Exhibit 10.4

AEROSONIC CORPORATION

LOAN AGREEMENT

This Loan Agreement (this “Agreement”) is executed as of May 14, 2009 (the
“Effective Date”), by and between Aerosonic Corporation (the “Company”), a
Delaware corporation and Redmond Family Investments, LLLP (“Redmond”), to record
the agreement regarding Redmond’s willingness to make a loan (the “Loan”) to the
Company on the terms and conditions set forth in this Agreement:

ARTICLE 1
DEFINITIONS

1.1          Defined Terms.

As used in this Agreement and the exhibits to this Agreement, the following
capitalized terms have the respective definitions attributed to them:
   
“Advances” has the meaning set forth in Section 2.2.

“Advance Shares” means shares of Common Stock to be issued to Redmond by the
Company pursuant to Section 2.1, and includes any additional Shares issued in
respect of those Shares.

“Balance Sheet” means the consolidated balance sheet of the Company and its
Subsidiaries for the period ended January 31, 2009.

“Balance Sheet Date” means the period ended January 31, 2009.

“Benefit Plan” means every previous and current employee benefit, pension,
welfare, or compensation plan, trust, program, practice, agreement, or
arrangement that provides benefits, compensation, or deferred compensation to
any current or former officer, director, or employee of the Company, any
predecessor, or any subsidiary of the Company or any predecessor or his or her
survivors, including any bonus, thrift, pension, savings, incentive, insurance,
retirement, stock bonus, stock option, stock purchase, profit sharing, loan
guarantee, early retirement, deferred compensation, medical reimbursement,
relocation assistance, supplemental retirement, stock appreciation right,
severance or termination compensation, employee loan or credit extension, and
dental, vision, medical, or other health care plan.
 
“Borrowing” means a borrowing hereunder consisting of Advances made on the same
day by Redmond to the Company.
 
“Business Day” means any day that is not a Sunday, Saturday, or holiday observed
by commercial banks in Tampa, Florida.

“Closing” means the consummation of the Transactions.

“Closing Date” means the date which is no later than one Business Day after all
the conditions precedent set forth in Sections 3.4 and 3.5 have been satisfied
or waived by Redmond, but in no event later than May 15, 2009.

“Closing Price” means the volume weighted average sales price of a share of the
Common Stock on the Stock Exchange or other principal national securities
exchange on which the Common Stock is then traded for the 15 trading days
preceding the Closing Date.

“Code” means the United States Internal Revenue Code of 1986, as amended from
time to time, and any regulations (including Temporary Regulations) under that
Code that are promulgated.

 
 

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“Common Stock” means the common stock, par value $.40 per share, of the Company.

“Company SEC Documents” means all forms, notices, reports, schedules,
statements, and other documents filed by the Company with the SEC during the
period beginning on February 1, 2007, and ending on the Effective Date, whether
or not constituting a “filed” document, and includes all proxy statements,
registration statements, amendments to registration statements, periodic reports
on Forms 10-K, 10-Q, and 8-K, and annual and quarterly reports to shareholders.

“Default” has the meaning indicated in the Note, and the definition of “Default”
in the Note is incorporated by reference into this Agreement.

“Drawdown Shares” means shares of Common Stock to be issued to Redmond by the
Company pursuant to Section 2.1, and includes any additional Shares issued in
respect of those Shares.

 “Exchange Act” means the United States Securities Exchange Act of 1934, as
amended, and includes all rules and regulations of the SEC promulgated under
that act.

“Existing Lender” means Wachovia Bank, N.A., a national banking association, and
includes its assignees and successors in interest by operation of law or
otherwise.

“Existing Loans” means the loans made by the Existing Lender to the Company
pursuant to the Existing Loan Documents, as amended and restated through the
Closing Date, including the Renewal and Future Advance Term Loan in the original
principal amount of $3,920,000, the Renewal and Amended Term Loan in the
original principal amount of $2,000,000, and the Revolving Loan in the maximum
principal amount of $2,500,000.

“Existing Loan Documents” means the Revolving and Term Credit and Security
Agreement dated February 24, 2004, among the Company, the Existing Lender, and
Avionics Specialties, Inc., as amended through the Closing Date, and every
document, mortgage, deed of trust, agreement, and instrument executed pursuant
to that agreement on or before the Closing Date, as renewed, extended, or waived
from time to time on the same terms and conditions that were in effect on the
Effective Date (including any extension  or forbearance agreements executed in
connection with those documents).

“Financing Documents” mean the Note, the Warrants, this Agreement, and every
document, agreement, and instrument executed pursuant to any of the foregoing
documents, and all renewals, extensions, amendments, modifications, and
supplements to any of the foregoing documents.

“Funding Date” means the date on which a Borrowing occurs.

“GAAP” means generally accepted accounting principles of the United States, as
in effect from time to time.

“Governmental Authority” means a government, a central bank, a securities
exchange, a public body or authority, a self-regulatory organization, and any
governmental body, agency, authority, commission, department, or subdivision,
whether domestic or foreign or local, state, regional, or national.

“Governmental Authorization” means any and every order, right, permit, waiver,
consent, license, variance, approval, exemption, certificate, designation,
registration, and other authorization given, issued, granted, or otherwise made
available by or under the authority of any Governmental Authority pursuant to
any law or order.

“IRS” means the United States Internal Revenue Service.

“Lien” means a restriction on the use or transferability of property and any
claim or charge on any interest in property securing an obligation owed to, or
claimed by, a person other than the owner of the property, whether the claim or
charge exists by reason of statute, contract, or common law, and includes a
construction lien, a lien or security interest arising from a pledge, mortgage,
indenture, encumbrance, hypothecation, trust receipt, deed of trust, conditional
sale, security agreement, or collateral assignment and a lease, bailment, or
consignment for security purposes.

 
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“Loan Documents” means the Note, this Agreement, and every document, agreement,
and instrument executed pursuant to any of those documents or with respect to
the Liabilities, and all renewals, extensions, amendments, modifications, and
supplements to any of the foregoing documents.

“Material Adverse Effect” means any  material adverse effect upon the validity,
performance or enforceability of any of the Loan Documents or any of the
transactions contemplated hereby or thereby,  material adverse effect upon the
properties, business, prospects or condition (financial or otherwise) of
Borrower and its Subsidiaries, taken as a whole, or  material adverse effect
upon the ability of Borrower and its Subsidiaries, taken as a whole, to fulfill
any obligation under any of the Loan Documents.

“Maximum Availability Amount” means $500,000.

“Note” means the 14% Subordinated Note due April 10, 2010, as extended pursuant
to the terms and conditions of the Note, in the aggregate principal amount of
$500,000, to be issued to Redmond at the Closing by the Company and the
Subsidiaries in the form of Exhibit 1.

“Other Lenders” mean Bruce J. Stone and Martin J. Schaffel.

“Permitted Liens” means any of the following:  (a) the leasehold interests of
lessors and landlords in any property leased to the Company or any Subsidiary;
(b) statutory vendor, carrier, landlord, mechanic, repairmen, warehousemen, and
similar Liens that arise or are incurred in good faith in the usual and ordinary
course of business for payments that are not delinquent; (c) Liens for Taxes
that either are not yet delinquent or are being contested in good faith by
appropriate proceedings and for which adequate accruals or reserves have been
recorded in the Company’s books of account in accordance with GAAP;
(d) statutory Liens arising or incurred in the ordinary course of business in
connection with workers’ compensation, unemployment insurance, old-age pensions,
and social security benefits for payments that are not delinquent; (e) Liens
arising out of awards or judgments against the Company with respect to which the
Company is proceeding with an appeal or other proceeding for review or time for
appeal has not yet expired; (f) Liens in favor of issuers of surety bonds and
letters of credit issued pursuant to and for the account of the Company in the
ordinary course of business; (g) the Liens in favor of the Existing Lender on
assets of the Company and the Subsidiaries on the Effective Date that are
created under the Existing Loan Documents and secure the Existing Loans; and (h)
Liens in favor of a third party in connection with the purchase of equipment or
machinery used in the operations of the Company and its Subsidiaries and in the
production of products, including equipment used to replace obsolete equipment,
equipment used to test and produce products and to maintain or increase
capacity.

“Proceeding” means an audit, claim, action, demand, inquiry, lawsuit,
proceeding, or investigation by a third party or Governmental Authority (whether
formal or informal, pending, threatened, or completed, or civil, criminal, or
administrative), and includes asserted claims and assessments and trial,
appellate, mediation, arbitration, bankruptcy, and administrative proceedings of
every kind.

“Restricted Information” means all information concerning the Company and the
Subsidiaries that is confidential, proprietary, or not readily available to the
general public, however and whenever acquired, whether furnished or made
available in writing, electronic, or any other media format, through inspection
of written or electronic documents, or orally in meetings, presentations, and
conversations, whether or not a trade secret or designated “secret” or
“confidential,” and whether obtained before or after the Effective Date; but
excludes in each case information that is publicly available, or is required to
be disclosed by law, by a court having jurisdiction, or to respond in good faith
to a valid inquiry by a Governmental Authority, or that has been intentionally
disclosed by the Company to the public or to a person who does not have either a
duty to keep the information confidential or a relationship of privity with the
Company as a lender, tenant, partner, employee, customer, professional advisor,
or participant in a joint venture (whatever the form of business organization).

 
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“SEC” means the United States Securities and Exchange Commission.

“Securities” means the Note, the Warrants, and the Drawdown Shares.

“Securities Act” means the United States Securities Act of 1933, as amended, and
includes all rules and regulations of the SEC promulgated under that Act.

“Shares” means the Drawdown Shares and the Warrant Shares.

“Stock Exchange” means the NYSE Amex, the securities exchange on which the
Common Stock is traded on the Effective Date.

“Stock Option Plan” means the Aerosonic Corporation 2004 Stock Incentive Plan,
as amended and restated on July 26, 2007.

“Subsidiaries” means OP Technologies, Inc., an Oregon corporation, and Avionics
Specialties, Inc., a Virginia corporation, both of which are wholly owned
subsidiaries of the Company.

“Tax” means any taxes, assessments, fees, or other charges from time to time or
at any time imposed by any law or by any state, commonwealth, federal, foreign,
territorial, regulatory, or other court or governmental department, commission,
board, bureau, agency or instrumentality.

“Tax Return” means any form, notice, report, return, schedule, statement or
declaration filed or required to be filed in connection with the reporting,
collection, assessment, or determination of any Tax or the administration of any
law or order relating to any Tax.

“Transactions” means the acquisition of the Securities pursuant to this
Agreement and the other Financing Documents.

“Warrant Shares” means the shares of Common Stock issuable on exercise of the
Warrants.

“Warrant” means a Common Stock Purchase Warrant of the Company to purchase at
any time after the one-year anniversary date of their original issue date until
April 10, 2015, one share of the Common Stock for a purchase price of $.64 per
share, subject to anti-dilution protection and adjustment of the warrant price
and number of shares as provided in the Warrant Certificate.

“Warrant Certificate” means a warrant certificate in the form of Exhibit 2, to
be issued by the Company to Redmond pursuant to this Agreement to evidence the
number of Warrants issue to Redmond and the terms and conditions of the
Warrants.

1.2          Recurring Words.

As used throughout this Agreement, (a) the words “consent” and “approval” are
synonymous, (b) the word “including” is always without limitation, (c) neuter
words should be construed to include correlative feminine and masculine words,
(d) words in the singular number include words in the plural number and vice
versa, (e) references to “$” are to dollars of the United States of America, and
(f) the following common words and terms have the meanings attributed to them,
unless expressly stated to the contrary:

“affiliate” means, with respect to any specified person,  any person directly or
indirectly owning 10% or more of the voting stock or rights of such named person
or of which the named Person owns 10% or more of such voting stock or rights;
any Person controlling, controlled by or under common control with such named
Person; any officer, director or employee of such named Person or any Affiliate
of the named Person; and any family member of the named Person or any Affiliate
of such named Person, including any successor or assign of such affiliate.

 
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“days” means calendar days, including Sundays, Saturdays, and holidays.

“knowledge” when used in reference to the Company, means the current actual
awareness of a particular fact or matter by any executive officer of the
Company, after due inquiry of all the officers of the Company and those
employees of the Company who are reasonably likely to have knowledge of the
subject matter as to whether they are aware of any information that would cause
any warranty or representation by the Company in this Agreement to be inaccurate
in any material respect and includes the content of all correspondence (whether
in printed or electronic form) that has been delivered to any officer or
employee of the Company, but does not otherwise include any imputed or
constructive knowledge of any fact or matter.

“law” includes a local, state, or national code, rule, treaty, statute,
ordinance, or regulation and the common law arising from final, non-appealable
decisions of Governmental Authorities and state or federal courts in the United
States or any other country.

“liability” means a liability, indebtedness, accrued expense, or financial
obligation of any kind whatsoever, whether direct or indirect, joint or several,
known or unknown, fixed or contingent, accrued or unaccrued, due or to become
due, asserted or unasserted, matured or unmatured, recorded or unrecorded, or
liquidated or unliquidated.

“order” includes an order, decree, ruling, judgment, or injunction.

“person” includes, in addition to a natural person, a group, trust, syndicate,
corporation, cooperative, association, partnership, business trust, joint
venture, limited liability company, unincorporated organization, and
Governmental Authority, as well as a natural person and two or more natural
persons who agree to act in concert for any particular purpose.

1.3          Accounting Terms.

Accounting terms used, but not defined, in this Agreement are to be construed
and interpreted in accordance with GAAP as in effect on the Effective Date.

1.4          Exhibits; Headings; References.

The headings preceding the articles and sections of this Agreement are solely
for convenient reference and neither constitute a part of this Agreement nor
affect its meaning, interpretation, or effect.  All exhibits and schedules
referred to in this Agreement are an integral part of it and are incorporated by
reference in it.  Unless otherwise expressly stated, a reference in this
Agreement to an article, section, schedule, or exhibit is to an article,
section, schedule, or exhibit of this Agreement.

1.5          Severability.

Each provision of this Agreement should be construed and interpreted so it is
valid and enforceable under applicable law.  If a provision of this Agreement
(or the application of it) is held by a court to be invalid or unenforceable
under applicable law, that provision will be deemed separable from the remaining
provisions of this Agreement and will not affect the validity or interpretation
of the other provisions of this Agreement or the application of that provision
to a person or circumstance to which it is valid and enforceable.

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ARTICLE 2
THE LOAN

2.1          Loan; Warrants; Drawdown Shares.

Subject to the terms and conditions of this Agreement:  Redmond will lend to the
Company and the Company will borrow an aggregate of up to the Maximum
Availability Amount, and the Company shall deliver to Redmond, (a) on the
Closing Date, a Note in the principal amount equal to the Maximum Availability
Amount, executed by the Company and each Subsidiary, (b) with respect to each
Borrowing, Warrants that are exercisable for the number of Warrant Shares as
described on Schedule 1, and (c) with respect to each Borrowing, the number of
Drawdown Shares as set forth on Schedule 1.  The Loan will be senior to all
other indebtedness of the Company or any Subsidiary, other than (i) the Existing
Loans and, (ii) the unsecured loans made by the Other Lenders to the Company and
its Subsidiaries, each of such unsecured loans which shall be pari passu with
this Loan.  The Advance Shares shall be listed for trading on the Stock Exchange
upon approval of the Stock Exchange.

2.2          Availability.

(a)           Redmond agrees to make Advances to the Company in an amount at any
one time outstanding not to exceed the Maximum Availability Amount.  Each
Borrowing shall be made by an irrevocable duly executed Borrowing Notice
delivered to Redmond (which notice must be received by Redmond no later than
10:00 a.m. (Tampa time) on the fifth (5th) Business Day prior to the date that
is the requested Funding Date specifying (i) the amount of such Borrowing, and
(ii) the requested Funding Date, which shall be a Business Day.  At Redmond’s
election, in lieu of delivering the above-described Borrowing Notice, any
Authorized Person may give Redmond telephonic notice of such request by the
required time.  In such circumstances, Borrower agrees that any such telephonic
notice will be confirmed with a Borrowing Notice within 24 hours of the giving
of such notice and the failure to provide such Borrowing Notice shall not affect
the validity of the request.

(b)           After receipt of a request for a Borrowing pursuant to
Section 2.2(a), Redmond shall, by not later than 3:00 p.m. (Tampa time) on the
applicable Funding Date, make available to Borrower by transferring immediately
available funds equal to such requested Borrowing to the Designated Accounts
designated by the Borrower for such purpose; provided, however, that Redmond
shall have no obligation to make any Advance if Redmond shall have actual
knowledge that (1) one or more of the applicable conditions precedent set forth
in Section 3 will not be satisfied on the requested Funding Date for the
applicable Borrowing unless such condition has been waived, or (2) the requested
Borrowing would exceed the Maximum Availability Amount on such Funding Date.  If
at any time Redmond fails to make available to Borrower on an Applicable Funding
Date an Advance in accordance with the provisions of this Section 2.2(b), the
Company shall be permitted to borrow the amount of the Advance from the Other
Lenders.

2.3          Subordination.

Payment of the Note will be subordinate to the Existing Loans as set forth in
the Note.

2.4          Use of Proceeds.

The Company shall use the proceeds from Loan for working capital.

ARTICLE 3
CLOSING OF TRANSACTIONS

3.1          Closing Time and Place.

The parties shall close the Transactions at 10:00 a.m., Tampa, Florida time, on
the Closing Date at the offices of the Company, or at any other time and place
mutually acceptable to the Company and Redmond.

3.2          Obligations of the Company.

At the Closing, the Company shall deliver to Redmond:

(a)         a Note in the form of Exhibit 1 that is payable to Redmond in the
principal amount of $500,000.00 and duly executed by the Company and the
Subsidiaries in favor of Redmond;

 
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(b)         a stock certificate of the Company for Redmond that is issued in the
name of Redmond, duly executed by the Company, and represents the number of
Drawdown Shares specified for Redmond on Schedule 1, and in accordance with the
terms set forth in Schedule 1;

(c)        a Warrant Certificate for Redmond in the form of Exhibit 2 that is
issued in the name of Redmond, duly executed by the Company, and exercisable for
the number of Warrant Shares specified for Redmond on Schedule 1, and in
accordance with the terms set forth in Schedule1;

(d)        a Closing Certificate in the form of Exhibit 3 that is signed by the
Company’s President and Chief Executive Officer;

(e)        an Officer’s Certificate in the form of Exhibit 4 that is signed by
the Company’s acting Chief Financial Officer; and

(f)         a certified copy of the resolutions adopted by the Company’s Board
of Directors authorizing and approving (i) the execution, delivery, and
performance by the Company of the Note, the Warrants, and this Agreement, (ii)
the issuance of the Securities and the Warrant Shares, and (iii) the other
transactions contemplated by this Agreement and the other Financing Documents.

3.3          Obligations of Redmond.

At the Closing, Redmond shall deliver to the Company:

(a)         the first Advance to the Company;

(b)        a counterpart of a Warrant Certificate in the form of Exhibit 2 that
is issued in the name of Redmond, duly executed by Redmond, and exercisable for
the number of Warrant Shares specified for Redmond on Schedule 1, and in
accordance with the terms set forth in Schedule 1;

(c)        a Closing Certificate in the form of Exhibit 3 that is signed by
Redmond’s General Partner;

(d)        an Officer’s Certificate in the form of Exhibit 4 that is signed by
Redmond’s General Partner; and

(e)        a certified copy of the resolutions adopted by Redmond’s General
Partner authorizing and approving (i) the execution, delivery, and performance
by the Redmond of Loan Documents and (iii) the other transactions contemplated
by this Agreement and the other Loan Documents;

3.4          Conditions Precedent of the Company.

The closing obligations of the Company under this Agreement are subject to the
following conditions precedent, each of which must be satisfied on or before the
Closing Date, unless waived in writing by the Company:

(a)         Representations and Warranties.  Each representation and warranty of
Redmond in this Agreement must be accurate in all material respects as of the
Effective Date and as of the Closing Date;

(b)         Performance of Agreement.  Redmond must have performed in all
material respects every obligation required by this Agreement to be performed or
satisfied by it at or before the Closing;

(c)         Good Standing Certificates.  The Company must have received a good
standing certificate for Redmond from the appropriate Governmental Authority,
dated as of a recent date, and certifying that it is an active limited liability
partnership under the laws of its jurisdiction and has filed all annual reports
and paid all annual report fees that are due through the date of the
certificate;

 
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(d)         Consents and Approvals.  The Company must have received all consents
and approvals that are necessary to close the Transactions, including approval
of the Transactions by the Board of Directors of the Company and the
Subsidiaries; and

(e)         Adverse Proceeding.  A Proceeding must not be pending or threatened
before, and a law or order must not have been issued, adopted, enacted, entered,
enforced, or held applicable to the Transactions by, any Governmental Authority
or any state or federal court in the United States of America or other
government that directly or indirectly does or seeks to do any of the following:
(i) declare the offer or sale of the Note, the Warrants, or the Drawdown Shares
to be illegal; or (ii) permanently enjoin, restrain, or otherwise prohibit the
sale of the Note, the Warrants, or the Drawdown Shares pursuant to this
Agreement.

A waiver of any condition precedent to the closing obligations of the Company
will be valid and effective if approved in writing by the President and Chief
Executive Officer of the Company, and any unsatisfied condition precedent will
be deemed waived (without further action) by the closing of the
Transactions.  The President and Chief Executive Officer of the Company may
waive any condition precedent to the Company’s closing obligations without any
notice to, or further approval of, the Company’s stockholders or board of
directors.

3.5          Conditions Precedent of Redmond.

The obligations of Redmond to make any Advance under this Agreement are subject
to the following conditions precedent, each of which must be satisfied on the
Closing Date and as of the date of each Advance, unless waived in writing by
Redmond:

(a)        Compliance with Agreement.  The Company must have performed in all
material respects every obligation required by this Agreement to be performed by
it on or before the Closing Date and as of the date of each Advance;

(b)        Representations and Warranties.  Each representation and warranty of
the Company contained in this Agreement must be accurate in all material
respects as of the as of the Closing Date and as of the date of each Advance,
except to the extent the representation or warranty expressly addresses an
earlier date, in which case the representation and warranty must be true and
accurate as of that earlier date;

(c)        Good Standing Certificates.  Redmond must have received a good
standing certificate for the Company and each Subsidiary from the appropriate
Governmental Authority, dated as of a recent date, and certifying that each of
those corporations is an active corporation incorporated under the laws of its
jurisdiction and has filed all annual reports and paid all annual report fees
that are due through the date of the certificate;
 
(d)        Adverse Proceeding.  A Proceeding must not be pending or threatened
before, and a law or order must not have been issued, adopted,  enacted,
entered, enforced, or held applicable to the Transactions by, any Governmental
Authority or any state or federal court in the United States or other government
that directly or indirectly does or seeks to do any of the following: (i)
declare the offer or sale of the Note, the Warrants, or the Drawdown Shares to
be illegal; or (ii) permanently enjoin, restrain, or otherwise prohibit the sale
of the Note, the Warrants, or the Drawdown Shares pursuant to this Agreement;

(e)        Existing Loans.  Redmond must have received written evidence
satisfactory to him that confirms the following:  (i) the Existing Lender has
consented to the Transactions; (ii) the Existing Lender has entered into the
extension agreement provided to Redmond on the date hereof with respect to the
Existing Loans; (iii) the Existing Lender has agreed that any future insurance
proceeds received by the Company in connection with the August 2008 fire at its
Clearwater, Florida, facilities will be paid to and become an asset of the
Company without any restrictions imposed by the Existing Lender on the use of
those funds; and (iv) the Existing Lender has agreed that any proceeds received
by the Company from the sale of its Earlysville, Virginia, real property that
are in excess of the mortgage balance will become an asset of the Company
without restrictions by the Existing Lender on the use of those funds.

 
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A waiver of any condition precedent to the closing obligations of Redmond will
be valid and effective, if approved in writing by Redmond, and any unsatisfied
condition precedent will be deemed waived (without further action) by the
closing of the Transactions.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to Redmond the accuracy of the following
statements as of the Effective Date and as of the Closing Date:

4.1          Organization and Authority.

(a)         The Company is a corporation that is duly incorporated and validly
existing in good standing under the laws of the State of Delaware.  The Company
is qualified or registered to do business as a foreign corporation and is in
good standing in each jurisdiction in which the failure to be so qualified could
reasonably be expected to have a Material Adverse Effect.

(b)         Avionics Specialties, Inc. is a corporation that is duly
incorporated and validly existing in good standing under the laws of the State
of Virginia.  Avionics Specialties, Inc. is in good standing in each
jurisdiction in which the failure to be so qualified could reasonably be
expected to have a Material Adverse Effect.
(c)         OP Technologies, Inc. is a corporation that is duly incorporated and
validly existing in good standing under the laws of the State of Oregon. OP
Technologies, Inc. is in good standing in each jurisdiction in which the failure
to be so qualified could reasonably be expected to have a Material Adverse
Effect.

(d)         The Company has all requisite corporate power and authority and the
full legal right to own, lease, and operate its properties, to issue the Note,
the Shares, and the Warrants, to conduct its business as presently conducted,
and to execute, deliver, and perform this Agreement and the other Financing
Documents.  Each of the Subsidiaries has all requisite corporate power and
authority and the full legal right to own, lease, and operate its properties, to
conduct its business as presently conducted, and to execute, deliver, and
perform the Financing Documents to which it is a party.

(e)         The Company does not own any capital stock, membership interest,
partnership interest, or other ownership interest in any person, except for the
Subsidiaries.

(f)         None of the Company or the Subsidiaries is a “foreign person” within
the meaning of Section 1445 of the Code.

4.2          Authorization and Validity.

(a)           This Agreement has been duly and validly executed and delivered on
behalf of the Company, and each of the other Financing Documents to which the
Company is a party will be duly and validly executed by the Company when it is
delivered to Redmond at the Closing.

(b)           This Agreement is, and (when executed and delivered to Redmond at
the Closing) each other Financing Document to which the Company is a party will
be, a valid and binding obligation of the Company that is enforceable by Redmond
against the Company in accordance with their respective terms, except in each
case to the extent limited by application of general principles of equity and by
bankruptcy, insolvency, debtor relief, and similar laws of general application
affecting the enforcement of creditors’ rights and debtors’ obligations.

 
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(c)           The Advance Shares are duly authorized for issuance and, when
issued to Redmond, will be validly issued, fully paid, and non-assessable, free
and clean of any Liens, preemptive rights, or restriction on transfer, except
for transfer restrictions imposed by state and federal securities laws.

(d)           The Warrants have been duly authorized and, when issued to
Redmond, will be validly issued, free and clean of any Liens, preemptive rights,
or restriction on transfer, except for any transfer restrictions imposed by
state and federal securities laws.

(e)           The Warrant Shares have been duly authorized for issuance,
reserved for issuance on exercise of the Warrants, and, when issued in exchange
for payment of the warrant exercise price, will be validly issued, free and
clean of any Liens, preemptive rights, or restriction on transfer, except for
any transfer restrictions imposed by state and federal securities laws.

(f)           The issuance, execution, delivery, and performance of the Note by
the Subsidiaries have been duly authorized by all requisite corporate action of
the Subsidiaries, and no other action on the part of the Subsidiaries or their
respective directors, affiliates, or shareholders is necessary for either of the
Subsidiaries to issue the Note.

(g)           The Note will be duly and validly executed by the Company and the
Subsidiaries when it is delivered to Redmond at the Closing.

(h)           When executed and delivered by the Company and the Subsidiaries to
Redmond at the Closing, the Note will be valid and binding obligations of the
Company and the Subsidiaries that are enforceable by Redmond against the Company
and the Subsidiaries in accordance with its terms, except to the extent limited
by application of general principles of equity and by bankruptcy, insolvency,
debtor relief, and similar laws of general application affecting the enforcement
of creditors’ rights and debtors’ obligations.

4.3          Noncontravention.

The execution, delivery, and performance by the Company of this Agreement and
the other Financing Documents to which it is a party, the issuance, execution,
delivery, and performance of the Note by the Company and the Subsidiaries, and
the Closing of the Transactions will not:

(a)           contravene any law or order;

(b)           conflict with any provision of the Bylaws or Articles or
Certificate of Incorporation of the Company or any Subsidiary;

(c)           violate or result in the suspension, revocation, termination, or
cancellation of any Governmental Authorization that is necessary for the
operation of the business of the Company or any Subsidiary;

(d)           result in the vesting, creation, or exercise of any option to
purchase, right of first offer or refusal, or other right to purchase any common
stock of the Company or any Subsidiary;

(e)           require any filing, notice, report, application, registration, or
other submission of any kind to be made by the Company or any Subsidiary with
any Governmental Authority or other person (other than the SEC and the Stock
Exchange);

(f)           require any Governmental Authorization to be obtained by the
Company or any Subsidiary from any Governmental Authority or any consent,
approval, or authorization to be obtained by the Company or any Subsidiary from
any other person; or

 
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(g)           conflict with or result in a breach or default, the imposition of
a penalty, the creation or attachment of a Lien on any of the Company’s or any
Subsidiary’s assets, a suspension, cancellation, or termination (or the creation
of any right of suspension, cancellation, or termination), or the acceleration
of the maturity of any liability, obligation, or indebtedness of the Company or
any Subsidiary, under or pursuant to any order or contract.

4.4          Capitalization.

(a)       The authorized capital stock of the Company consists of 8,000,000
shares of common stock, par value $.40 per share, of which 4,051,110 shares are
issued and 3,620,343 shares are outstanding, all of which are fully paid and
nonassessable.  All the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and were not issued in contravention of any
preemptive rights.  The Company does not have authorized or outstanding any
other class of debt or equity securities, any right, option, warrant, agreement,
commitment, or subscription of any kind obligating it to sell, issue, redeem,
transfer, repurchase, or otherwise acquire any shares of its capital stock, or
any securities convertible into or exchangeable for shares of its capital stock
or any right, option, warrant, or subscription to acquire any of its capital
stock, other than options issued or to be issued under the Stock Option
Plan.  To the Company’s knowledge, no proxy, voting trust, voting agreement,
shareholder agreement, or other agreement, arrangement, or understanding of any
kind exists that entitles any person other than the record owner of any shares
of capital stock of the Company to vote those shares or to exercise any right or
power (including a right of consent or approval) in respect of those shares.

(b)         All the issued and outstanding capital stock of the Subsidiaries has
been duly authorized and validly issued and is fully paid, nonassessable, and
owned of record and beneficially by the Company, free and clean of any Lien
(other than Liens in favor of the Existing Lender), assessment, adverse claim,
preemptive right, contract for sale, option to purchase, right of first refusal,
or restriction on transfer, except for transfer restrictions imposed by state
and federal securities laws, and are not subject to any proxy, voting trust,
shareholder agreement, or other agreement with respect to the voting or transfer
of any of the stock.  Except for the class of capital stock owned by the
Company, neither of the Subsidiaries has authorized or outstanding any other
class of debt or equity securities, any right, option, warrant, agreement,
commitment, or subscription of any kind obligating it to sell, issue, redeem,
transfer, repurchase, or otherwise acquire any shares of its capital stock or
any securities convertible into or exercisable or exchangeable for shares of its
capital stock or any right, option, warrant, or subscription to acquire any of
its capital stock.

4.5          SEC Filings.

The Company shall deliver to Redmond as soon as they become available accurate
and complete copies of any report or statement that it mails to its stockholders
generally or files with the SEC during the period after the Effective Date and
before the Closing Date.  As of their respective dates, these reports and
statements will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated in them or necessary to make the
statements in them not misleading, in light of the circumstances under which
they are made, and these reports and statements will comply in all material
respects with all applicable requirements of the Exchange Act and the Securities
Act.

4.6          Financial Statements.

(a)         The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company and its Subsidiaries
that are included or incorporated in the Company SEC Documents were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as otherwise indicated in the notes to them) and fairly present the
consolidated financial position, results of operations, and cash flows from
operating, investing, and financing activities of the Company and its
Subsidiaries as of the dates and for the periods indicated, except that the
unaudited consolidated interim financial statements in the Company SEC Documents
are subject to normal year-end adjustments and were prepared in accordance with
the instructions to SEC Form 10-Q and, accordingly, omit or condense certain
footnotes and other information normally included in financial statements
prepared in accordance with generally accepted accounting principles.  The
consolidated financial statements of the Company and its Subsidiaries that are
included or incorporated in any subsequent report or statement that the Company
mails to its shareholders generally or files with the SEC during the period
after the Effective Date and before the Closing Date will be prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as otherwise indicated in them, the notes to them, or any related report
of the Company’s independent accountants) and will fairly present the financial
information that they purport to present, except that the unaudited,
consolidated interim financial statements will be subject to normal year-end
adjustments and will omit or condense certain footnotes and other information
normally included in financial statements prepared in accordance with GAAP.

 
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(b)         All the books of account and financial records of the Company and
the Subsidiaries are in the possession of the Company and located at its
principal business office, are accurate and complete in all material respects,
and have been maintained in accordance with good business practices, and every
material transaction affecting the Company’s or a Subsidiary’s business has been
recorded in them.

(c)         Any financial projections of the Company or any Subsidiary that have
been provided to Redmond are reasonable, are based on reasonable assumptions and
historical results, can be supported by the Company’s or the Subsidiary’s
existing customer contracts and business arrangements, and describe in
reasonable detail all material assumptions on which they are based.

(d)         Except to the extent of the stated amount of the allowance for
doubtful accounts, all the accounts receivable and notes receivable reflected in
the most recent balance sheet included in the Company SEC Documents, and all
accounts receivable that have arisen since January 31, 2009, constitute valid
and bona fide rights to collect payments from the sale of goods and services in
the ordinary course of the business of the Company or a Subsidiary or other
valid claims for which all requisite performance has been rendered by the
Company or a Subsidiary, will be collectible by the Company or the Subsidiary in
the usual and ordinary course of business, and are not subject to any setoff,
defense, or counterclaim.  The allowance for doubtful accounts reflected on the
most recent balance sheet included in the Company SEC Documents was determined
by the Company in a manner consistent with past practices.

 (e)         Except for any liabilities that are accrued, reflected, reserved,
or disclosed in the Balance Sheet, that have been incurred in immaterial amounts
in the usual and ordinary course of business since the Balance Sheet Date, or
that do not exceed $300,000 in the aggregate, the Company and the Subsidiaries
do not have any liabilities.  The Company has provided to Redmond all detail and
information relating to any material liability that is accrued, reflected,
reserved, or disclosed in the Balance Sheet.  The Company is not in violation
of, or default under, any contract that could give rise to any material
liability that is not accrued, reflected, or reserved, and clearly disclosed on
the Balance Sheet.
 
4.7          Brokerage.

Neither the Company nor any Subsidiary has incurred any liability to a broker,
finder, investment banker, or other intermediary who is entitled to be paid a
fee, commission, or other remuneration in connection with this Agreement or the
Transactions.

4.8          Status of Note.

The indebtedness evidenced by the Note, when issued, will not be subordinate to
any other liability, obligation, or indebtedness of the Company or any
Subsidiary other than the Existing Loans to the extent and only to the extent
expressly provided in the Note.

4.9          Affiliate Transactions.

Except as described in the Company SEC Documents, no director, employee,
shareholder, or other affiliate of the Company is a party to any agreement,
contract, commitment, or transaction with the Company, or has any interest in
any property (whether real, personal, or mixed, or tangible or intangible) used
in or necessary to the Company’s or any Subsidiary’s business.

 
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4.10       Claims and Litigation.

No Proceeding affecting the Company, a Subsidiary, or the assets or business of
the Company or a Subsidiary is pending before any court, mediator, arbitrator,
or Governmental Authority or, to the knowledge of the Company, threatened by any
person, or otherwise reasonably foreseeable, except as disclosed in the Company
SEC Documents and except for any Proceeding pending or threatened that has been
fully disclosed to Redmond and that would not have a Material Adverse Effect,
and the Company is not in default with respect to any order of any court or
Governmental Authority.

4.11       Absence of Undisclosed Liabilities.

Except for liabilities, obligations, and Financial Contingencies disclosed in
the Company SEC Documents, incurred in immaterial amounts in the usual and
ordinary course of business since the Balance Sheet Date, and any others that in
the aggregate do not exceed $300,000, neither the Company nor any Subsidiary has
any liabilities, obligations, or indebtedness of any nature whatsoever (whether
absolute, accrued, direct, indirect, perfected, inchoate, unliquidated, or
otherwise, and whether due or to become due).

4.13       Title to Assets; Liens.

The Company and each Subsidiary has good, valid, and marketable record and
equitable title to all its assets, free and clear of any Lien (other than
Permitted Liens), assessment, adverse claim, preemptive right, contract for
sale, option to purchase, or right of first offer or refusal, or any other
transfer restriction of any kind whatsoever.  All of the assets of the Company
and each Subsidiary are located in the States of Florida, Oregon, or Virginia.

4.14       Governmental Authorizations.

The Company and the Subsidiaries possess all Governmental Authorizations that
are legally required for the operation of their respective businesses and their
use and ownership of their respective assets.  The Company has furnished to
Redmond accurate and complete copies of all the Governmental Authorizations, and
each of those Governmental Authorizations is in full force and effect, has been
duly and validly issued, is not subject to any conditions that are not stated in
the authorization, has not been amended, annulled, or revoked in any respect,
and will not be cancelled, impaired, or adversely affected in any way by the
execution of this Agreement or the Closing of the Transactions.

4.15       Tax Matters.

The Company and each Subsidiary have filed (or will file) with the proper
governmental authorities all Tax Returns required by law, except with respect to
tax periods for which the applicable statute of limitations (including any
waiver or extensions) has expired and:  (a) all the Tax Returns have been
prepared in material compliance with all applicable laws and are true and
accurate in all material respects;  (b) all Taxes reported on those Tax Returns
have been fully paid; (c) no unpaid Tax deficiency has been assessed or to the
knowledge of the Company is proposed against the Company or any Subsidiary by
any taxing authority; and (d) to the knowledge of the Company, no basis exists
for any taxing authority to claim or assess any additional Taxes against the
Company or any Subsidiary for any period.

4.16       Accuracy of Representations.

None of the information contained in the representations and warranties made by
the Company in this Agreement (including any exhibit incorporated by reference
into this Agreement) or in any certificate delivered or to be delivered to
Redmond by the Company pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact that is necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.

 
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF REDMOND

Redmond represents and warrants to the Company the accuracy of the following
statements as of the Effective Date and as of the Closing Date:

5.1         Organization and Authority.

(a)         Redmond is a limited liability partnership that is duly incorporated
and validly existing in good standing under the laws of the State of
Florida.  The Company is qualified or registered to do business as a foreign
corporation and is in good standing in each jurisdiction in which the failure to
be so qualified could reasonably be expected to have a Material Adverse Effect.

(b)         Redmond has all requisite corporate power and authority to execute,
deliver, and perform this Agreement and every other Financing Documents to which
it is a party.

(c) The execution, delivery, and performance by Redmond of this Agreement and
every other Financing Document to which it is a party will not:

(i)         violate any law or order of any court or Governmental Authority;

(ii)         require any notice to, filing or registration with, or consent,
license, approval, or authorization of, any Governmental Authority or other
person; or

(iii)         result in a breach or default, the imposition of a penalty, the
creation or attachment of a Lien on any of Redmond’s assets, a suspension,
cancellation, or termination (or create any right of suspension, cancellation,
or termination), or the acceleration of the maturity of any liability,
obligation, or indebtedness of Redmond, under or pursuant to any order or
contract to which Redmond is a party.

This Agreement has been duly and validly executed and delivered to the Company
by Redmond, and Redmond will have duly and validly executed each of the other
Financing Documents to which it is a party before that Financing Document is
delivered to the Company at the Closing.  This Agreement is, and (when executed
and delivered to the Company at the Closing) each other Financing Document to
which Redmond is a party will be, valid, effective, and enforceable by the
Company against Redmond in accordance with its terms, except in each case to the
extent limited by application of general principles of equity and by bankruptcy,
insolvency, debtor relief, and similar laws of general application affecting the
enforcement of creditors’ rights and debtors’ obligations.

5.2          Litigation.

No Proceeding is pending before any court, mediator, arbitrator, or Governmental
Authority or (to the knowledge of Redmond) asserted or threatened by any person
that could adversely affect in any way Redmond’s right to purchase and own the
Note, the Warrants, and the Advance Shares.

5.3          Brokerage.

Redmond has not incurred any liability to a broker, finder, investment banker,
or other intermediary who is entitled to be paid by a fee, commission, or other
remuneration in connection with this Agreement or the Transactions.

 
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5.4          Communication by Redmond.
 
Redmond has had a reasonable opportunity to ask questions of and receive answers
from the Company concerning the Transactions, and all such questions have been
answered to the full satisfaction of Redmond.  Furthermore, Redmond represents
that in connection with its review of this Agreement and the transactions
contemplated hereby, he either: (i) has not been represented by counsel and
assumes all risks thereto, or (ii) has been represented by counsel other than
counsel for the Company.

ARTICLE 6
COVENANTS OF THE COMPANY

6.1          Affirmative Covenants.

From the date of this Agreement and for as long as any of the Liabilities remain
unpaid, the Company shall, and shall cause each of the Subsidiaries to:
 
(a)         unless otherwise waived by the Existing Lender, comply with all of
the affirmative covenants set forth in Section 5 of the Existing Loan Documents;
and

(b)         provide Redmond with copies of all information required to be
provided to the Existing Lender under the Existing Loan Documents.

6.2          Negative Covenants.

From the date of this Agreement and for as long as any of the Liabilities remain
unpaid, the Company and its Subsidiaries shall:
 
(a)         unless otherwise waived by the Existing Lender, comply with each
negative covenant set forth in Section 6 of the Existing Loan Documents; or
 
 (b)        not incur, create, assume, or permit to exist a commitment to make a
payment under a lease or any other arrangement for the use of property of
another person if, immediately thereafter, the aggregate of all such payments to
be made during any consecutive 12-month period would exceed $100,000, or enter
into any transaction in which it sells, leases, transfers, or exchanges any of
its property to a third party and then leases back the same or similar property
except for (i) current capital and operating leases existing as of the Closing
Date or (ii) any lease or other arrangement entered into with third parties in
connection with the use of property of another person for equipment or machinery
used in the operations of the Company and its Subsidiaries and in the production
of products, including equipment used to replace obsolete equipment, equipment
used to test and produce products and to maintain or increase capacity; or

(c)         not, unless approved by Redmond, issue (i) any shares of any class
of stock, (ii) any other equity securities, or (iii) any debt or equity
securities convertible into, or exchangeable for, equity securities (including
warrants and stock options), other than the Warrants, the Advance Shares, and
awards issued under the Stock Option Plan or to be issued under the Stock Option
Plan or to be issued under an amendment to the Stock Option Plan as approved by
the stockholders of the Company; or

(d)         not incur, issue, create, assume, or permit to exist any
indebtedness for money borrowed from anyone other than Redmond, except:  (i) the
Liabilities; (ii) the Existing Loans; (iii) the purchase of equipment or
machinery used in the operations of the Company and its Subsidiaries and in the
production of products, including equipment used to replace obsolete equipment,
equipment used to test and produce products and to maintain or increase
capacity; (iv) accounts payable to trade creditors and current operating
expenses that are not aged more than 120 days from billing date or more than
30 days from the due date, in each case incurred in the ordinary course of
business and paid within that time period; (v) obligations to pay rent in
connection with its business operations; (vi) contingent liabilities arising out
of endorsements of checks and other negotiable instruments for deposit or
collection in the ordinary course of business; and (vii) the indebtedness to the
Other Lenders in an aggregate amount equal to $1,500,000; or

 
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(e)         not refinance the outstanding loans with the Senior Lender unless
the refinancing is on more favorable terms to the Company and its Subsidiaries.

ARTICLE 7
FURTHER AGREEMENTS

7.1          Transfer Agent.

The Company will serve as the initial transfer agent for the Note and the
Warrants.  The Company may, in its sole discretion, appoint at any time a
commercial transfer agent for the Note and Warrants.

7.2          Brokerage Fees.

The Company and the Subsidiaries shall not pay any fee, commission, or other
remuneration to any broker, finder, investment banker, or other intermediary in
connection with this Agreement or the Transactions.

7.3          Survival of Provisions.

The respective warranties, obligations, and representations of the parties under
this Agreement will survive the Closing and the consummation of the
Transactions.  All the obligations of a party under this Agreement will expire
when fully paid, performed, or discharged.

7.4          Further Assurances.

At any time and from time to time after the Closing Date, each party to this
Agreement shall furnish to any other party to this Agreement any reasonable
further assurance of the Transactions that the other party requests, if the
requested assurance does not enlarge or extend any existing liability or
obligation of the party or impose on the party any new or additional liability
or obligation.

7.5          Listing and Reservation of Shares.

The Company shall list the Advance Shares for trading on the Stock Exchange on
or before they are issued to Redmond.  In addition, the Company shall reserve
the Warrant Shares for listing on the Stock Exchange upon official notice of
issuance.  Also, the Company shall reserve from its authorized but unissued
Common Stock and keep available for issuance until all the Warrants expire or
are exercised that number of shares of the Common Stock that will be issuable on
exercise of the Warrants.

7.6          Indemnity.

The Company shall indemnify Redmond against any and all costs, claims, losses,
damages, expenses, and liabilities incurred by Redmond and arising out of, in
connection with, or as a result of any breach or inaccuracy of any covenant,
warranty, or representation of the Company in this Agreement or any other
Financing Document.  Redmond shall indemnify the Company against any and all
costs, claims, losses, damages, expenses, and liabilities incurred by the
Company and arising out of, in connection with, or as a result of any breach or
inaccuracy of any covenant, warranty, or representation of Redmond in this
Agreement or any other Financing Document.

 
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7.7          Transaction Expenses.

Each party shall be responsible for their own attorneys’ fees, costs, taxes,
charges and expenses incurred by them, in connection with the preparation,
negotiation, and consummation of the Financing Documents and the Transactions.

7.8         Confidentiality.

Redmond acknowledges that he has been or will be given access to Restricted
Information in its capacity as the owner of a Note, Shares, and Warrant and that
it is essential to the successful conduct of the Company’s business that all
Restricted Information remain protected and strictly confidential.  Accordingly,
Redmond shall treat all Restricted Information as strictly confidential and use
it only in connection with its evaluation of the Company’s business and
exercising his rights under the Financing Documents.  Redmond shall not at any
time, reveal, discuss, divulge, disclose, or duplicate any Restricted
Information in any way, at any time, for any reason, or to any person who is not
an officer, director, or professional advisor of the Company who is authorized
by the Company to have access to the information and needs to know the
information for the purposes of performing its, her, or his responsibilities on
behalf of the Company, except to the extent expressly authorized in writing by
the Company, and except for any disclosure that is required by law, by a court
of competent jurisdiction, or to respond in good faith to a valid inquiry by a
Governmental Authority.  Redmond shall not use and shall not permit any of his
affiliates to use any Restricted Information for any other purpose whatsoever,
including the use of any Restricted Information in any way to compete unfairly
or improperly with the Company or to purchase or sell any securities of the
Company in violation of any applicable law.  The provisions of this Section 7.8
shall survive the payment in full of the obligations under the Loan.

7.9          Registration Rights.

If there is a change in control of the Company, or if the Company files for
bankruptcy, the Company will immediately register, on behalf of Redmond, the
sale of the shares of Common Stock issued upon exercise of the Warrants and the
shares of Common Stock issued pursuant to this Agreement (together, the “Redmond
Shares”).  Further, in the event the Company does not pay the interest on the
Subordinated Note in full when due on the first day of each month, as required
by the Subordinated Note, or if the Subordinated Note is not paid in full when
due, whether at the Maturity Date or upon acceleration of the Maturity Date as a
result of a Default by the Company, as required by the Subordinated Note, the
Company will immediately register, on behalf of Redmond, the sale of the Redmond
Shares.  The Company’s obligations pursuant to this Section 7.9 relating to the
registration of the sale of the Redmond Shares are as follows:

The Company shall use commercially reasonable efforts to (a) prepare and file
with the U.S. Securities and Exchange Commission (the “SEC”) a Registration
Statement (the “Registration Statement”) in accordance with the Securities Act
as soon as practicable after it is obligated to pursuant to one of the events
described above in this Section 7.9 (“Registration Event”), (b) have the
Registration Statement declared effective by SEC under the Securities Act as
promptly as practicable, and in any event within 90 days after the Registration
Event, (c) to respond to comments of the SEC (if any) in connection with that
filing, and (d) take all action necessary or appropriate to obtain all permits,
approvals, and registrations under applicable state securities or “Blue Sky”
laws to ensure that Redmond’s sale of the Redmond Shares complies with those
laws.  The Company shall promptly notify Redmond, after it receives the
information, of the time when the Registration Statement becomes effective or
any supplement or amendment to it is filed with the SEC, the issuance of any
stop order, the suspension of the qualification of the shares of Common Stock
for offering or sale in any jurisdiction, any request by the SEC for amendment
of the Registration Statement, or any comments by the SEC on the Registration
Statement, requests by the SEC for additional information, and all responses to
SEC comments or requests for additional information.

7.10       Anti-Dilution Protection for Advance Shares.

If the Company does any of the following dilutive acts (a “Share Adjustment
Event”) at any time during the period after the Closing Date and before the date
when all the Liabilities have been paid in full:

 
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(a)
issues to anyone shares of its Common Stock without consideration or for a
purchase price lower than the Closing Price;

 
(b)
issues to anyone any securities that are convertible into, or exchangeable for,
shares of its Common Stock (“Convertible Securities”) without consideration or
at an exchange or conversion price lower than the Closing Price; or

 
(c)
grants or issues to anyone any right, option, warrant, or other agreement to
purchase, subscribe for, or otherwise acquire any shares of its Common Stock
(“Derivative Securities”) without consideration or at an exercise price lower
than the Closing Price;

then, in each case, the Company shall issue to each holder of Advance Shares
within ten days after the occurrence of the Share Adjustment Event additional
shares of the Common Stock determined by the following formula:

NCS    =
[(CSO + CSP) ÷ (CSO + CSAP)] x CS - CS

Where:
 
NCS    =
The aggregate number of additional shares of Common Stock issuable to a holder
of Advance Shares as a result of the Share Adjustment Event.

 
CS       =
The number of Advance Shares owned by the shareholder on the date of the Share
Adjustment Event, taking into account all previous Share Adjustment Events.

 
CP       =
The Closing Price.

 
CSO    =
The number of shares of Common Stock outstanding, excluding (a) the Advance
Shares, (b) unissued Warrant Shares, (c) the shares of Common Stock issued
pursuant to the Share Adjustment Event, and (d) any other shares of Common Stock
issuable on the exercise of any other rights, options, or warrant or on the
exchange or conversion of any other securities of the Company.

 
CSP     =
The number of shares of Common Stock that the purchaser or purchasers of the
Convertible Securities, Derivative Securities, or shares of Common Stock
pursuant to the Share Adjustment Event would have received for their aggregate
investment, if the exercise, purchase, exchange, or conversion price per share
for the shares of Common Stock issued or issuable pursuant to the Share
Adjustment Event were the Closing Price, instead of the lower exercise,
purchase, exchange, or conversion price per share actually paid or to be
paid.  If the shares of Common Stock are issued without consideration, the CSP
will be zero.

 
CSAP =
Number of shares of Common Stock actually issuable on exercise of the new
securities

All share adjustment calculations under this Section are to be rounded up to the
nearest one hundredth of a share.
 
An issuance of Convertible Securities that are convertible into, or exchangeable
for, shares of Common Stock without consideration will constitute for purposes
of this Section an issuance of the maximum number of shares of Common Stock that
are issuable on the exchange or conversion of the Convertible Securities,
effective as of the date when the Convertible Securities are sold or
issued.  Similarly, a grant or issuance of Derivative Securities to purchase,
subscribe for, or otherwise acquire shares of Common Stock without consideration
will constitute for purposes of this Section an issuance of the maximum number
of shares of Common Stock issuable pursuant to the exercise of the Derivative
Securities, effective as of the date when the Derivative Securities were granted
or issued.  No further adjustment will be required on the subsequent actual
issuance of shares of Common Stock pursuant to the exercise of the Derivative
Securities or the exchange or conversion of the Convertible Securities.

 
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ARTICLE 8
GENERAL PROVISIONS

8.1          Counterparts.

The parties to this Agreement may execute this Agreement in counterparts by
manual or facsimile signature.  Each executed counterpart of this Agreement will
constitute an original document, and all executed counterparts, collectively,
will constitute the same agreement.

8.2          Governing Law

The validity, construction, enforcement, and interpretation of this Agreement
are governed by the laws of the State of Florida and the federal laws of the
United States of America, excluding the laws of those jurisdictions pertaining
to the resolution of conflicts with laws of other jurisdictions.

8.3          Complete Agreement.

This Agreement records the entire understanding among the parties regarding the
Transactions and supersedes any previous or contemporaneous agreement,
understanding, or representation, oral or written, by any of them.  The terms of
the other Financing Documents are an integral part of this Agreement and are
incorporated by reference into this Agreement.

8.4          Rights of Third Parties.

Nothing in this Agreement, whether express or implied, is intended or should be
construed to confer or grant to any person, except the parties to this Agreement
and their respective assignees and successors in interest (by operation of law
or otherwise), any claim, right, remedy, or privilege under, or because of, this
Agreement or any provision of it.

8.5          Venue and Jurisdiction.

The parties (a) consent to the personal jurisdiction of the state and federal
courts having jurisdiction over Pinellas County, Florida, (b) stipulate that the
proper, exclusive, and convenient venues for all legal proceedings arising out
of this Agreement are the Circuit Court for Pinellas County, Florida, for state
court proceedings, and the United States District Court for the Middle District
of Florida - Tampa Division, for federal court proceedings, and (c) waive any
defense, whether asserted by motion or pleading, that those venues are improper
or inconvenient.  In any lawsuit arising out of this Agreement, the losing party
shall reimburse the prevailing party, on demand, for all costs incurred by the
prevailing party in enforcing, defending, or prosecuting the lawsuit.

8.6          Assignment; Binding Effect.

This Agreement is not assignable (by operation of law or otherwise) by any party
without the advance written approval of all other parties to this
Agreement.  This Agreement shall be binding on each party’s assignees and
successors in interest (by operation of law or otherwise) and inure to the
benefit of each party’s authorized assignees and successors in interest.

 
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8.7          Waivers, Amendments, and Extensions.

An amendment, extension, or modification of this Agreement or any provision of
it will be valid and effective only if it is signed by all the parties to this
Agreement.  A waiver of any provision of this Agreement will be valid and
effective only if it is evidenced by a writing signed by or on behalf of the
party against whom the waiver is sought to be enforced.  At any time on or
before the Closing Date, and regardless of whether this Agreement has been
approved by any third party or by the members, managers, partners, trustees,
shareholders, or board of directors of a party to this Agreement, the parties to
this Agreement may in writing: (a) extend the time for performance of any of the
obligations or other actions of the other parties; (b) waive any inaccuracies of
the representations or warranties of the other parties contained in this
Agreement; (c) waive compliance with any of the covenants of the other parties
contained in this Agreement; (d) waive performance of any of the obligations of
the other parties created under this Agreement; or (e) waive any of the
conditions precedent to its own obligations under this Agreement.  No delay or
course of dealing by a party to this Agreement in exercising a power, right, or
remedy under this Agreement will operate as a waiver of any power, right, or
remedy of that party, except to the extent expressly manifested in a writing
signed by or on behalf of that party.  In addition, the written waiver by a
party of a power, right, or remedy under any provision of this Agreement will
not constitute a waiver of any succeeding exercise of the power, right, or
remedy or a waiver of the provision itself.

8.8          Notices.

Any notice, demand, waiver, consent, approval, or other communication that is
required or permitted to be given to any party under this Agreement will be
validly given and delivered only if it is in writing (whether or not this
Agreement expressly provides for it to be in writing), delivered personally or
sent by fax, email, commercial courier, or first-class, postage prepaid, United
States mail (whether or not certified or registered, and whether or not a return
receipt is requested or received by the sender) to the appropriate party  at its
fax number, email address, or street address that is listed below or that is
designated by the party after Closing by a notice to all the other parties to
this Agreement that is validly given in accordance with the provisions of this
Section:

(a)           If to the Company:

Aerosonic Corporation
1212 North Hercules Avenue
Clearwater, Florida 33765
Fax No.: (727) 447-5926
Email:  dhillman@aerosonic.com
Attention:  Douglas J. Hillman, Chief Executive Officer

with a copy to:

Arent Fox LLP
1675 Broadway, 31st Floor
New York, NY 10019-5820
Fax: (212) 484-3990
Email:  hausner.sanford@arentfox.com
Attention:  Sanford G. Hausner

 (b)         If to Redmond:

Redmond Family Investments, LLLP2514 Prospect Road
Tampa, FL  33629
Attn:  David L. Redmond
Fax: (813)________
david.redmond@viant.com

 
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A validly given and delivered notice, request, demand, waiver, consent,
approval, or other communication under this Agreement will be effective and
“received” for purposes of this Agreement on the earlier of (i) the day when it
is actually received, if it is delivered personally or by commercial courier,
(ii) the second day after it is sent, if it is delivered by fax, email, or other
means of electronic communication and a copy is also delivered by U.S. mail, or
(iii) the fifth day after it is postmarked by the United States Postal Service,
if it is delivered by first class, postage prepaid, United States mail.  Each
party promptly shall notify the other parties of any change in its fax number,
email address, or mailing address for notices.  The delivery to a party’s legal
counsel of a copy of a notice, request, demand, waiver, consent, approval, or
other communication will not constitute delivery of the notice, request, demand,
waiver, consent, approval, or other communication to the party, unless so
confirmed in writing by the party’s counsel.

                                  
Exhibits:
Exhibit 1 – Form of 14% Subordinated Note
Exhibit 2 – Form of Warrant Certificate
Exhibit 3 – Company Closing Certificate
Exhibit 4 – Officer’s Certificate

[Signature pages follow]

 
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AEROSONIC CORPORATION
           
WITNESSES:
 
By:
/s/ Douglas J. Hillman
       
Douglas J. Hillman
       
President and Chief Executive Officer
 
_____________________________
       
Name:________________________
                 
_____________________________
       
Name:________________________
                           
WITNESSES:
 
REDMOND FAMILY INVESTMENTS, LLLP
               
By:
/s/ David L. Redmond
       
DAVID L. REMOND
     
Title:  General Partner
 
_____________________________
       
Name:________________________
                 
_____________________________
       
Name:________________________
       

 

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SCHEDULE 1

Maximum Availability
 
Advance Shares
 
Warrants
$500,000
 
(1/10th) of one (1) share of Common Stock for each $1.00 in principal amount of
each Borrowing.
 
to purchase 0.25 shares of Common Stock for each $1.00 of principal amount of
each Borrowing.

 

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