UniTek Global Services, Inc. - FORM S-1

We have audited the accompanying consolidated balance sheets of UniTek Holdings, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of UniTek Holdings, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1, the Company has restated its statements of cash flows for 2009 and 2008.

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

April 12, 2010, except Notes 1, 22, 23, and 24, as to which the date is August 13, 2010

F-ii

Consolidated Balance Sheets

	December 31
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	2,263,278		$	5,348,133
Restricted cash		132,881			450,000
Accounts receivable and unbilled revenue, net of allowances		24,679,947			26,944,879
Inventories		8,325,721			10,844,229
Prepaid expenses and other current assets		3,803,787			2,437,089
Total current assets		39,205,614			46,024,330

Property and equipment, net		20,665,487			13,597,175
Goodwill		137,827,554			171,703,472
Customer contracts, net		26,563,731			42,823,469
Other intangible assets, net		376,799			686,458
Deferred tax asset, net		109,000			34,000
Other long-term assets		7,092,952			7,145,721
Total assets	$	231,841,137		$	282,014,625

Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	19,301,778		$	17,259,046
Accrued expenses		23,329,678			20,136,027
Current income taxes		187,000			314,000
Current portion of long-term debt		33,005,777			152,707,127
Current portion of capital lease obligations and vehicle loans		5,097,245			784,836
Total current liabilities		80,921,478			191,201,036

Long-term debt, net of current portion		127,162,500			–
Capital lease obligations and vehicle loans, net of current portion		4,243,804			1,314,140
Deferred income taxes		–			4,831,457
Other long-term liabilities		–			1,669,076
Total liabilities		212,327,782			199,015,709

Shareholders' equity:
Preferred stock $.01 par value (1,000 shares authorized, no shares issued or outstanding)		-			-
Common stock $0.01 par value (150,000,000 shares, authorized, 109,100,000 and 109,050,000 shares issued and outstanding)		1,091,000			1,090,500
Additional paid-in capital		112,746,597			110,871,208
Accumulated other comprehensive income (loss)		60,642			(183,374	)
Accumulated deficit		(94,384,884	)		(28,779,418	)
Total shareholders' equity		19,513,355			82,998,916
Total liabilities and shareholders' equity	$	231,841,137		$	282,014,625

See accompanying notes.

F-1

Consolidated Statements of Operations

	Year Ended December 31
	2009			2008

Revenues	$	278,098,344		$	215,751,912
Cost of revenues		237,350,454			180,318,723
Gross profit		40,747,890			35,433,189

Selling, general, and administrative expenses		26,859,882			20,863,530
Asset impairment		38,430,952			–
Depreciation and amortization		26,878,027			21,270,188
Operating loss		(51,420,971	)		(6,700,529	)

Interest income		–			82,271
Interest expense		18,824,916			16,096,036
Other expense, net		284,273			7,480
Loss from continuing operations before income taxes		(70,530,160	)		(22,721,774	)

Benefit (provision) for income taxes		4,743,254			(4,503,457	)
Loss from continuing operations		(65,786,906	)		(27,225,231	)

Income from discontinued operations (net of tax benefit of $0 and $453,000, respectively)		181,440			4,034,275
Net loss	$	(65,605,466	)	$	(23,190,956	)

Net loss per share:
Basic	$	(0.60	)	$	(0.21	)
Diluted	$	(0.60	)	$	(0.21	)

Weighted average number of shares outstanding:
Basic		109,096,154			108,834,615
Diluted		109,096,154			108,834,615

See accompanying notes.

F-2

Consolidated Statements of Shareholders' Equity

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital		Income			Deficit			Total

Balance as of December 31, 2007		108,650,000	$	1,086,500	$	109,184,648	$	–		$	(5,588,462	)	$	104,682,686
Net loss		–		–		–		–			(23,190,956	)		(23,190,956	)
Currency translation		–		–		–		(183,374	)		–			(183,374	)
Total comprehensive loss								(183,374	)		(23,190,956	)		(23,374,330	)
Capital contributions		400,000		4,000		396,000		–			–			400,000
Stock compensation expense		–		–		1,290,560		–			–			1,290,560
Balance as of December 31, 2008		109,050,000		1,090,500		110,871,208		(183,374	)		(28,779,418	)		82,998,916
Net loss		–		–		–					(65,605,466	)		(65,605,466	)
Currency translation		–		–		–		244,016			–			244,016
Total comprehensive loss								244,016			(65,605,466	)		(65,361,450	)
Warrants issued in acquisition		–		–		137,500		–			–			137,500
Capital contributions		50,000		500		49,500		–			–			50,000
Stock compensation expense		–		–		1,688,389		–			–			1,688,389
Balance as of December 31, 2009		109,100,000	$	1,091,000	$	112,746,597	$	60,642		$	(94,384,884	)	$	19,513,355

See accompanying notes.

F-3

Consolidated Statements of Cash Flows

	Year Ended December 31
	2009			2008
Cash flows from operating activities
Net loss	$	(65,605,466	)	$	(23,190,956	)
Adjustments to reconcile net loss to net cash provided by operating activities from continuing operations:
Income from discontinued operations		(181,440)			(4,034,275	)
Provision for doubtful accounts		602,779			2,678,743
Depreciation and amortization		26,878,027			21,270,188
Asset impairment		38,430,952			–
Deferred financing cost amortization		2,196,746			1,698,295
Change in fair value of collar		(121,413	)		1,264,143
Stock compensation expense		1,688,389			1,290,560
Deferred income taxes		(4,906,457	)		4,222,457
Loss on sale of property and equipment		283,407			7,480
Interest added to debt principal		2,021,150			1,345,938
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		979,210			(13,590,427	)
Inventories		2,022,807			(4,640,730	)
Prepaid expenses and other assets		(1,253,134	)		(924,082	)
Accounts payable and accrued expenses		2,502,548			7,729,324
Net cash provided by (used in) operating activities – continuing operations		5,538,105			(4,873,342	)
Net cash provided by operating activities – discontinued operations		674,399			6,291,141
Net cash provided by operating activities		6,212,504			1,417,799

Cash flows from investing activities
Acquisition of property and equipment		(4,604,711	)		(2,785,901	)
Proceeds from sale of property and equipment		461,546			30,634
Cash restricted for acquisition of business		317,119			(450,000	)
Cash paid for acquisition of businesses		(6,625,793	)		(26,016,445	)
Net cash used in investing activities		(10,451,839	)		(29,221,712	)

Cash flows from financing activities
Capital contribution	$	450,000		$	400,000
Proceeds from revolving credit facilities, net		7,000,000			12,400,000
Proceeds from issuance of long-term debt		–			19,700,186
Repayment of principal on capital leases		(2,643,916	)		(881,365	)
Repayment of long-term debt		(1,560,000	)		(755,000	)
Financing fees		(2,209,919	)		(1,310,533	)
Net cash provided by financing activities		1,036,165			29,553,288
Effect of exchange rate on cash and cash equivalents		118,315			(57,703	)
Net (decrease) increase in cash and cash equivalents		(3,084,855	)		1,691,672

Cash and cash equivalents at beginning of year		5,348,133			3,656,461
Cash and cash equivalents at end of year	$	2,263,278		$	5,348,133

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest paid	$	14,437,059		$	11,624,744
Taxes paid	$	259,689		$	12,066

Significant noncash items
Fair value of satellite markets provided	$	26,000,000		$	24,600,000
Acquisition of property and equipment financed by capital lease obligations	$	579,394		$	200,186

See accompanying notes.

F-4

Headquartered in Blue Bell, Pennsylvania, UniTek USA, LLC (“UniTek”), is a premier provider of high-quality, specialized infrastructure services including engineering, construction management and installation fulfillment services to the telecommunications, network services, broadband cable and satellite industries. UniTek has created a scalable platform through which it can rapidly deploy a highly skilled workforce of over 5,000 throughout 89 field offices across the United States and Canada, delivering a comprehensive end-to-end suite of technical labor services. Operations in Canada contributed $12,405,971 and $6,614,944 in revenue in 2009 and 2008, respectively. As of December 31, 2009 and 2008, our long-lived assets for continuing operations located in Canada were $2,571,444 and $501,455, respectively.

1. Background

On September 27, 2007, UniTek Acquisition, Inc. (“Acquisition”) purchased 100% of the outstanding membership interests of UniTek USA, LLC. Acquisition is a wholly owned subsidiary of UniTek Midco, Inc. (“Midco”). Midco has no substantive operations, assets or liabilities. Midco is a wholly owned subsidiary of UniTek Holdings, Inc. (“Holdings” or the “Company”). Holdings is majority owned by an investment fund of HM Capital Partners, L.P. (“HM Capital”). The acquisition was accounted for as a business combination and the assets and liabilities of the acquired operations were stated at fair value as of the acquisition date. The acquisition was treated as a purchase with Acquisition as the accounting acquirer.

The Company has adjusted its previously issued statements of cash flows for a mathematical error within cash provided from operations on the statement of cash flows. The adjustment has no impact on total cash flows from operating activities but did impact the reported amounts of cash provided by continuing operations and cash provided by discontinued operations. The effect of the adjustment for this error is that cash flows provided by (used in) operating activities - continuing operations changed from $6,232,268 to $5,150,164 and from $3,195,208 to ($4,873,342) on the amounts previously reported for the years ended December 31, 2009 and 2008, respectively, and cash flows provided by (used in) operating activities - discontinued operations changed from ($19,764) to $1,062,340 and from ($1,777,409) to $6,291,141 for the years ended December 31, 2009 and 2008, respectively.

Certain cable operations that began during 2009 were discontinued during the first quarter of 2010. The Company's 2009 financial statements have been restated to classify the financial information of these cable businesses as discontinued operations for financial reporting purposes (see Note 22). The effect of this adjustment for the year ended December 31, 2009 is that cash flows provided by operating activities - continuing operations increased by $387,941 and cash flows provided by operating activities - discontinued operations decreased by the same amount. These cable operations did not exist during 2008.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Holdings and the accounts of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of certain assets and liabilities, amounts contained in certain of the notes to the consolidated financial statements, and the revenues and expenses reported for the periods covered by the financial statements. Although such assumptions are based on management’s best knowledge of current events and actions the Company may undertake in the future, actual results could differ significantly from those estimates and assumptions. The Company’s more significant estimates relate to revenue recognition, allowances for bad debts, and valuation of goodwill and intangible assets.

F-5

2. Summary of Significant Accounting Policies (continued)

In the ordinary course of accounting for items discussed above, the Company makes changes in estimates as appropriate and as the Company becomes aware of circumstances surrounding those estimates. Such changes and refinements in estimates are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the notes to the consolidated financial statements.

Cash and Cash Equivalents

Cash and cash equivalents include instruments with original maturities of three months or less.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. A specific reserve for bad debts is recorded for known or suspected doubtful accounts receivable. For all other accounts, the Company recognizes a general reserve for bad debts based on the length of time receivables are past due and historical write-off experience. Account balances are charged off against the allowance when the Company believes it is probable that the receivable will not be recovered.

Inventories

Inventories consist primarily of materials and supplies purchased from the customer and used for installation fulfillment services. Inventories are stated at the lower of cost or market, as determined by the first-in, first-out or the specific-identification method.

Prepaid Expenses and Other Current Assets

Prepaid and other current assets consist primarily of prepaid insurance, taxes and expenses. These costs are expensed ratably over the related periods of benefit.

Property and Equipment

Property and equipment are stated at cost. Depreciation is generally calculated using the straight-line method over the estimated useful lives of the assets, which principally range from three to seven years for computers, construction equipment, furniture, vehicles, and equipment. The useful life of leasehold improvements is based on the shorter of the term of the lease or five years. Assets under capital leases are amortized over the lesser of the lease term or the asset’s estimated useful life. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resultant gains or losses are recognized.

F-6

UniTek Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2009

2. Summary of Significant Accounting Policies (continued)

Goodwill and Intangible Assets

Goodwill is subject to an assessment for impairment using a two-step, fair value-based test with the first step performed at least annually, or more frequently if events or circumstances exist that indicate that goodwill may be impaired. The Company completes an annual analysis of the reporting units at the beginning of the fourth quarter of each fiscal year. The first step compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment test is performed to determine the implied value of goodwill for that reporting unit. If the implied value is less than the carrying amount of goodwill for that reporting unit, an impairment loss is recognized for that reporting unit.

The Company amortizes intangible assets, consisting of customer contracts and noncompete agreements from acquired businesses, on a straight-line basis over the 12- to 60-month lives of those agreements (see Note 9).

Other Long-Term Assets

Costs associated with obtaining long-term debt are deferred and amortized to interest expense on a straight-line basis, which approximates the effective interest method, over the term of the related debt (see Note 8). At December 31, 2009 and 2008, $6,579,755 and $6,707,942 (net), respectively, is included in other long-term assets related to deferred financing fees.

The Company reviews impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable based on undiscounted estimated cash flows expected from its use and ultimate disposition. Assets to be disposed of are reclassified to assets held for sale at the lower of their carrying value amount or fair value net of selling costs.

Derivative Financial Instruments

The Company utilizes derivative financial instruments to reduce interest rate risks. The Company does not hold derivative financial instruments for trading purposes. All derivatives are accounted for at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction.

Revenue Recognition

Revenues from fulfillment services provided to the satellite and cable television markets are recognized as the services are rendered. The Company recognizes revenue from fulfillment services net of the satellite equipment because the Company has determined that it acts as an agent.

F-7

UniTek Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2009

2. Summary of Significant Accounting Policies (continued)

The Company also enters into contracts that require the installation or construction of specified units within an infrastructure system. Under these contracts, revenue is recognized at the contractually agreed price per unit as the units are completed. Unbilled revenues represent amounts earned and recognized in the period for which customer billings are issued in a subsequent period per the contract terms.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued liabilities and other current liabilities approximate fair value due to the short-term nature of those instruments. The carrying value of the capital lease obligations approximates fair value because they bear interest at rates currently available to the Company for debt with similar terms and remaining maturities. The fair values of debt and derivative instruments are discussed in Notes 11 and 12, respectively.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Income taxes consist of taxes currently due plus deferred taxes related primarily to differences between the basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is recorded against a deferred tax asset when it is determined to be more-likely-than-not that the asset will not be realized.

The Company provides an intra-period tax allocation of the income tax expense or benefit for the year among continuing operations and discontinued operations.

Leases

The Company leases vehicles for performing fulfillment services in the satellite and cable services divisions. Leases are accounted for either as operating or capital depending on the terms of the lease. Each lease is reviewed as to the terms and a determination is made whether the vehicle is an operating or capital lease. Operating lease payments are expensed as incurred while payments on capital leases are included on the consolidated balance sheet as a liability and as a fixed asset.

F-8

2. Summary of Significant Accounting Policies (continued)

Stock-Based Compensation

The Company measures and recognizes compensation expense for all share-based awards made to employees and directors including employee stock options based on estimated fair values.

The consolidated financial statements as of and for the year ended December 31, 2009 and 2008 include stock option expense as compensation expense. Pretax stock-based compensation expense recognized for the years ended December 31, 2009 and 2008 was $1,688,389 and $1,290,560, respectively (refer to Note 16 for additional information). For the years ended December 31, 2009 and 2008, all stock-based compensation expense was included in selling, general, and administrative expenses in the consolidated statements of operations.

Stock-based compensation expense recognized for the years ended December 31, 2009 and 2008 is based on the fair value of awards ultimately expected to vest, net of estimated forfeitures. The Company estimates the fair value of stock-based awards on the date of grant using an option-pricing model. The Company values stock-based awards using the Black-Scholes option-pricing model and recognizes compensation expense on a straight-line basis over the requisite service periods. Stock-based compensation expense recognized during the current period is based on the value of the portion of stock-based awards that is ultimately expected to vest. The Company estimates forfeitures at the time of grant in order to estimate the amount of stock-based awards that will ultimately vest. Limited historical forfeiture data is available. As such, management has based the estimated forfeiture rate on expected employee turnover. The Company records the cash flows resulting from the tax deductions in excess of the compensation cost recognized for those options (excess tax benefit) as financing cash flows.

Reclassifications

Certain reclassifications have been made to the prior-year financial statements to conform to the current-year presentation.

Net Loss Attributable to Common Shares

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods presented. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the periods plus the dilution that would occur upon the exercise or conversion of any instruments convertible to common stock, such as stock options or warrants. At December 31, 2009 and 2008, no additional shares were dilutive to the computation because Holdings reported a net loss for each of those years. Any outstanding stock options, warrants, or other instruments that are convertible to common stock could potentially be dilutive should Holdings report net income in a future period.

F-9

2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (the “FASB”) issued new guidance related to business combinations. This guidance retains the fundamental requirements of existing guidance that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date the acquirer achieves control.

Additionally, it requires contingent purchase price to be measured and recorded at its estimated fair value on the date of acquisition. This guidance was effective for the Company beginning January 1, 2009 and the impact of the adoption of this guidance depends upon the nature and terms of business combinations that the Company consummates on or after January 1, 2009.

On January 1, 2009, the Company adopted new guidance on accounting for uncertainty in income taxes. The new guidance provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. The Company may recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities, based solely on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood to be sustained upon ultimate settlement. The new guidance also covers the derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In January 2009, the FASB issued new guidance on disclosures about derivative instruments and hedging activities. The guidance is effective for fiscal years beginning after November 15, 2008 and expands disclosure requirements about an entity’s derivative instruments and hedging activities. The Company has expanded its disclosures about derivative instruments and hedging activities (see Note 12).

In May 2009, the FASB issued new guidance on subsequent events. The standard provides guidance on management’s assessment of subsequent events and incorporates this guidance into accounting literature. The standard is effective prospectively for interim and annual periods ending after June 15, 2009, and the Company adopted this guidance commencing with the December 31, 2009 consolidated financial statements. The implementation of this standard did not have a material impact on our consolidated financial position and results of operations.

F-10

2. Summary of Significant Accounting Policies (continued)

In June 2009, FASB Accounting Standards Codification (Codification) was issued, effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification supersedes literature of the FASB, Emerging Issues Task Force and other sources. The Codification did not change U.S. generally accepted accounting principles. The implementation of this standard did not have a material impact on the Company’s consolidated balance sheet and results of operations.

3. DirecTV Enterprises LLC/180 Connect Transaction

On April 18, 2008, the Company entered into an asset purchase and exchange agreement with DTV HSP Merger Sub, Inc., a wholly owned subsidiary of DirecTV Enterprises, LLC (“DirecTV”), one of the Company’s significant customers. The acquisition closed on July 8, 2008. The results were included in the Company’s consolidated results beginning July 9, 2008. The agreement required the Company to pay cash and transfer three of its satellite television markets to DirecTV in exchange for 10 satellite television markets and a cable television installation business formerly owned by 180 Connect, Inc. The transaction allows the Company to develop additional market share and geographic diversification in the satellite television services. The associated cable business acquired in the transaction expanded the existing footprint in the southwestern U.S. and diversified the scope of work offered. No preexisting relationships were settled as part of this agreement.

Acquisition of Business

The Company has accounted for the asset purchase and exchange as a purchase of a business. The purchase price was calculated as the sum of the cash paid, the fair value of the satellite television markets transferred to DirecTV, certain liabilities assumed in the deal and the related transaction costs. The purchase price was allocated to the assets acquired from DirecTV based on their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired was recorded as goodwill. The allocation of purchase price has been adjusted for the final valuation of fixed assets, the actual liabilities assumed in the transaction and the actual transaction costs.

F-11

3. DirecTV Enterprises LLC/180 Connect Transaction (continued)

The final purchase price was calculated as follows:

Cash paid	$	6,868,252
Fair value of satellite markets provided		24,600,000
Transaction costs		1,602,075
Total purchase price	$	33,070,327

The final price was allocated to the assets acquired and liabilities assumed as follows:

Property, plant and equipment	$	1,774,478
Other assets		143,121
Site closure costs and severance		(2,526,916	)
Capital leases and vehicle loans		(154,090	)
Contracts		15,000,000
Goodwill		18,833,734
Net assets acquired	$	33,070,327

In connection with the acquisition of the cable business from DirecTV, the Company developed a plan to close certain facilities and reduce personnel of the acquired business in areas where the Company was not able to continue a contractual relationship with the customer. In connection with the plan, the Company established reserves in purchase accounting totaling approximately $2.3 million. During 2008, the facilities were abandoned and all positions were eliminated. The balance of the reserve at December 31, 2009 reflects lease obligations associated expenses in the accompanying consolidated balance sheet. A summary of the reserve activity related to the restructuring plan as of and for the year ended December 31, 2009 is as follows:

	Initial Reserves Recorded in Purchase Accounting		2008 Payments		Balance as of December 31, 2008		2009 Payments and Adjustments		Balance as of December 31, 2009

Severance-related costs	$	49,000	$	49,000	$	–	$	–	$	–
Lease exit costs		2,225,608		772,167		1,453,441		335,387		1,118,054
Total	$	2,274,608	$	821,167	$	1,453,441	$	335,387	$	1,118,054

Discontinued Operations

The satellite television markets transferred to DirecTV met the definition of a business and was treated as a disposal of a portion of a reporting unit. The carrying value of contract assets and goodwill attributable to these markets was determined by an allocation based on the relative fair values of the satellite television markets being disposed of and retained by the Company. The difference between the fair value and carrying value of the satellite television markets transferred to DirecTV was $(871,417) and was recorded as a loss within discontinued operations on the consolidated statement of operations.

F-12

Notes to Consolidated Financial Statements

December 31, 2009

3. DirecTV Enterprises LLC/180 Connect Transaction (continued)

As a result of the asset purchase and exchange, the operations and cash flows generated from the satellite television markets provided to DirecTV have ceased for the Company. Accordingly, the Company has treated the operations of these markets as discontinued operations on the consolidated statement of operations, and the revenues, costs and expenses directly associated with these markets have been classified as discontinued operations on the consolidated statement of operations.

4. 2009 DirecTV Market Swap

On February 1, 2009, the Company entered into an asset exchange agreement with DirecTV, one of the Company’s significant customers. The exchange of satellite installation sites was completed by April 1. The results of the acquired business were included in the Company’s consolidated results beginning with the timing of the transfer of each site. No cash was transferred as part of the transaction. No preexisting relationships were settled as part of this agreement.

Acquisition of Business

The Company has accounted for the asset exchange as a purchase of a business. The purchase price was calculated as the fair value of the satellite television markets transferred to DirecTV. The purchase price was allocated to the assets acquired from DirecTV based on their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired was recorded as goodwill. The allocation of the purchase price has been performed on a preliminary basis and is subject to adjustment and finalization, which management expects to complete during 2010.

The results of the 2009 DirecTV swap are included in the consolidated results of the Company effective at the date of the swap. During 2009, DirecTV markets received in the swap contributed revenue of $37,171,299 and operating income of $3,589,608 including depreciation and amortization.

F-13

4. 2009 DirecTV Market Swap (continued)

The preliminary purchase price was calculated as follows:

Fair value of satellite markets provided		$	26,000,000
Total purchase price		$	26,000,000

The purchase price was allocated to the assets acquired and liabilities assumed as follows:

Property and equipment	$	192,534
Customer contracts		9,800,000
Goodwill		16,007,466
Net assets acquired	$	26,000,000

Discontinued Operations

The satellite television markets transferred to DirecTV met the definition of a business and were treated as a disposal of a portion of a reporting unit. The carrying value of contract assets and goodwill attributable to these markets was determined by an allocation based on the relative fair values of the satellite television markets being disposed of and retained by the Company. The fair value of the satellite television markets transferred to DirecTV exceeded their carrying value by $110,885 and was recorded as a gain within discontinued operations on the consolidated statement of operations.

As a result of the asset purchase and exchange, the operations and cash flows generated from the satellite television markets provided to DirecTV have ceased for the Company. Accordingly, the Company has treated the operations of these markets as discontinued operations on the 2009 consolidated statement of operations, and the revenues, costs and expenses directly associated with these markets have been classified as loss from discontinued operations on the consolidated statement of operations.

5. Other Acquisitions

Acquisition of Metro Cable Services, Inc.

On September 30, 2009, the Company acquired substantially all of assets and assumed certain liabilities of Metro Cable Services, Inc. (“Metro”), a company that provides cable television installation services in the greater Dallas, TX area, for a total purchase price of $2,767,917. The combination of the acquisition and the Company’s existing business substantially expands the Company’s presence in the greater Dallas and Ft. Worth, TX area. The purchase agreement provides that the sellers will be paid either 375,000 shares or $255,417, depending upon certain conditions. The purchase agreement also contains provisions allowing the sellers to realize contingent purchase price consideration of up to $250,000 in cash and 375,000 shares of common stock of Holdings, contingent upon achieving certain sales levels. The fair value of the contingent consideration of $512,500 has been included in the preliminary purchase price. The intangible asset valued at $100,000 relates to a noncompete agreement which is being amortized over 12 months. The amortization of intangible assets and goodwill is deductible for tax purposes. The allocation of purchase price has been performed on a preliminary basis and is subject to adjustment and finalization, which management expects to complete during 2010.

F-14

The preliminary purchase price was calculated as follows:

Cash	$	2,000,000
Cash or shares		255,417
Contingent purchase price consideration		512,500
Total purchase price	$	2,767,917

The preliminary purchase price was allocated to the assets acquired and liabilities assumed as follows:

Property and equipment	$	134,492
Goodwill		403,718
Customer contracts		2,200,000
Noncompete agreement		100,000
Capital lease obligations and vehicle loans – current		(32,826	)
Capital lease obligations and vehicle loans – long term		(37,467	)
Total net assets acquired	$	2,767,917

The results of Metro were included in the consolidated results of the Company effective September 30, 2009. During 2009, Metro contributed revenue of $1,196,102 and operating income of $(94,994) including depreciation and amortization.

Acquisition of AMBB LLC

On October 2, 2009, the Company acquired substantially all of assets and assumed certain liabilities of AMBB LLC (“AMBB”), a company that provides cable television installation services in the northeastern United States, for a total purchase price $2,366,413. The acquisition expands the Company’s cable installation operations into new geographical areas of the northeastern U.S. The purchase agreement contains provisions allowing the sellers to realize contingent purchase price consideration consisting of up to 250,000 warrants of Holdings, contingent upon achieving certain sales levels. The acquisition date fair value of the warrants of $137,500 has been included in the preliminary purchase price. The intangible asset valued at $200,000 relates to a noncompete agreement which is being amortized over 12 months. The amortization of intangible assets and goodwill is deductible for tax purposes. The allocation of purchase price has been performed on a preliminary basis and is subject to adjustment and finalization, which management expects to complete during 2010.

F-15

The preliminary purchase price was calculated as follows:

Cash	$	2,228,913
Contingent purchase price consideration		137,500
Total purchase price	$	2,366,413

The preliminary purchase price was allocated to the assets acquired and liabilities assumed as follows:

Property and equipment	$	1,109,769
Goodwill		455,352
Customer contracts		1,500,000
Noncompete agreement		200,000
Accrued expenses		(22,464	)
Capital lease obligations and vehicle loans – current		(101,007	)
Capital lease obligations and vehicle loans – long term		(775,237	)
Total net assets acquired	$	2,366,413

The results of AMBB were included in the consolidated results of the Company effective October 3, 2009. During 2009, AMBB contributed revenue of $2,410,549 and operating income of $(154,665) including depreciation and amortization.

Acquisition of C&C Communications, Inc.

On November 16, 2009, Wirecomm Systems Inc. (a wholly owned Canadian subsidiary of the Company) acquired substantially all of assets and assumed certain liabilities of C&C Communications, Inc. (“C&C”), a company that provides cable television installation services in the greater Toronto, Ontario area for a total purchase price $1,807,897. The combination of the acquisition and the Company’s existing business substantially expands the Company’s presence in the greater Toronto area. The purchase agreement contains provisions allowing the sellers to realize contingent purchase price consideration of up to $189,888 contingent upon achieving certain sales levels. The acquisition date fair value of the contingent consideration of $186,090 has been included in the preliminary purchase price. The intangible asset valued at $47,575 relates to a noncompete agreement which is being amortized over 12 months. The amortization of intangible assets and goodwill is deductible for tax purposes.

F-16

The allocation of purchase price has been performed on a preliminary basis and is subject to adjustment and finalization, which management expects to complete during 2010.

The preliminary purchase price was calculated as follows:

Cash paid to sellers	$	1,621,807
Contingent purchase price consideration		186,090
Total purchase price	$	1,807,897

The preliminary purchase price was allocated to the assets acquired and liabilities assumed as follows:

Property and equipment	$	120,879
Prepaid expenses		47,622
Goodwill		830,621
Customer contracts		761,200
Noncompete agreement		47,575
Total net assets acquired	$	1,807,897

The results of C&C were included in the consolidated results of the Company effective November 16, 2009. During 2009, C&C contributed revenue of $631,098 and operating income of $30,752 including depreciation and amortization.

Acquisition of Nexlink Communications

On June 20, 2008, the Company acquired substantially all of assets and assumed certain liabilities of Nexlink Communications (“Nexlink”), a company that provides engineering consulting, and construction management for the telecommunications industry and cable installations, for a total purchase price $6,920,316. This transaction enhanced the capabilities of the network services division by providing complete end-to-end engineering, design and construction services to its customers. The purchase agreement contains a provision allowing the sellers to realize additional purchase price consideration of $750,000 contingent upon achieving certain sales levels. This contingency has been resolved and fully earned as of December 31, 2009. The intangible asset valued at $100,000 relates to a noncompete agreement which is being amortized over 15 months. The amortization of intangible assets and goodwill is deductible for tax purposes. The allocation of purchase price has been adjusted for the final valuation of fixed assets, the actual achievement of purchase price adjustment and the actual transaction costs.

F-17

The final purchase price was calculated as follows:

Cash paid to sellers	$	6,639,905
Transaction costs		280,411
Total purchase price	$	6,920,316

The final purchase price was allocated to the assets acquired and liabilities assumed as follows:

Prepaid expenses	$	128,768
Property and equipment		727,826
Goodwill		3,936,997
Customer contracts		2,400,000
Noncompete agreement		100,000
Capital lease obligations and vehicle loans – current		(124,425	)
Capital lease obligations and vehicle loans – long term		(248,850	)
Total net assets acquired	$	6,920,316

Acquisition of Advanced Broadband System Services, Inc.

On December 30, 2008, the Company acquired substantially all of assets and assumed certain liabilities of Advanced Broadband System Services, Inc. (“ABSS”), a company that provides cable television and broadband communications consulting, construction management and cable installation services, for a total purchase price of $4,622,134. The acquisition of ABSS reinforces the Company’s infrastructure services division and allows the Company to become a full-service provider to the telecommunications industry. The purchase agreement contains a provision allowing the sellers to realize additional purchase price consideration of $450,000 contingent upon achieving certain sales levels in fiscal year 2009. The $450,000 amount was placed into escrow and included in restricted cash in the December 31, 2008 consolidated balance sheet. The actual sales level achieved in 2009 resulted in payment of $317,119 from the escrow account. The intangible asset valued at $450,000 relates to noncompete agreements, which are being amortized over 24 months. The amortization of intangible assets and goodwill is deductible for tax purposes. The allocation of purchase price has been adjusted for the final valuation of fixed assets, the actual achievement of purchase price adjustment and the actual transaction costs.

F-18

The final purchase price was calculated as follows:

Cash paid to sellers	$	4,367,119
Transaction costs		255,015
Total purchase price	$	4,622,134

The final purchase price was allocated to the assets acquired and liabilities assumed as follows:

Property and equipment	$	976,510
Goodwill		779,761
Customer contracts		2,700,000
Intangibles – noncompete		450,000
Capital lease obligations and vehicle loans – current		(85,122	)
Capital lease obligations and vehicle loans – long term		(199,015	)
Total net assets acquired	$	4,622,134

Unaudited Pro Forma Information

The following unaudited pro forma data presents revenue and results of operations as if the acquisitions of Metro, AMBB, C&C, the 2009 DirecTV swap, Nexlink, ABSS and the DirecTV/180 Connect transaction had occurred on January 1, 2008 for the year ended December 31, 2008, and the acquisition of Metro, AMBB, C&C and the 2009 DirecTV swap had been completed as of January 1, 2009 for the year ended December 31, 2009 is as follows (in thousands):


	Year Ended December 31,
	2009			2008
Revenues	$	295,552		$	348,964
Loss from continuing operations before income taxes	$	(69,465	)	$	(22,321	)

6. Accounts Receivable and Unbilled Revenue

Accounts receivable consists of the following:

	December 31
	2009			2008

Trade accounts receivable	$	19,583,622		$	17,832,590
Unbilled revenue		6,425,484			11,224,870
Total		26,009,106			29,057,460
Less allowance		(1,329,159	)		(2,112,581	)
Accounts receivable, net	$	24,679,947		$	26,944,879

F-19

Notes to Consolidated Financial Statements

December 31, 2009

6. Accounts Receivable and Unbilled Revenue (continued)

Activity for the allowance account is as follows:

	Year Ended December 31
	2009			2008

Allowances at beginning of the year	$	2,112,581		$	1,177,544
Provision		602,779			2,678,743
Amounts charged against allowances		(1,386,201	)		(1,743,706	)
Allowances at end of the year	$	1,329,159		$	2,112,581

Amounts charged against the reserve primarily represent the write-off of trade accounts and unbilled revenue which had been fully reserved previously.

7. Property and Equipment

Property and equipment consisted of the following:

	December 31
	2009			2008

Vehicles	$	5,424,789		$	5,617,300
Computers and equipment		5,723,963			3,201,300
Furniture and fixtures		377,350			334,095
Construction equipment		8,675,948			6,770,567
Leasehold improvements		1,011,731			785,542
Assets under capital leases		10,509,318			1,688,707
		31,723,099			18,397,511
Less accumulated depreciation		(11,057,612	)		(4,800,336	)
	$	20,665,487		$	13,597,175

Depreciation expense, including amortization of assets under capital leases, was $6,827,042 and $4,162,361 for the years ended December 31, 2009 and 2008, respectively.

Property and equipment includes gross assets acquired under capital leases of $10,509,318 and $1,688,707 at December 31, 2009 and 2008, respectively. Amortization of assets under capital leases is included in depreciation expense.

F-20

UniTek Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2009

8. Other Long-Term Assets

Other long-term assets, net of accumulated amortization, consisted of the following:

	December 31
	2009		2008

Financing fees, net	$	6,579,755	$	6,707,942
Refundable deposits and other		513,197		437,779
Total other long-term assets	$	7,092,952	$	7,145,721

Financing fees represent direct costs associated with the issuance of debt. Such costs are amortized to interest expense over the remaining life of the debt.

9. Goodwill and Intangible Assets

The following table summarizes the changes in the carrying amount of the Company’s goodwill:

	Year Ended December 31
	2009			2008

Beginning balance	$	171,703,472		$	174,078,695
Goodwill associated with acquisitions		17,697,157			21,722,417
Transfer of satellite markets in DirecTV and 180 Connect transactions		(21,031,502	)		(19,799,097	)
Impairment of Telecom reporting unit		(32,369,648	)		–
Revision of purchase price allocations		1,828,075			(4,298,543	)
Ending balance	$	137,827,554		$	171,703,472

Accumulated impairment at December 31, 2009 and 2008 was $32,369,648 and $0, respectively.

F-21

9. Goodwill and Intangible Assets (continued)

Other intangible assets consisted of the following:

	December 31
	2009		2008
Intangible assets:
Customer contracts	$	70,467,827	$	66,400,000
Noncompete agreements		1,025,047		949,722
Total intangible assets		71,492,874		67,349,722

Accumulated amortization:
Customer contracts		43,904,096		23,576,531
Noncompete agreements		648,248		263,264
Total accumulated amortization		44,552,344		23,839,795
Intangible assets, net	$	26,940,530	$	43,509,927

The customer contracts are being amortized on a straight-line basis over the 28- to 60-month lives of those agreements. The noncompete agreements are being amortized on a straight-line basis over 15 to 24 months. The Company recognized amortization expense for intangible assets of $20,712,549 and $19,624,943 for the years ended December 31, 2009 and 2008, respectively.

Estimated aggregate amortization expense of intangible assets for each of the succeeding years is as follows:

Year ending December 31,
2010	$	13,221,714
2011		7,367,159
2012		5,739,152
2013		612,505
Total	$	26,940,530

The Company performed its required annual goodwill impairment test as of October 3, 2009 and determined that the carrying value of its telecom reporting unit exceeded its fair value and was therefore impaired. The reduction in the fair value of the telecom reporting unit was a result of expected declines in revenue. The Company calculated the implied value of goodwill for that reporting unit by performing a hypothetical purchase price allocation, and determined that an impairment loss of $32,369,648 was required.

F-22

9. Goodwill and Intangible Assets (continued)

The Company determined that the impairment of the Telecom reporting unit represented an indicator of impairment over the other intangible assets and long-lived assets of the reporting unit. Contracts of the Telecom reporting unit that were assigned a value on the date they were acquired by the Company are treated as an asset group for purposes of the long-lived impairment test. As a result, the Company performed the required tests of recoverability for each asset group over their lives and determined that the estimated undiscounted cash flows of its customer contracts and noncompete agreements did not exceed their carrying value. The Company calculated the fair value of these assets and determined that an impairment loss of $6,061,304 was required to state the customer contracts and the noncompete agreements at their fair values.

The methods of determining the fair value of the Telecom reporting unit, the customer contracts, and the noncompete agreements are discussed more fully in Note 21. The impairment losses were recorded as a component of operating loss in the Company’s 2009 consolidated statement of operations. No such impairment losses were recorded during the year ended December 31, 2008.

10. Accrued Expenses

Accrued expenses consisted of the following:

	December 31
	2009		2008

Accrued compensation and benefits	$	4,154,829	$	5,404,011
Acquisition liabilities		3,099,790		1,453,441
Accrued subcontractor		1,473,844		2,635,051
Retention payables		2,064,414		1,501,885
Accrued insurance reserves		4,514,705		1,312,649
Accrued litigation contingencies		2,130,957		772,914
Interest rate collar		1,547,663		–
Accrued expenses – other		4,343,476		7,056,076
Total accrued expenses	$	23,329,678	$	20,136,027

F-23

Long-term debt consisted of the following:

11. Long-Term Debt

	December 31
	2009		2008
First Lien Credit Agreement:
Revolving credit facility	$	11,500,000	$	4,500,000
Term B credit facility		75,502,500		77,062,500
Term C credit facility		19,500,000		19,500,000
		106,502,500		101,062,500

Second Lien Credit Agreement:
Term facility		25,000,000		25,000,000
Holdings revolving facility		28,665,777		26,644,627
Total debt		160,168,277		152,707,127
Less current portion		33,005,777		152,707,127
Long-term debt, net of current portion	$	127,162,500	$	–

Maturities of long-term debt are as follows:

Year ending December 31,
2010	$	33,005,777
2011		2,340,000
2012		124,822,500
Total	$	160,168,277

Term Loan (First Lien)

The First Lien Credit Agreement provides for a First Lien Revolving Credit Facility, a First Lien Term B Credit Facility and a First Lien Term C Credit Facility. The Company entered into two amendments with the First Lien debt holders in 2009. The first amendment in June 2009 modified certain covenants in return for a 1% fee and an increase in the interest rate. The second amendment, in December 2009, provided retroactive covenant relief for certain matters as of December 31, 2008, modified certain financial covenants through September 2012 pending meeting the required terms for closing the amendment and provided forbearance through February 15, 2010 until certain terms were met. These terms were met with an infusion of equity and the closing of an acquisition in January 2010 that are discussed in Note 24.

F-24

Notes to Consolidated Financial Statements

December 31, 2009

11. Long-Term Debt (continued)

The Revolving Credit Facility provides loans in a maximum amount of $20,000,000 and matures on September 27, 2012. In connection with the closing of the amendment in January 2010, the interest rate is, at the Company’s option, either a rate of one-half of 1% per annum above the Federal Funds Rate plus 5.0% for base rate advances or the Eurodollar rate plus 6% provided that the rate will increase 75 basis points if the Company’s Leverage Ratio (as defined in the Credit Facility) exceeds a certain level. Unused borrowings under the Revolving Credit Facility are subject to a 1% commitment fee per annum. As of December 31, 2009, the Company had drawn $11,500,000 on the revolver and $2,975,000 of letters of credit were outstanding as of that date. Borrowings under the Revolving Credit Facility are classified as long-term debt based on the Company’s intent and ability to refinance the borrowing on a long-term basis. Borrowings on the revolver are secured by the assets of the Company.

The First Lien Term B Credit Facility as amended is for $78,000,000. The Company did not make any additions to the Term B credit facility in 2009. As of December 31, 2009, $75,502,500 was outstanding under the First Lien Term B Loan. The term loan provides for interest, depending on the Company’s election, with interest at a rate of one-half of 1% per annum above the Federal Funds Rate plus 5.5% or Eurodollar plus 6.5% at the Company’s option. At December 31, 2009 in connection with the closing of the amendment in January 2010, the interest rate increases by 75 basis points if the Company’s Leverage Ratio (as defined in the Credit Facility) exceeds a certain level. The First Lien Term B loan is to be amortized from December 31, 2007 until maturity. The First Lien Term B Credit Facility is secured by substantially all of the assets of the Company.

Term Loan (First Lien)

The First Lien Term C Credit Facility is for $19,500,000 which is the outstanding balance as of December 31, 2009. There were no additions to the Term C in 2009. The Term C interest rate was amended to 16.25% on $8,000,000 of the Term C Credit Facility for the period from April 1, 2009 to December 31, 2009 in connection with the December 2009 amendment and 13.08% on the remaining $11,500,000. Effective January 1, 2010, the interest rate on the $8,000,000 increased to 16.5%.

The First Lien Credit Agreement as amended includes various financial covenants, the most significant of which requires that the Company maintain certain quarterly financial ratios and limits annual capital expenditures. The required quarterly financial ratios become more restrictive to the Company over time. The Company’s future compliance with quarterly financial ratios is dependent on the Company’s ability to generate profits in excess of required amounts, which is subject to the risks and uncertainties surrounding the Company’s business. With the closing of the December 2009 amendment in January 2010, the Company was in compliance with all covenants at December 31, 2009. The Company was not in compliance with the terms of the First Lien Credit Facility at December 31, 2008 on the date of the original issuance of the financial statements; accordingly, the debt has been reflected as a current liability at December 31, 2008 in the accompanying consolidated balance sheet.

F-25

11. Long-Term Debt (continued)

Term Loan (Second Lien)

The Second Lien Credit provides for a $25,000,000 Term facility that matures on September 27, 2012 and is repayable in full at that date. The Company entered into two amendments with the Second Lien debt holders in 2009. The first in May modified certain covenants in return for a 1% fee and an increase in the interest rate. The second amendment in December modified certain financial covenants through September 2012 pending meeting the required terms for closing the amendment. These terms were met with an infusion of equity and the closing of an acquisition in January 2010 that are discussed in Note 24. The interest rate at December 31, 2009 was the greater of 15.0% per annum and the Eurodollar rate plus 7.25%. The Second Lien amendment included a change in the interest rate to a rate of the greater of 15.75% per annum and the Eurodollar rate plus 7.25%. Interest is due quarterly beginning on December 31, 2007 until maturity.

The agreement includes various covenants, the most significant of which requires the Company to maintain certain quarterly financial ratios and limits capital expenditures. The Second Lien Term Loan Agreement is secured by substantially all of the assets of the Company. With the closing of the December 2009 amendment in January 2010, the Company was in compliance with all covenants at December 31, 2009.

Pursuant to the terms of the Second Lien Credit Facility, the Second Lien Credit Facility has also been reflected as a current liability at December 31, 2008 in the accompanying consolidated balance sheet as a result of the First Lien debt not being in compliance on the date of original issuance.

F-26

11. Long-Term Debt (continued)

Holdings Revolving Facility

Holdings entered into a Loan Authorization Agreement dated as of September 25, 2007 with BMO Capital Markets Financing, Inc. (“BMO”). The Loan Authorization Agreement established an $18,000,000 revolving credit facility (the “Holdings Revolving Facility”), and amounts borrowed against the facility are evidenced by a promissory note. Interest is calculated based on the prime commercial rate, as defined in the Loan Authorization Agreement. The average interest rates during 2009 and 2008 were 7.25% and 5.5%, respectively. Interest on the borrowings are payable quarterly, at the option of Holdings, in cash or by adding such interest to the unpaid principal balance of the facility. All interest incurred to date has been added to the principal balance of the facility. Accrued and unpaid interest was $3,665,777 and $1,644,627 at December 31, 2009 and 2008, respectively. The Holdings Revolving Facility and any unpaid interest accumulated to date are payable and mature on demand of BMO. On March 24, 2008 and September 15, 2009, Holdings entered into amendments to the Loan Authorization Agreement that increased the amount of maximum credit under the facility to $28,000,000 and $35,000,000, respectively. The obligations under the Loan Authorization Agreement are guaranteed by two funds of HM Capital. There are no financial covenants included in the Holdings Revolving Facility. The Holdings Revolving Facility is not secured or guaranteed by any assets of Holdings' subsidiaries.

12. Derivative Financial Instruments

The Company manages interest rate exposure by using derivative instruments to reduce the variability of interest payments for variable-rate debt. The Company is also required to maintain interest rate hedge agreements covering a notional amount of not less than 50% of the debt outstanding under the First Lien Credit Agreement.

On November 29, 2007, the Company entered into an interest rate collar agreement with an aggregate notional principal amount of $65,000,000 and a maturity date of November 30, 2010. The collar is used to hedge the required portion of the Company’s First Lien Credit Agreement and consists of a cap and a floor with a strike of 5.50% and 2.98%, respectively. The strike is indexed to three-month LIBOR. The change in the fair value of the derivative is reported as a component of interest expense. The amount of interest expense recorded for the interest rate collar for the years ended December 31, 2009 and 2008 was $1,272,114 and $1,712,168, respectively, which includes changes in the fair value of the collar liability. The fair value of the interest rate collar liability was $1,547,663 and $1,669,076 at December 31, 2009 and 2008, respectively, and is recorded as a component of accrued expenses in the consolidated balance sheet at December 31, 2009 and as other long-term liability in the consolidated balance sheet at December 31, 2008.

F-27