insurance policy showing such information as
Lender may reasonably request, including without limitation the following: (1) the
name of the insurer; (2) the risks insured; (3) the amount of
the policy; (4) the properties insured; (5) the then current property
values on the basis of which insurance has been obtained, and the manner of
determining those values; and (6) the expiration date of the policy. In
addition, upon request of Lender (however not more often than annually),
Borrower will have an independent appraiser satisfactory to Lender determine,
as applicable, the actual cash value or replacement cost of any Collateral. The
cost of such appraisal shall be paid by Borrower.

 

Other Agreements. Comply with all terms and conditions
of all other agreements, whether now or hereafter existing, between Borrower
and any other party and notify Lender immediately in writing of any default in
connection with any other such agreements.

 

Loan Proceeds. Use all Loan proceeds solely for
Borrower’s business operations, unless specifically consented to the contrary
by Lender in writing.

 

Taxes, Charges and Liens. Pay and discharge when due
all of its indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the date
on which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower’s properties, income, or profits.
Provided however, Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (1) the legality
of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower
shall have established on Borrower’s books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in accordance with
GAAP.

 

Performance. Perform and comply, in a timely manner,
with all terms, conditions, and provisions set forth in this Agreement, in the
Related Documents, and in all other instruments and agreements between Borrower
and Lender. Borrower shall notify Lender immediately in writing of any default
in connection with any agreement.

 

Operations. Maintain executive and management
personnel with substantially the same qualifications and experience as the
present executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business affairs
in a reasonable and prudent manner.

 

Environmental Studies. Promptly conduct and complete,
at Borrower’s expense, all such investigations, studies, samplings and testings
as may be requested by Lender or any governmental authority relative to any substance,
or any waste or by-product of any substance defined as toxic or a hazardous
substance under applicable federal, state, or local law, rule, regulation,
order or directive, at or affecting any property or any facility owned, leased
or used by Borrower.

 

Compliance with Governmental Requirements. Comply with
all laws, ordinances. and regulations, now or hereafter in effect, of all
governmental authorities applicable to the conduct of Borrower’s properties,
businesses and operations, and to the use or occupancy of the Collateral,
including without limitation, the Americans With  Disabilities
Act. Borrower may contest in good faith any such law, ordinance, or regulation
and withhold compliance during any proceeding, including appropriate appeals,
so long as Borrower has notified Lender in writing prior to doing so and so
long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not
jeopardized. Lender may require Borrower to post adequate security or a surety
bond, reasonably satisfactory to Lender, to protect Lender’s interest.

 

Inspection. Permit employees or agents of Lender at
any reasonable time to inspect any and all Collateral for the Loan or Loans and
Borrower’s other properties and to examine or audit Borrower’s books, accounts,
and records and to make copies and memoranda of Borrower’s books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer software
programs for the generation of such records) in the possession of a third
party, Borrower, upon request of Lender, shall notify such party to permit
Lender free  access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at Borrower’s
expense.

 

Compliance Certificates. Unless waived in writing by
Lender, provide Lender at least annually, with a certificate executed by
Borrower’s chief financial officer, or other officer or person acceptable to
Lender, certifying that the representations and warranties set forth in this
Agreement are true and correct as of the date of the certificate and further
certifying that, as of the date of the certificate, no Event of Default exists
under this Agreement.

 

Environmental Compliance and Reports. Borrower shall
comply in all respects with any and all Environmental Laws; not cause or permit
to exist, as a result of an intentional or unintentional action or omission on
Borrower’s part or on the part of any third party, on property owned and/or occupied
by Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate federal,
state or local governmental authorities; shall furnish to Lender promptly and
in any event within thirty (30) days after receipt thereof a copy of any
notice, summons, lien, citation, directive, letter or other communication from
any governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower’s part in connection with any
environmental activity whether or not there is damage to the environment and/or
other natural resources.

 

Additional Assurances. Make, execute and deliver to
Lender such promissory notes, mortgages, deeds of trust, security agreements,
assignments, financing statements, instruments, documents and other agreements
as Lender or its attorneys may reasonably request to evidence and secure the
Loans and to perfect all Security Interests.

 

LENDER’S EXPENDITURES. If
any action or proceeding is commenced that would materially affect Lender’s
interest in the Collateral or if Borrower fails to comply with any provision of
this Agreement or any Related Documents, including but not limited to Borrower’s
failure to discharge or pay when due any amounts Borrower is required to
discharge or pay under this Agreement or any Related Documents, Lender on
Borrower’s behalf may (but shall not be obligated to) take any action that
Lender deems appropriate, including but not limited to discharging or

 

3

 

paying all taxes, liens,
security interests, encumbrances and other claims, at any time levied or placed
on any Collateral and paying all costs for insuring, maintaining and preserving
any Collateral. All such expenditures incurred or paid by Lender for such
purposes will then bear interest at the rate charged under the Note from the
date incurred or paid by Lender to the date of repayment by Borrower. All such
expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be
payable on demand; (B) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (1) the term of any applicable insurance policy; or (2) the
remaining term of the Note; or (C) be treated as a balloon payment which
will be due and payable at the Note’s maturity.

 

NEGATIVE COVENANTS.
Borrower covenants and agrees with Lender that while this Agreement is in
effect, Borrower shall not, without the prior written consent of Lender:

 

Indebtedness and Liens. (1) Except for trade debt
incurred in the normal course of business and indebtedness to Lender
contemplated by this Agreement, create, incur or assume indebtedness for
borrowed money, including capital leases, (2) sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with
recourse any of Borrower’s accounts, except to Lender.

 

Additional Financial Restrictions. Additional Outside
Debt. No additional debt in excess of 1,000,000.00 will be allowed without
prior First Community Bank approval.

 

Continuity of
Operations. (l) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve or transfer or sell Collateral out of the
ordinary course of business, or (3) pay any dividends on Borrower’s stock
(other than dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a “Subchapter S Corporation” (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership of shares
of Borrower’s stock, or purchase or retire any of Borrower’s outstanding shares
or alter or amend Borrower’s capital structure.

 

Loans, Acquisitions and Guaranties. (1) Loan,
invest in or advance money or assets to any other person, enterprise or entity,
(2) purchase, create or acquire any interest in any other enterprise or
entity, or (3) incur any obligation as surety or guarantor other than in the
ordinary course of business.

 

Agreements. Borrower will not enter into any agreement
containing any provisions which would be violated or breached by the
performance of Borrower’s obligations under this Agreement or in connection
herewith.

 

CESSATION OF ADVANCES. If
Lender has made any commitment to make any Loan to Borrower, whether under this
Agreement or under any other agreement, Lender shall have no obligation to make
Loan Advances or to disburse Loan proceeds if: (A) Borrower or any
Guarantor is in default under the terms of this Agreement or any of the Related
Documents or any other agreement that Borrower or any Guarantor has with
Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s
financial condition, in the financial condition of any Guarantor, or in the
value of any Collateral securing any Loan; or (D) any Guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such Guarantor’s
guaranty of the Loan or any other loan with Lender; or (E) Lender in good
faith deems itself insecure, even though no Event of Default shall have
occurred.

 

RIGHT OF SETOFF. To the
extent permitted by applicable law, Lender reserves a right of setoff in all
Borrower’s accounts with Lender (whether checking, savings, or some other
account). This includes all accounts Borrower holds jointly with someone else
and all accounts Borrower may open in the future. However, this does not
include any IRA or Keogh accounts, or any trust accounts for which setoff would
be prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts, and, at Lender’s option, to administratively freeze
all such accounts to allow Lender to protect Lender’s charge and setoff rights
provided in this paragraph.

 

DEFAULT. Each of the
following shall constitute an Event of Default under this Agreement:

 

Payment Default. Borrower
fails to make any payment when due under the Loan.

 

Other Defaults. Borrower fails to comply with or to
perform any other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or to comply with or to perform
any term, obligation, covenant or condition contained in any other agreement
between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any
Grantor defaults under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower’s or any Grantor’s
property or Borrower’s or any Grantor’s ability to repay the Loans or perform
their respective obligations under this Agreement or any of the Related Documents.

 

False Statements. Any warranty, representation or
statement made or furnished to Lender by Borrower or on Borrower’s behalf under
this Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrower’s
existence as a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower’s property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against Borrower.

 

Defective Collateralization. This Agreement or any of
the Related Documents ceases to be in full force and effect (including failure
of any collateral document to create a valid and perfected security interest or
lien) at any time and for any reason.

 

Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of Borrower or by
any governmental agency against any collateral securing the Loan. This includes
a garnishment of any of Borrower’s accounts, including deposit accounts, with
Lender. However, this Event of Default shall not apply if there is a good faith
dispute by Borrower as to the validity or reasonableness of the claim which is
the basis of the creditor or forfeiture proceeding and if Borrower gives Lender
written notice of the creditor or forfeiture proceeding and deposits with
Lender monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, in its sole discretion, as being an adequate
reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding
events occurs with respect to any Guarantor of any of the Indebtedness or any
Guarantor dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any Guaranty of the Indebtedness.

 

Change in Ownership. Any
change in ownership of twenty-five percent (25%) or more of the common stock of
Borrower.

 

Adverse Change. A material adverse change occurs in
Borrower’s financial condition, or Lender believes the prospect of payment or
performance of the Loan is  impaired.

 

Insecurity. Lender in
good faith believes itself insecure.

 

EFFECT OF AN EVENT OF
DEFAULT. If any Event of Default shall occur, except where otherwise provided
in this Agreement or the Related Documents, all commitments and obligations of
Lender under this Agreement or the Related Documents or any other agreement
immediately will terminate (including any obligation to make further Loan
Advances or disbursements), and, at Lender’s option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the “Insolvency” subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender’s rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender’s right to
declare a default and to exercise its rights and remedies.

 

NO PURCHASE OF
SECURITIES. Borrower agrees the proceeds of the credit facility may not be used
to purchase or carry securities.

 

ACQUISITION. In the event
the borrower or any of the subsidaries are acquired or purchased by a third
party, the facility will be due and payable.

 

LOANS TO AFFILIATED
PERSONS AND ENTITIES. Borrower agrees, without prior written consent of First
Community bank, no loans or advances directly or indirectly made by Customer to
affiliated person or entities.

 

MATERIAL CHANGE IN CLIENT
BASE. Borrower agrees, no adverse, material change in the current client base
as it related to the Borrowers largest clients, i.e. EchoStar Communications,
Time Warner Broadcasting, Comcast and DirecTV.

 

CONTINUITY. Customer will
continue to maintain its business, existence, ownership and good standing.

 

4

 

PROPERTY AND CASUALTY
INSURANCE. Borrower shall maintain sufficient and satisfactory insurance,
listing FCB as Mortgagee, against the subject property at all times, Borrower
shall provide proof of insurance as the bank may reasonably request.

 

ADDITIONAL OUTSIDE DEBT.
Borrower agrees no additional debt in excess of $1MM will be allowed without
prior First Community Bank approval.

 

OTHER INFORMATION.
Borrower agrees such other information as FCB may from time to time reasonably
request relating to Customer or any Guarantor.

 

MISCELLANEOUS PROVISIONS.
The following miscellaneous provisions are a part of this Agreement:

 

Amendments. This Agreement, together with any Related
Documents, constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or amendment.

 

Attorneys’ Fees; Expenses. Borrower agrees to pay upon
demand all of Lender’s reasonable costs and expenses, including Lender’s
attorneys’ fees and Lender’s legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may hire or pay someone else to help
enforce this Agreement, and Borrower shall pay the reasonable costs and
expenses of such enforcement. Costs and expenses include Lender’s attorneys’
fees and legal expenses whether or not there is a lawsuit, including attorneys’
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also shall pay all court costs and
such additional fees as may be directed by the court.

 

Caption Headings. Caption headings in this Agreement
are for convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.

 

Consent to Loan Participation. Borrower agrees and
consents to Lender’s sale or transfer, whether now or later, of one or more
participation interests in the Loan to one or more purchasers, whether related
or unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating to
the Loan, and Borrower hereby waives any rights to privacy Borrower may have
with respect to such matters. Borrower additionally waives any and all notices
of sale of participation interests, as well as all notices of any repurchase of
such participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of such
interests in the Loan and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that it
may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower’s obligation under the Loan irrespective of the
failure or insolvency of any holder of any interest in the Loan. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.

 

Governing Law. This Agreement will be governed by
federal law applicable to Lender and, to the extent not preempted by federal
law, the laws of the State of Colorado without regard to its conflicts of law
provisions. This Agreement has been accepted by Lender in the State of
Colorado.

 

Choice of Venue. If there is a lawsuit, Borrower
agrees upon Lender’s request to submit to the jurisdiction of the courts of
Jefferson County, State of Colorado.

 

No Waiver by Lender. Lender shall not be deemed to
have waived any rights under this Agreement unless such waiver is given in
writing and signed by Lender. No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender’s right otherwise to demand strict compliance
with that provision or any other provision of this Agreement. No prior waiver
by Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or
of any of Borrower’s or any Grantor’s obligations as to any future
transactions. Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.

 

Notices. Any notice required to be given under this
Agreement shall be given in writing, and shall be effective when actually
delivered, when actually received by telefacsimile (unless otherwise required
by law), when deposited with a nationally recognized overnight courier, or, if
mailed, when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party’s address. For notice
purposes, Borrower agrees to keep Lender informed at all times of Borrower’s
current address. Unless otherwise provided or required by law, if there is more
than one Borrower, any notice given by Lender to any Borrower is deemed to be
notice given to all Borrowers.

 

Severability. If a court of competent jurisdiction
finds any provision of this Agreement to be illegal, invalid, or unenforceable
as to any circumstance, that finding shall not make the offending provision
illegal, invalid, or unenforceable as to any other circumstance. If feasible,
the offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this Agreement. Unless otherwise required by
law, the illegality, invalidity, or unenforceability of any provision of this
Agreement shall not affect the legality, validity or enforceability of any
other provision of this Agreement.

 

Subsidiaries and Affiliates of Borrower. To the extent
the context of any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word “Borrower”
as used in this Agreement shall include all of Borrower’s subsidiaries and
affiliates. Notwithstanding the foregoing however, under no circumstances shall
this Agreement be construed to require Lender to make any Loan or other
financial accommodation to any of Borrower’s subsidiaries or affiliates.

 

Successors and Assigns. All covenants and agreements
by or on behalf of Borrower contained in this Agreement or any Related
Documents shall bind Borrower’s successors and assigns and shall inure to the
benefit of Lender and its successors and assigns. Borrower shall not, however,
have the right to assign Borrower’s rights under this Agreement or any interest
therein, without the prior written consent of Lender.

 

Survival of Representations and Warranties. Borrower
understands and agrees that in extending Loan Advances, Lender is relying on
all representations, warranties, and covenants made by Borrower in this
Agreement or in any certificate or other instrument delivered by Borrower to
Lender under this Agreement or the Related Documents. Borrower further agrees
that regardless of any investigation made by Lender, all such representations,
warranties and covenants will survive the extension of Loan Advances and
delivery to Lender of the Related Documents, shall be continuing in nature,
shall be deemed made and redated by Borrower at the time each Loan Advance is
made, and shall remain in full force and effect until such time as Borrower’s
Indebtedness shall be paid in full, or until this Agreement shall be terminated
in the manner provided above, whichever is the last to occur.

 

Time is of the Essence. Time is of the
essence in the performance of this Agreement.

 

DEFINITIONS. The
following capitalized words and terms shall have the following meanings when
used in this Agreement. Unless specifically stated to the contrary, all
references to dollar amounts shall mean amounts in lawful money of the United
States of America. Words and terms used in the singular shall include the
plural, and the plural shall include the singular, as the context may require.
Words and terms not otherwise defined in this Agreement shall have the meanings
attributed to such terms in the Uniform Commercial Code. Accounting words and
terms not otherwise defined in this Agreement shall have the meanings assigned
to them in accordance with generally accepted accounting principles as in
effect on the date of this Agreement:

 

Account. The word “Account” means a trade account,
account receivable, other receivable, or other right to payment for goods sold
or services rendered owing to Borrower (or to a third party grantor acceptable
to Lender).

 

Account Debtor. The words
“Account Debtor” mean the person or entity obligated upon an Account.

 

Advance. The word “Advance” means a disbursement of
Loan funds made, or to be made, to Borrower or on Borrower’s behalf under the
terms and conditions of this Agreement.

 

Agreement. The word “Agreement” means this Business
Loan Agreement (Asset Based), as this Business Loan Agreement (Asset Based) may
be amended or modified from time to time, together with all exhibits and
schedules attached to this Business Loan Agreement (Asset Based) from time to
time.

 

Borrower. The word “Borrower” means NEW FRONTIER
MEDIA, INC. and includes all co-signers and co-makers signing the Note and all
their successors and assigns.

 

Borrowing Base. The words “Borrowing Base” mean
Borrowing Base and Compliance Certificate submission of the company’s borrowing
base and compliance certificate, to be submitted with 30 days of each fiscal
quarter end while the line of credit is not in use, and monthly when the line
of credit is being utilized.

 

5

 

Business Day. The words “Business
Day” mean a day on which commercial banks are open in the State of Colorado.

 

Collateral. The word “Collateral”
means all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or indirectly,
whether granted now or in the future,
and whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage,
collateral chattel mortgage, chattel trust, factor’s lien, equipment trust,
conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law, contract, or
otherwise. The word Collateral also includes without limitation all collateral
described in the Collateral section of this Agreement.

 

Eligible Accounts. The
words “Eligible Accounts” mean at any time, all of Borrower’s Accounts which contain
selling terms and conditions acceptable to Lender. The net amount of any
Eligible Account against which Borrower may borrow shall exclude all returns,
discounts, credits, and offsets of any nature. Unless otherwise agreed to by
Lender in writing, Eligible Accounts do not include:

 

(1)   Accounts with respect to which the Account Debtor is
employee or agent of Borrower.

 

(2)   Accounts with respect to
which the Account Debtor is a subsidiary of, or affiliated with Borrower or its
shareholders, officers, or directors.

 

(3)   Accounts with respect to
which goods are placed on consignment, guaranteed sale, or other terms by
reason of which the payment by the Account Debtor may be conditional.

 

(4)   Accounts with respect to
which Borrower is or may become liable to the Account Debtor for goods sold or
services rendered by the Account Debtor to Borrower.

 

(5)   Accounts which are subject to dispute, counterclaim,
or setoff.

 

(6)   Accounts with respect to
which the goods have not been shipped or delivered, or the services have not
been rendered, to the Account Debtor.

 

(7)   Accounts
with respect to which Lender, in its sole discretion, deems the
creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.

 

(8)   Accounts of
any Account Debtor who has filed or has had filed against it a petition in
bankruptcy or an application for relief under any provision of any state or
federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had
appointed a trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of creditors or has
become insolvent or fails generally to pay its debts (including its payrolls)
as such debts become due.

 

Environmental Laws. The
words “Environmental Laws” mean any and all state, federal and local statutes,
regulations and ordinances relating to the protection of human health or the
environment, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601,
at seq. (“CERCLA”), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or federal laws, rules, or regulations
adopted pursuant thereto.

 

Event of Default. The
words “Event of Default” mean any of the events of default set forth in this
Agreement in the default section of this Agreement.

 

Expiration Date. The
words “Expiration Date” mean the date of termination of Lender’s commitment to
lend under this Agreement. 

 

GAAP. The word “GAAP”
means generally accepted accounting principles.

 

Grantor. The word “Grantor”
means each and all of the persons or entities granting a Security Interest in
any Collateral for the Loan, including without limitation all Borrowers
granting such a Security Interest.

 

Guarantor. The word “Guarantor”
means any guarantor, surety, or accommodation party of any or all of the Loan.

 

Guaranty. The word “Guaranty”
means the guaranty from Guarantor to Lender, including without limitation a
guaranty of all or part of the Note.

 

Hazardous Substances. The
words “Hazardous Substances” mean materials that, because of their quantity,
concentration or physical, chemical or infectious characteristics, may cause or
pose a present or potential hazard to human health or the environment when
improperly used, treated, stored, disposed of, generated, manufactured, transported
or otherwise handled. The words “Hazardous Substances” are used in their very
broadest sense and include without limitation any and all hazardous or toxic
substances, materials or waste as defined by or listed under the Environmental
Laws. The term “Hazardous Substances” also includes, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.

 

Indebtedness. The word “Indebtedness”
means the indebtedness evidenced by the Note or Related Documents, including
all principal and interest together with all other indebtedness and costs and
expenses for which Borrower is responsible under this Agreement or under any of
the Related Documents.

 

Lender. The word “Lender”
means First Community Bank, its successors and assigns.

 

Loan. The word “Loan”
means any and all loans and financial accommodations from Lender to Borrower
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.

 

Note. The word “Note”
means the Promissory Note or Agreement dated July 1, 2008 in the original
principal amount of $9,000,000.00 from Borrower/Grantor to Lender together with
all renewals of, extensions of, modifications of, refinancings of,
consolidations of, additions of and substitutions for the Promissory Note or
Agreement.

 

Permitted Liens. The
words “Permitted Liens” mean (1) liens and security interests securing
Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments,
or similar charges either not yet due
or being contested in good faith; (3) liens of materialmen, mechanics,
warehousemen, 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 in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled “Indebtedness and Liens”;
(5) liens and security interests which, as of the date of this Agreement,
have been disclosed to and approved by the Lender in writing; and (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.

 

Primary Credit Facility.
The words “Primary Credit Facility” mean the credit facility described in the
Line of Credit section of this Agreement.

 

Related Documents. The
words “Related Documents” mean all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Loan.

 

Security Agreement. The
words “Security Agreement” mean and include without limitation any agreements,
promises, covenants, arrangements, understandings or other agreements, whether
created by law, contract, or otherwise, evidencing, governing, representing, or
creating a Security Interest.

 

Security Interest. The
words “Security Interest” mean, without limitation, any and all types of
collateral security, present and future, whether in the form of a lien, charge,
encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop
pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s
lien, equipment trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or any other
security or lien interest whatsoever whether created by law, contract, or
otherwise.

 

6

 

BORROWER ACKNOWLEDGES
HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED)
AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS
DATED JULY 1, 2008.

 

	
  BORROWER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  NEW
  FRONTIER MEDIA, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
  /s/
  Michael Weiner

  	
   

  
	
   

  	
  MICHAEL
  WEINER, CEO of NEW FRONTIER MEDIA,

  	
   

  
	
   

  	
  INC.

  	
   

  

 

	
  LENDER:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  FIRST
  COMMUNITY BANK

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
  /s/
  Chris Keeley

  	
   

  
	
   

  	
  Authorized
  Signer

  	
   

  

 

LASER PRO Lending. Ver. 5.40.00.003 Corp. Harland Financial
Solutions, Inc 1997, 2008. All Rights Reserved. Co L:\ILLEGIBLE

 

7

 

COMMERCIAL
SECURITY AGREEMENT

 

	
  Principal

  	
   

  	
  Loan
  Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call /
  Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  
	
  $

  	
  9,000,000.00

  	
   

  	
  07-01-2008

  	
   

  	
  07-05-2009

  	
   

  	
  281007262

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  CPK

  	
   

  	
   

  
																

 

References in the
boxes above are for Lender’s use only and do not limit the applicability of
this document to any particular loan or item. Any item above containing “***”
has been omitted due to text length limitations.

 

	
  Grantor:

  	
   

  	
  NEW FRONTIER MEDIA,
  INC.

  	
   

  	
  Lender:

  	
   

  	
  First Community Bank

  
	
   

  	
   

  	
  7007 WINCHESTER CIR,
  STE 200

  	
   

  	
   

  	
   

  	
  Lakewood Loan Servicing
  Center

  
	
   

  	
   

  	
  BOULDER, CO 80301

  	
   

  	
   

  	
   

  	
  215 Union Blvd,
  Suite 150

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Lakewood, CO 80228

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (303) 988-2300

  

 

THIS COMMERCIAL SECURITY
AGREEMENT dated July 1, 2008, is made and executed between NEW FRONTIER
MEDIA, INC. (“Grantor”) and First Community Bank (“Lender”).

 

GRANT OF SECURITY
INTEREST. For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.

 

COLLATERAL DESCRIPTION.
The word “Collateral” as used in this Agreement means the following described
property, whether now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located, in which Grantor is giving to Lender a security
interest for the payment of the Indebtedness and performance of all other
obligations under the Note and this Agreement:

 

All Accounts

 

In addition, the word “Collateral”
also includes all the following, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located:

 

(A)  All accessions, attachments, accessories, replacements
of and additions to any of the collateral described herein, whether added now
or later.

 

(B)   All products and produce of any of the property
described in this Collateral section.

 

(C)   All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale, lease, consignment
or other disposition of any of the property described in this Collateral
section.

 

(D)  All proceeds (including
insurance proceeds) from the sale, destruction, loss, or other disposition of
any of the property described in this Collateral section, and sums due from a
third party who has damaged or destroyed the Collateral or from that party’s
insurer, whether due to judgment, settlement or other process.

 

(E)   All records
and data relating to any of the property described in this Collateral section,
whether in the form of a writing, photograph, microfilm, microfiche, or
electronic media, together with all of Grantor’s right, title, and interest in
and to all computer software required to utilize, create, maintain, and process
any such records or data on electronic media.

 

RIGHT OF SETOFF. To the
extent permitted by applicable law, Lender reserves a right of setoff in all
Grantor’s accounts with Lender (whether checking, savings, or some other
account). This includes all accounts Grantor holds jointly with someone else
and all accounts Grantor may open in the future. However, this does not include
any IRA or Keogh accounts, or any trust accounts for which setoff would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts, and, at Lender’s option, to administratively freeze
all such accounts to allow Lender to protect Lender’s charge and setoff rights
provided in this paragraph.

 

GRANTOR’S REPRESENTATIONS
AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral,
Grantor represents and promises to Lender that:

 

Perfection of Security Interest. Grantor agrees to
take whatever actions are requested by Lender to perfect and continue Lender’s
security interest in the Collateral. Upon request of Lender, Grantor will
deliver to Lender any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender’s interest upon any and all chattel
paper and instruments if not delivered to Lender for possession by Lender. This
is a continuing Security Agreement and will continue in effect even though all
or any part of the Indebtedness is paid in full and even though for a period of
time Grantor may not be indebted to Lender.

 

Notices to Lender. Grantor will promptly notify Lender
in writing at Lender’s address shown above (or such other addresses as Lender
may designate from time to time) prior to any (1) change in Grantor’s
name; (2) change in Grantor’s assumed business name(s); (3) change in
the management of the Corporation Grantor; (4) change in the authorized
signer(s); (5) change in Grantor’s principal office address; (6) change
in Grantor’s state of organization; (7) conversion of Grantor to a new or
different type of business entity; or (8) change in any other aspect of
Grantor that directly or indirectly relates to any agreements between Grantor
and Lender. No change in Grantor’s name or state of organization will take
effect until after Lender has received notice.

 

No Violation. The
execution and delivery of this Agreement will not violate any law or agreement
governing Grantor or to which Grantor is a party, and its certificate or
articles of incorporation and bylaws do not prohibit any term or condition of
this Agreement.

 

Enforceability of Collateral. To the extent the
Collateral consists of accounts, chattel paper, or general intangibles, as defined
by the Uniform Commercial Code, the Collateral is enforceable in accordance
with its terms, is genuine, and fully complies with all applicable laws and
regulations concerning form, content and manner of preparation and execution,
and all persons appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear to be on the
Collateral. At the time any account becomes subject to a security interest in
favor of Lender, the account shall be a good and valid account representing an
undisputed, bonafide indebtedness incurred by the account debtor, for
merchandise held subject to delivery instructions or previously shipped or
delivered pursuant to a contract of sale, or for services previously performed
by Grantor with or for the account debtor. So long as this Agreement remains in
effect, Grantor shall not, without Lender’s prior written consent, compromise,
settle, adjust, or extend payment under or with regard to any such Accounts.
There shall be no setoffs or counterclaims against any of the Collateral, and
no agreement shall have been made under which any deductions or discounts may
be claimed concerning the Collateral except those disclosed to Lender in
writing.

 

Location of the Collateral. Except in the ordinary
course of Grantor’s business, Grantor agrees to keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts or
general intangibles, the records concerning the Collateral) at Grantor’s
address shown above or at such other locations as are acceptable to Lender.
Upon Lender’s request, Grantor will deliver to Lender in form satisfactory to
Lender a schedule of real properties and Collateral locations relating to
Grantor’s operations, including without limitation the following: (1) all
real property Grantor owns or is purchasing; (2) all real property Grantor
is renting or leasing; (3) all storage facilities Grantor owns, rents,
leases, or uses; and (4) all other properties where Collateral is or may
be located.

 

Removal of the
Collateral. Except in the ordinary course of Grantor’s business, Grantor shall
not remove the Collateral from its existing location without Lender’s prior
written consent. Grantor shall, whenever requested, advise Lender of the exact
location of the Collateral.

 

Transactions Involving Collateral. Except for
inventory sold or accounts collected in the ordinary course of Grantor’s
business, or as otherwise provided for in this Agreement, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral
to be subject to any lien, security interest, encumbrance, or charge, other
than the security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if junior in
right to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute consent by
Lender to any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.

 

Title. Grantor represents and warrants to Lender that
Grantor holds good and marketable title to the Collateral, flee and clear of
all liens and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office other
than those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender’s rights
in the Collateral against the claims and demands of all other persons.

 

Repairs and Maintenance. Grantor agrees to keep and
maintain, and to cause others to keep and maintain, the Collateral in good
order, repair and condition at all times while this Agreement remains in
effect. Grantor further agrees to pay when due all claims for work done on, or
services rendered or material furnished in connection with the Collateral so
that no lien or encumbrance may ever attach to or be filed against the
Collateral.

 

Inspection of Collateral. Lender and Lender’s
designated representatives and agents shall have the right at all reasonable
times to examine

 

 

and inspect the
Collateral wherever located.

 

Taxes, Assessments and Liens. Grantor will pay when
due all taxes, assessments and liens upon the Collateral, its use or operation,
upon this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may withhold
any such payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole
opinion. If the Collateral is subjected to a lien which is not discharged
within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient
corporate surety bond or other security satisfactory to Lender in an amount
adequate to provide for the discharge of the lien plus any interest, costs,
attorneys’ fees or other charges that could accrue as a result of foreclosure
or sale of the Collateral. In any contest Grantor shall defend itself and
Lender and shall satisfy any final adverse judgment before enforcement against
the Collateral. Grantor shall name Lender as an additional obligee under any
surety bond furnished in the contest proceedings. Grantor further agrees to
furnish Lender with evidence that such taxes, assessments, and governmental and
other charges have been paid in full and in a timely manner. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is in
good faith conducting an appropriate proceeding to contest the obligation to
pay and so long as Lender’s interest in the Collateral is not jeopardized.

 

Compliance with Governmental Requirements. Grantor
shall comply promptly with all laws, ordinances, rules and regulations of
all governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral, including all
laws or regulations relating to the undue erosion of highly-erodible land or
relating to the conversion of wetlands for the production of an agricultural
product or commodity. Grantor may contest in good faith any such law, ordinance
or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender’s interest in the Collateral, in Lender’s
opinion, is not jeopardized.

 

Hazardous Substances. Grantor represents and warrants
that the Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used in violation of any Environmental Laws
or for the generation, manufacture, storage, transportation, treatment,
disposal, release or threatened release of any Hazardous Substance. The
representations and warranties contained herein are based on Grantor’s due
diligence in investigating the Collateral for Hazardous Substances. Grantor
hereby (1) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup or
other costs under any Environmental Laws; and (2) agrees to indemnify,
defend, and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This obligation to
indemnify and defend shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.

 

Maintenance of Casualty Insurance. Grantor shall
procure and maintain all risks insurance, including without limitation fire,
theft and liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender
from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least fifteen (15) days’ prior written
notice to Lender and not including any disclaimer of the insurer’s liability
for failure to give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is offered
a security interest, Grantor will provide Lender with such loss payable or
other endorsements as Lender may require. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender may
(but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if Lender so chooses “single interest insurance,” which
will cover only Lender’s interest in the Collateral.

 

Application of Insurance Proceeds. Grantor shall
promptly notify Lender of any loss or damage to the Collateral if the estimated
cost of repair or replacement exceeds $5,000.00, whether or not such casualty
or loss is covered by insurance. Lender may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. All proceeds of any
insurance on the Collateral, including accrued proceeds thereon, shall he held
by Lender as part of the Collateral. If Lender consents to repair or
replacement of the damaged or destroyed Collateral, Lender shall, upon
satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds
for the reasonable cost of repair or restoration. If Lender does not consent to
repair or replacement of the Collateral, Lender shall retain a sufficient
amount of the proceeds to pay all of the Indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within six (6)
months after their receipt and which Grantor has not committed to the repair or
restoration of the Collateral shall be used to prepay the Indebtedness.

 

Insurance Reserves. Lender may require Grantor to
maintain with Lender reserves for payment of insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated by Lender
to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to
the insurance premiums to be paid. If fifteen (15) days before payment is due,
the reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a general
deposit and shall constitute a non-interest-bearing account which Lender may
satisfy by payment of the insurance premiums required to be paid by Grantor as
they become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor’s sole responsibility.

 

Insurance Reports. Grantor, upon request of Lender,
shall furnish to Lender reports on each existing policy of insurance showing
such information as Lender may reasonably request including the following: (1) the
name of the insurer; (2) the risks insured; (3) the amount of the policy; (4)
the property insured; (5) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and (6) the
expiration date of the policy. In addition, Grantor shall upon request by
Lender (however not more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash value or replacement
cost of the Collateral.

 

Financing Statements. Grantor authorizes Lender to
file a UCC financing statement, or alternatively, a copy of this Agreement to
perfect Lender’s security interest. At Lender’s request, Grantor additionally
agrees to sign all other documents that are necessary to perfect, protect, and
continue Lender’s security interest in the Property. Grantor will pay all filing
fees, title transfer fees, and other fees and costs involved unless prohibited
by law or unless Lender is required by law to pay such fees and costs. Grantor
irrevocably appoints Lender to execute documents necessary to transfer title if
there is a default. Lender may file a copy of this Agreement as a financing
statement. If Grantor changes Grantor’s name or address, or the name or address
of any person granting a security interest under this Agreement changes,
Grantor will promptly notify the Lender of such change.

 

GRANTOR’S RIGHT TO
POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise
provided below with respect to accounts, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor’s right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender’s security interest in such Collateral. Until
otherwise notified by Lender, Grantor may collect any of the Collateral
consisting of accounts. At any time and even though no Event of Default exists,
Lender may exercise its rights to collect the accounts and to notify account
debtors to make payments directly to Lender for application to the
Indebtedness. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request or as Lender, in
Lender’s sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.

 

LENDER’S EXPENDITURES. If
any action or proceeding is commenced that would materially affect Lender’s
interest in the Collateral or if Grantor fails to comply with any provision of
this Agreement or any Related Documents, including but not limited to Grantor’s
failure to discharge or pay when due any amounts Grantor is required to
discharge or pay under this Agreement or any Related Documents, Lender on
Grantor’s behalf may (but shall not be obligated to) take any action that
Lender deems appropriate, including but not limited to discharging or  paying all taxes, liens, security interests,
encumbrances and other claims, at any time levied or placed on the Collateral
and paying all costs for insuring, maintaining and preserving the Collateral.
All such expenditures incurred or paid by Lender for such purposes will then
bear interest at the rate charged under the Note from the date incurred or paid
by Lender to the date of repayment by Grantor. All such expenses will become a
part of the Indebtedness and, at Lender’s option, will (A) be payable on
demand; (B) be added to the balance of the Note and be apportioned among
and be payable with any installment payments to become due during either (1) the
term of any applicable insurance policy; or (2) the remaining term of the
Note; or (C) be treated as a balloon payment which will be due and payable
at the Note’s maturity. The Agreement also will secure payment of these
amounts. Such right shall be in addition to all other rights and remedies to
which Lender may be entitled upon Default.

 

DEFAULT. Each of the
following shall constitute an Event of Default under this Agreement:

 

Payment Default. Grantor
fails to make any payment when due under the Indebtedness.

 

Other Defaults. Grantor
fails to comply with or to perform any other term, obligation, covenant or
condition contained in this Agreement or in any of the Related Documents or to
comply with or to perform any term, obligation, covenant or condition contained
in any other agreement between Lender and Grantor.

 

2

 

Default in Favor of
Third Parties. Grantor defaults under any loan, extension of credit, security
agreement, purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Grantor’s property
or ability to perform Grantor’s obligations under this Agreement or any of the
Related Documents.

 

False Statements. Any
warranty, representation or statement made or furnished to Lender by Grantor or
on Grantor’s behalf under this Agreement or the Related Documents is false or
misleading in any material respect, either now or at the time made or furnished
or becomes false or misleading at any time thereafter.

 

Defective
Collateralization. This Agreement or any of the Related Documents ceases to be
in full force and effect (including failure of any collateral document to
create a valid and perfected security interest or lien) at any time and for any
reason.

 

Insolvency. The
dissolution or termination of Grantor’s existence as a going business, the
insolvency of Grantor, the appointment of a receiver for any part of Grantor’s
property, any assignment for the benefit of creditors, any type of creditor
workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Grantor.

 

Creditor or Forfeiture
Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by
judicial proceeding, self-help, repossession or any other method, by any
creditor of Grantor or by any governmental agency against any collateral
securing the Indebtedness. This includes a garnishment of any of Grantor’s
accounts, including deposit accounts, with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a surety
bond for the creditor or forfeiture proceeding, in an amount determined by
Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.

 

Events Affecting
Guarantor. Any of the preceding events occurs with respect to any guarantor,
endorser, surety, or accommodation party of any of the Indebtedness or
guarantor, endorser, surety, or accommodation party dies or becomes incompetent
or revokes or disputes the validity of, or liability under, any Guaranty of the
Indebtedness.

 

Adverse Change. A
material adverse change occurs in Grantor’s financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is
impaired.

 

Insecurity. Lender in
good faith believes itself insecure.

 

RIGHTS
AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at
any time thereafter, Lender shall have all the rights of a secured party under
the Colorado Uniform Commercial Code. In addition and without limitation,
Lender may exercise any one or more of the following rights and remedies:

 

Accelerate Indebtedness.
Lender may declare the entire Indebtedness, including any prepayment penalty
which Grantor would be required to pay, immediately due and payable, without
notice of any kind to Grantor.

 

Assemble Collateral.
Lender may require Grantor to deliver to Lender all or any portion of the
Collateral and any and all certificates of title and other documents relating
to the Collateral. Lender may require Grantor to assemble the Collateral and
make it available to Lender at a place to be designated by Lender. Lender also
shall have full power to enter upon the property of Grantor to take possession
of and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees Lender
may take such other goods, provided that Lender makes reasonable efforts to
return them to Grantor after repossession.

 

Sell the Collateral.
Lender shall have full power to sell, lease, transfer, or otherwise deal with
the Collateral or proceeds thereof in Lender’s own name or that of Grantor.
Lender may sell the Collateral at public auction or private sale. Unless the
Collateral threatens to decline speedily in value or is of a type customarily
sold on a recognized market, Lender will give Grantor, and other persons as
required by law, reasonable notice of the time and place of any public sale, or
the time after which any private sale or any other disposition of the
Collateral is to be made. However, no notice need be provided to any person
who, after Event of Default occurs, enters into and authenticates an agreement
waiving that person’s right to notification of sale. The requirements of
reasonable notice shall be met if such notice is given at least ten (10) days
before the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure
until repaid.

 

Appoint Receiver. Lender
shall have the right to have a receiver appointed to take possession of all or
any part of the Collateral, with the power to protect and preserve the
Collateral, to operate the Collateral preceding foreclosure or sale, and to
collect the Rents from the Collateral and apply the proceeds, over and above
the cost of the receivership, against the Indebtedness. The receiver may serve
without bond if permitted by law. Lender’s right to the appointment of a
receiver shall exist whether or not the apparent value of the Collateral
exceeds the Indebtedness by a substantial amount. Employment by Lender shall
not disqualify a person from serving as a receiver. Receiver may be appointed
by a court of competent jurisdiction upon ex parte application and without
notice, notice being expressly waived.

 

Collect Revenues, Apply
Accounts. Lender, either itself or through a receiver, may collect the
payments, rents, income, and revenues from the Collateral. Lender may at any
time in Lender’s discretion transfer any Collateral into Lender’s own name or
that of Lender’s nominee and receive the payments, rents, income, and revenues
therefrom and hold the same as security for the Indebtedness or apply it to
payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise, adjust,
sue for, foreclose, or realize on the Collateral as Lender may determine,
whether or not Indebtedness or Collateral is then due. For these purposes,
Lender may, on behalf of and in the name of Grantor, receive, open and dispose
of mail addressed to Grantor; change any address to which mail and payments are
to be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to Lender.

 

Obtain Deficiency. If
Lender chooses to sell any or all of the Collateral, Lender may obtain a
judgment against Grantor for any deficiency remaining on the Indebtedness due
to Lender after application of all amounts received from the exercise of the
rights provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of accounts or
chattel paper.

 

Other Rights and
Remedies. Lender shall have all the rights and remedies of a secured creditor
under the provisions of the Uniform Commercial Code, as may he amended from
time to time. In addition, Lender shall have and may exercise any or all other
rights and remedies it may have available at law, in equity, or otherwise.

 

Election of Remedies. Except
as may be prohibited by applicable law, all of Lender’s rights and remedies,
whether evidenced by this Agreement, the Related Documents, or by any other
writing, shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor’s failure to perform,
shall not affect Lender’s right to declare a default and exercise its remedies.

 

MISCELLANEOUS PROVISIONS.
The following miscellaneous provisions are a part of this Agreement:

 

Amendments. This
Agreement, together with any Related Documents, constitutes the entire
understanding and agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.

 

Attorneys’ Fees;
Expenses. Grantor agrees to pay upon demand all of Lender’s reasonable costs
and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses,
incurred in connection with the enforcement of this Agreement. Lender may hire
or pay someone else to help enforce this Agreement, and Grantor shall pay the
reasonable costs and expenses of such enforcement. Costs and expenses include
Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit,
including attorneys’ fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Grantor also
shall pay all court costs and such additional fees as may be directed by the
court.

 

Caption Headings. Caption
headings in this Agreement are for convenience purposes only and are not to be
used to interpret or define the provisions of this Agreement.

 

Governing Law. This
Agreement will be governed by federal law applicable to Lender and, to the
extent not preempted by federal law, the laws of the State of Colorado without
regard to its conflicts of law provisions. This Agreement has been accepted by
Lender in the State of Colorado.

 

Choice of Venue. If there
is a lawsuit, Grantor agrees upon Lender’s request to submit to the
jurisdiction of the courts of Jefferson County, State of Colorado.

 

No Waiver by
Lender. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.  No delay or omission on the part of Lender in
exercising any right shall operate as a waiver of such right or any

 

3

 

other right. A waiver by Lender of a provision of this
Agreement shall not prejudice or constitute a waiver of Lender’s right
otherwise to demand strict compliance with that provision or any other
provision of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s
rights or of any of Grantor’s obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing consent
to subsequent instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender.

 

Notices. Any notice required to be given under this
Agreement shall be given in writing, and shall be effective when actually
delivered, when actually received by telefacsimile (unless otherwise required
by law), when deposited with a nationally recognized overnight courier, or, if
mailed, when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party’s address. For notice
purposes, Grantor agrees to keep Lender informed at all times of Grantor’s
current address. Unless otherwise provided or required by law, if there is more
than one Grantor, any notice given by Lender to any Grantor is deemed to be
notice given to all Grantors.

 

Power of Attorney. Grantor hereby appoints Lender as
Grantor’s irrevocable attorney-in-fact for the purpose of executing any
documents necessary to perfect, amend, or to continue the security interest
granted in this Agreement or to demand termination of filings of other secured
parties. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the continuation of
the perfection of Lender’s security interest in the Collateral.

 

Severability. If a court of competent jurisdiction
finds any provision of this Agreement to be illegal, invalid, or unenforceable
as to any circumstance, that finding shall not make the offending provision
illegal, invalid, or unenforceable as to any other circumstance. If feasible,
the offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this Agreement. Unless otherwise required by
law, the illegality, invalidity, or unenforceability of any provision of this
Agreement shall not affect the legality, validity or enforceability of any
other provision of this Agreement.

 

Successors and Assigns. Subject to any limitations
stated in this Agreement on transfer of Grantor’s interest, this Agreement
shall be binding upon and inure to the benefit of the parties, their successors
and assigns. If ownership of the Collateral becomes vested in a person other
than Grantor, Lender, without notice to Grantor, may deal with Grantor’s
successors with reference to this Agreement and the Indebtedness by way of
forbearance or extension without releasing Grantor from the obligations of this
Agreement or liability under the Indebtedness.

 

Survival of Representations and Warranties. All
representations, warranties, and agreements made by Grantor in this Agreement
shall survive the execution and delivery of this Agreement, shall be continuing
in nature, and shall remain in full force and effect until such time as Grantor’s
Indebtedness shall be paid in full.

 

Time is of the Essence. Time is of the essence in the
performance of this Agreement.

 

DEFINITIONS. The
following capitalized words and terms shall have the following meanings when
used in this Agreement. Unless specifically stated to the contrary, all references
to dollar amounts shall mean amounts in lawful money of the United States of
America. Words and terms used in the singular shall include the plural, and the
plural shall include the singular, as the context may require. Words and terms
not otherwise defined in this Agreement shall have the meanings attributed to
such terms in the Uniform Commercial Code:

 

Agreement. The word “Agreement” means this Commercial
Security Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules attached
to this Commercial Security Agreement from time to time.

 

Borrower. The word “Borrower” means NEW FRONTIER
MEDIA, INC. and includes all co-signers and co-makers signing the Note and all
their successors and assigns.

 

Collateral. The word “Collateral” means all of Grantor’s
right, title and interest in and to all the Collateral as described in the
Collateral Description section of this Agreement.

 

Default. The word “Default” means the Default set forth
in this Agreement in the section titled “Default”.

 

Environmental Laws. The words “Environmental Laws”
mean any and all state, federal and local statutes, regulations and ordinances
relating to the protection of human health or the environment, including
without limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”),
the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
(“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or federal laws, rules, or regulations
adopted pursuant thereto.

 

Event of Default. The words “Event of Default” mean
any of the events of default set forth in this Agreement in the default section
of this Agreement.

 

Grantor. The word “Grantor” means NEW FRONTIER MEDIA,
INC.

 

Guaranty. The word “Guaranty” means the guaranty from
guarantor, endorser, surety, or accommodation party to Lender, including
without limitation a guaranty of all or part of the Note.

 

Hazardous Substances. The words “Hazardous Substances”
mean materials that, because of their quantity, concentration or physical, chemical
or infectious characteristics, may cause or pose a present or potential hazard
to human health or the environment when improperly used, treated, stored,
disposed of, generated, manufactured, transported or otherwise handled. The
words “Hazardous Substances” are used in their very broadest sense and include
without limitation any and all hazardous or toxic substances, materials or
waste as defined by or listed under the Environmental Laws. The term “Hazardous
Substances” also includes, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos.

 

Indebtedness. The word “Indebtedness” means the
indebtedness evidenced by the Note or Related Documents, including all
principal and interest together with all other indebtedness and costs and
expenses for which Grantor is responsible under this Agreement or under any of
the Related Documents.

 

Lender. The word “Lender” means First Community Bank,
its successors and assigns.

 

Note. The word “Note” means the Promissory Nate or Agreement
dated July 1, 2008 in the original principal amount of $9,000,000.00 from
Borrower/Grantor to Lender together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, additions of and
substitutions for the Promissory Note or Agreement.

 

Property. The word “Property” means all of Grantor’s
right, title and interest in and to all the Property as described in the “Collateral
Description” section of this Agreement.

 

Related Documents. The words “Related Documents” mean
all promissory notes, credit agreements, loan agreements, environmental
agreements, guaranties, security agreements, mortgages, deeds of trust,
security deeds, collateral mortgages, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with the
Indebtedness.

 

GRANTOR HAS READ AND
UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES
TO ITS TERMS. THIS AGREEMENT IS DATED JULY 1, 2008.

 

	
  GRANTOR:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  NEW
  FRONTIER MEDIA, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  BY:

  	
  /s/
  Michael Weiner

  	
   

  
	
   

  	
  MICHAEL
  WEINER CEO of NEW FRONTIER MEDIA,

  	
   

  
	
   

  	
  INC.

  	
   

  

 

LASER PRO Lending. Ver. 5.40.00.003 Corp. Harland Financial
Solutions, Inc 1997, 2008. All Rights Reserved. Co L:\ILLEGIBLE

 

4Exhibit 10.1

 

	
  SALE OF GOVERNMENT PROPERTY

  AMENDMENT OF INVITATION FOR BIDS/MODIFICATION OF CONTRACT

  
	
  1. AMENDMENT TO INVITATION FOR BIDS NO.:

  	
  2.
  EFFECTIVE DATE

   

  	
  PAGE
  1 OF 3 PAGES

  
	
  SUPPLEMENTAL AGREEMENT NO.:14

  	
  05/13/08

  
	
  3.  ISSUED
  BY

   

  DEFENSE REUTILIZATION AND MARKETING SERVICE

  INTERNATIONAL SALES OFFICE, ATTN:DRMS-J362

  74 N WASHINGTON STREET

  BATTLE CREEK MI
  49017-3092

  	
  NAME AND ADDRESS WHERE BIDS ARE RECEIVED

   

  DEFENSE REUTILIZATION AND MARKETING SERVICE INTERNATIONAL SALES
  OFFICE, ATTN:DRMS-J362

  74 N WASHINGTON STREET

  BATTLE CREEK MI 49017-3092

  
	
  o AMENDMENT OF INVITATION FOR BIDS NO. (See
  Item 6)

  	
  DATED

  	
  x MODIFICATION OF CONTRACT NO. (See Item 8)

  99-0001-0002

  	
  DATE

  06/13/01

  
	
  6. THIS BLOCK APPLIES ONLY TO
  AMENDMENTS INVITATIONS FOR BIDS

  The
  above numbered invitation for bids is amended as set forth in Item 9. Bidders must acknowledge receipt of this amendment unless
  indicated otherwise in Item 11 prior to the hour and date specified in the
  invitation for bids, or as amended, by one of the following methods:

   

  (a)                 By signing and returning           copies
  of this amendment;

  (b)                By acknowledging receipt of this amendment on each copy of the bid
  submitted; or

  (c)                 By separate letter or telegram which includes a reference to the
  invitation for bids and amendment number.

  FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED
  AT THE ISSUING OFFICE PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN
  REJECTION OF YOUR BID. If by virtue of this amendment you desire to change a bid
  already submitted, such change may be made by telegram or letter, provided such telegram or letter makes
  reference to the invitation for bids and this amendment, and is received
  prior to the opening hour and date specified.

  
	
  7.  ACCOUNTING AND APPROPRIATION DATA (If required)

  
	
  8.    THIS APPLIES ONLY TO MODIFICATION OF CONTRACTS

  This Supplemental Agreement is entered into
  pursuant to authority of Mutual Agreement

  
	
  9.               DESCRIPTION OF AMENDMENT/MODIFICATION (Except as provided below all terms and conditions of the document
  referenced in Item 5 remain in full force and effect)

  Whereas Contract 99-0001-0002 was
  entered into on June 13, 2001 by and between the United States of
  America, hereinafter referred to as the Government, and SURPLUS ACQUISTION
  VENTURE (SAV), LLC, hereinafter referred to as the Contractor, and GOVERNMENT
  LIQUIDATION (GL), LLC, formed by the contractor to serve as the entity that
  processes DRMS assets, hereinafter referred to as the Purchaser, and whereas
  the contract involved the following in Invitation For Bid 99-0001:

   

  0001: All Federal Stock Classes (FSCs) listed in
  Table IV-1 of solicitation on the DRMS accountable record that are
  demilitarization code A,
  B, or Q, located at various
  U.S. (to include Alaska and Hawaii), Puerto Rico and Guam military
  installations.

   

   

   

   

   

   

  THE HOUR AND DATE FOR RECEIPT OF BIDS  o  IS
  NOT EXTENDED,  o  IS
  EXTENDED UNTIL              O’CLOCK

  (LOCAL TIME)            DATE

  
	
  I0. BIDDER/PURCHASER NAME AND ADDRESS (Include ZIP Code)

   

  SURPLUS
  ACQUISITION VENTURE,
  LLC

  2131
  K Street NW, 4th Floor 

  Washington, DC 20037

  	
  11.  o BIDDER IS NOT REQUIRED TO SIGN THIS
  DOCUMENT

        x PURCHASE IS REQUIRED TO SIGN THIS DOCUMENT AND
  RETURN ORIGINAL AND 0 COPIES TO THE ISSUING OFFICE

   

   

  
	
  12.  SIGNATURE FOR BIDDER/PURCHASER

  	
  15.  UNITED STATES OF AMERICA

  
	
   

  	
   

  
	
  BY

  	
  /s/
  William Angrick

  	
   

  	
  BY

  	
  /s/ Neil A. Watters

  	
   

  
	
  (SIGNATURE OF PERSON AUTHORIZED TO SIGN)

  	
  (SIGNATURE OF CONTRACTING OFFICER)

  
	
   13. NAME & TITLE OF SIGNER (Type or print)

  WILLIAM ANGRICK

  CEO

  	
  14 .  DATE SIGNED

  05/13/08

  	
  16.
   NAME OF CONTRACTING OFFICER. (Type or print)

  NEIL
  A. WATTERS

  	
  17. DATE
  SIGNED

  05/13/08

  
	
  GPO : 1970 OF—390-461 (40-X)

  	
  STANDARD FORM 114D

  JAN. 1970 EDITION

  GENERAL SERVICES ADMINISTRATION

  FPMR (41 CFR) 101-45.3

  114-501

  
											

 

 

CONTRACT NUMBER 99-0001-0002

Supplemental Agreement 14

 

WHEREAS, it  has been determined that the following
actions will serve the best interest of the Government and Contractor:

 

a.  To extend the performance period of sales contract number
99-0001-0002 by 180 days;

 

b.  To modify the product pool available to be delivered under this contract during the contract extension period;

 

c.  To provide for a termination clause whereby either party,
with 60 days written notice to the other party, may terminate the contract
without cost to the Government;
and

 

d.  The Contractor’s revenue share will be increased to 39.5
percent during the contract extension period for property issued to the
Contractor commencing with Delivery Order 358.

 

NOW, therefore, it is mutually agreed between the parties hereto:

 

Part II, GENERAL STATEMENTS OF CONTRACT
TERMS, is modified as follows:

 

Paragraph B, Product Pool and Property Flow,
the following language added therein:

 

B. PRODUCT POOL AND PROPERTY FLOW

 

During the 180-day extension,
hereinafter referred as “contract extension”, Contractor will receive property
at CONUS locations to include Alaska, Hawaii, and Guam. Contractor is only entitled to
property that appears on a Delivery Order during the contract extension. The
product pool during the contract extension will primarily consist of
demilitarization code A items. The Government will utilize this contract as the primary channel for the
disposition of usable surplus property that survives Reutilization, Transfer,
and Donation (RTD) screening and is determined by DRMS to be “safe to sell”.
However, the Government, in its sole discretion,
during the contract extension, may include certain demilitarization code B and
Q items on a Delivery Order, or exclude certain demilitarization code A items
from sale, based on national security concerns. Contractor will be guaranteed
property with a minimum monthly acquisition value of $100,000,000, averaged
over the term of the contract extension. Upon mutual decision between DRMS and
the Contractor, the product pool may include non-DRMS assets that are not on
the DRMS accountable record. Title to these assets will remain with the
Government until resale to the Contractor’s purchaser(s) and removal of
the items from Government premises. The Contractor will be required to account
for, identify, and pay DRMS separately for non-DRMS assets. A 12% sales fee
applies to the resale of these assets instead of the typical revenue share
identified elsewhere in this contract. DRMS has the option to phase-out the
property stream at any location once DRMS awards Invitation For Bid (IFB)
08-0001.

 

Paragraph D, Phase-In and Performance Period,
the following language added therein:

 

D. PHASE-IN PERIOD AND PERFORMANCE PERIOD

 

Performance period of this contract is extended 180 days. The contract
may be terminated by either party without cost to the Government upon a 60-day
written notice to the other party. Notice of termination may be issued anytime
after the issuance of Delivery Order 358.

 

Part VI, ADDITIONAL TERMS AND CONDITIONS
OF SALE, is modified as follows:

 

2

 

Article Two,
Section 1, Performance Period, the following language is added therein:

 

Performance period of this contract extension is 180 days until December 19,
2008. The contract may be terminated by either party without cost to the
Government upon a
60-day written notice to the other party. Notice of termination may be issued
anytime after the issuance of Delivery Order 358.

 

Article Three,
Section 1(A), R/T/D Review is deleted in its entirety during the contract
extension period.

 

Contractor is only entitled to property that appears on Delivery Order
358 and thereafter.

 

Article Twenty-One,
Section 2, Cessation of Property Referrals, is deleted in its entirety and
the following language included therein:

 

There shall be no further referrals of property by DRMS for sale to
Contractor from the Wind-Up commencement date forward. Submission of monthly
reports shall continue until Wind-Up is completed.

 

Article Twenty-One, Section 3, Conduct of Wind-Up is deleted
in its entirety and the following language included therein:

 

From the Wind-Up commencement date forward, Purchaser and Contractor
shall perform their remaining obligations hereunder in accordance with the
provisions of this contract. If the Contractor is unable or unwilling to do so,
or if DRMS reasonably concludes that the value of its remaining interest in
Contractor’s net proceeds is at risk by reason of actual or threatened failure
to comply with provisions of the contract, DRMS may seek administrative or
judicial relief to preserve the value of such remaining interest in Contractor’s
net proceeds. Contractor must vacate all property from Government provided
warehouse locations within 90 days of the last Delivery Order. Property issued
under this contract must be removed from Government premises within 90 days of
the last Delivery Order.

 

Article Sixteen, Section 4(D)(5), Distributions, the
following language is included therein:

 

During the contract extension period, the Contractor’s revenue share is
39.5% for all property issued from Delivery Order 358 and thereafter that is
resold under the terms and conditions of this contract.

 

The terms and conditions not specifically addressed in this contract
modification shall remain in full force and effect during the contract
extension period. Parties hereto acknowledge and agree that any terms and
conditions of sale contract number 99-0001-0002 that deviate from the explicit
language of the terms and conditions of this contract modification shall be
considered non-binding and of no force and effect.

 

//////////////////////////////////NOTHING FOLLOWS/////////////////////////////////

 

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}]]