Exhibit 10.11
 
 
___________________________________________________________________
 
SECURITIES PURCHASE AGREEMENT
 
by and between
 
TEL-INSTRUMENT ELECTRONICS CORP.
 
as the Issuer
 
and
 
BCA MEZZANINE FUND, L.P.
 
as the Purchaser
 
Dated as of September 10, 2010
 
___________________________________________________________________
 
 
 

--------------------------------------------------------------------------------

 

 
TABLE OF CONTENTS
 
ARTICLE 1 DEFINITIONS
1
 
1.01.
Definitions
1
 
1.02.
Accounting Terms; Financial Statements
21
 
1.03.
Knowledge of the Credit Parties
21
 
1.04.
Uniform Commercial Code Terms
22
 
1.05.
Certain Matters of Construction
22
ARTICLE 2 PURCHASE AND SALE OF THE SECURITIES
23  
2.01.
Purchase and Sale of the Note
23
 
2.02.
Purchase and Sale of the Warrant
23
 
2.03.
Fees; Expenses
23
 
2.04.
Closing
23
 
2.05.
Financial Accounting Positions; Tax Reporting
23
 
2.06.
Interest
24
ARTICLE 3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS TO PURCHASE THE
SECURITIES
25
 
3.01.
Representations and Warranties
25
 
3.02.
Compliance with this Agreement
25
 
3.03.
Secretary’s Certificates
25
 
3.04.
Transaction Documents
25
 
3.05.
Purchase of Securities Permitted by Applicable Laws
25
 
3.06.
Opinions of Counsel
26
 
3.07.
Approval of Counsel to the Purchaser
26
 
3.08.
Consents and Approvals
26
 
3.09.
Lien Searches; Payment of Outstanding Indebtedness; Security Documents
26
 
3.10.
No Material Judgment or Order
26
 
3.11.
Pro Forma Balance Sheet.
27
 
3.12.
Good Standing Certificates
27
 
3.13.
No Litigation
27
 
3.14.
Interim Financial Statements; Projections
27
 
3.15.
Flow of Funds
27
 
3.16.
Adverse Change
27
 
3.17.
Solvency Certificate; Insurance Certificates
27
 
3.18.
Fees and Expenses
28
 
3.19.
Conduct of Business
28
 
3.20.
Transfer Taxes
28
 
3.21.
Landlord Waivers and Agreements
28
ARTICLE 4 CONDITIONS TO THE OBLIGATIONS OF THE ISSUER TO ISSUE AND SELL THE
SECURITIES
28
 
4.01.
Representations and Warranties
28
 
4.02.
Compliance with this Agreement
28

 
 
 

--------------------------------------------------------------------------------

 
 
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES
28
 
5.01.
Corporate Existence and Power
28
 
5.02.
Authorization; No Contravention
29
 
5.03.
Governmental Authorization; Third Party Consents
29
 
5.04.
Binding Effect
29
 
5.05.
Litigation
29
 
5.06.
Compliance with Laws
30
 
5.07.
No Default or Breach
30
 
5.08.
Title to Properties
30
 
5.09.
Use of Real Property
30
 
5.10.
Taxes
31
 
5.11.
SEC Reports; Financial Statements and Projections
32
 
5.12.
Operating Company
33
 
5.13.
Disclosure
34
 
5.14.
Absence of Certain Changes or Events
34
 
5.15.
O.S.H.A. and Environmental Compliance
34
 
5.16.
Investment Company
35
 
5.17.
Subsidiaries
35
 
5.18.
Capitalization
35
 
5.19.
Private Offering
36
 
5.20.
Broker’s, Finder’s or Similar Fees
36
 
5.21.
Labor Relations
37
 
5.22.
Employee Benefit Plans
37
 
5.23.
Intellectual Property.
38
 
5.24.
Potential Conflicts of Interest
39
 
5.25.
Government Contracts.
39
 
5.26.
Indebtedness
40
 
5.27.
Material Contracts
40
 
5.28.
Insurance
41
 
5.29.
Assignment of Payments.
41
 
5.30.
Compliance with the FCPA.
41
 
5.31.
Products Liability
41
 
5.32.
Solvency
42
 
5.33.
Questionnaire
42
 
5.34.
Location of Assets
42
 
5.35.
Certain Payments
42
 
5.36.
Margin Requirements
42
 
5.37.
Anti-Terrorism Laws
42
 
5.38.
Trading with the Enemy
43
 
5.39.
Interest Rate Hedges and Other Hedging Agreements
43
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
43
 
6.01.
Authorization; No Contravention
43
 
6.02.
Binding Effect
43
 
6.03.
No Legal Bar
43
 
6.04.
Purchase for Own Account
43
 
6.05.
Broker’s, Finder’s or Similar Fees
44
 
6.06.
Governmental Authorization; Third Party Consent
44

 
 
 

--------------------------------------------------------------------------------

 
 
ARTICLE 7 INDEMNIFICATION
44
 
7.01.
Indemnification
44
 
7.02.
Procedure; Notification
45
 
7.03.
Survival
46
ARTICLE 8 AFFIRMATIVE COVENANTS
46
 
8.01.
Financial Statements and Other Information
46
 
8.02.
Preservation of Existence
51
 
8.03.
Payment of Obligations
51
 
8.04.
Compliance with Laws
52
 
8.05.
Violations
52
 
8.06.
Board Observer
52
 
8.07.
Inspection
52
 
8.08.
Payment of the Note
53
 
8.09.
Insurance
53
 
8.10.
Books and Records
53
 
8.11.
Use of Proceeds
53
 
8.12.
Standards of Financial Statements
54
 
8.13.
Reservation of Equity Interests
54
 
8.14.
Additional Real Property
54
 
8.15.
Cash Management Systems.
54
 
8.16.
Landlord Waivers
55
 
8.17.
Life Insurance Policy
55
ARTICLE 9 NEGATIVE COVENANTS
55
 
9.01.
Fundamental Changes; Consolidations, Mergers and Acquisitions
55
 
9.02.
Creation of Liens
56
 
9.03.
Guarantees
56
 
9.04.
Investments
56
 
9.05.
Loans
56
 
9.06.
Restricted Payments
56
 
9.07.
Indebtedness
57
 
9.08.
Nature of Business
57
 
9.09.
Transactions with Affiliates; ITI and Tel Holdings
57
 
9.10.
Leases
58
 
9.11.
Subsidiaries; Partnerships; Joint Ventures
58
 
9.12.
Fiscal Year and Accounting Changes
58
 
9.13.
Amendment of Organizational Documents
58
 
9.14.
Limitation on Modifications of Indebtedness; Modifications of Certain Other
Agreements; Etc.
58
 
9.15.
Financial Covenants
59
 
9.16.
Compliance with ERISA
60
 
9.17.
Prepayment of Indebtedness
60
 
9.18.
Anti-Terrorism Laws
60
 
9.19.
Trading with the Enemy Act
60
 
9.20.
Additional Negative Pledges
61

 
 
 

--------------------------------------------------------------------------------

 
 
ARTICLE 10 PREPAYMENT
61
 
10.01.
Optional Prepayment
61
 
10.02.
Scheduled Payments; Mandatory Prepayments
61
ARTICLE 11 EVENTS OF DEFAULT; REMEDIES
63
 
11.01.
Events of Default
63
 
11.02.
Acceleration and Remedies
65
 
11.03.
Application of Proceeds
66
ARTICLE 12 MISCELLANEOUS
66
 
12.01.
Survival of Representations and Warranties
66
 
12.02.
Notices
67
 
12.03.
Successors and Assigns.
68
 
12.04.
Amendment and Waiver.
68
 
12.05.
Confidentiality.
69
 
12.06.
Signatures; Counterparts
69
 
12.07.
Headings
69
 
12.08.
GOVERNING LAW
70
 
12.09.
JURISDICTION; JURY TRIAL WAIVER.
70
 
12.10.
Severability
70
 
12.11.
Entire Agreement
71
 
12.12.
Certain Expenses
71
 
12.13.
Publicity
71
 
12.14.
Further Assurances
72
 
12.15.
No Strict Construction
72
 
12.16.
Joint and Several Liability
72
 
12.17.
Transfer of the Note.
72
ARTICLE 13 TAXES, YIELD PROTECTION AND ILLEGALITY 73  
13.01.
Taxes.
73
 
13.02.
Certificates of Purchaser
74
 
 
   

 
 
 
 
 

--------------------------------------------------------------------------------

 
 
LIST OF EXHIBITS AND SCHEDULES

Exhibits
 
Exhibit A
Form of Promissory Note
Exhibit B
Form of Warrant
Exhibit C
Form of Compliance Certificate
Exhibit D
Form of Security Agreement
Exhibit E
Form of Investor Rights Agreement
Exhibit F
Form of Solvency Certificate
Exhibit G
Projections
Exhibit H
SBA Side Letter
Exhibit I
Form of Subordination Agreement

Schedules
Schedule 5.01 – Jurisdiction of Organization and Qualifications
Schedule 5.05 – Litigation
Schedule 5.08(a) – Owned Real Property
Schedule 5.08(b) – Leased Real Property
Schedule 5.09 – Use of Real Property
Schedule 5.10 – Taxes
Schedule 5.11 – Financial Statements
Schedule 5.14 – Absence of Changes
Schedule 5.17 – Subsidiaries
Schedule 5.18 – Capitalization
Schedule 5.20 – Brokers’ or Finders’ Fees
Schedule 5.21 – Labor Relations
Schedule 5.22(a) – Employee Benefit Plans
Schedule 5.22(b) – Applicable Exceptions re: Employee Benefit Plans
Schedule 5.23 – Intellectual Property
Schedule 5.24 – Conflicts of Interest
Schedule 5.26 – Indebtedness
Schedule 5.27 – Material Contracts
Schedule 5.28 – Insurance
Schedule 5.31 – Products Liability
Schedule 5.34 – Location of Assets
Schedule 5.35 – Certain Payments
Schedule 9.02 – Permitted Liens
Schedule 9.04 – Investments
Schedule 9.06 – Restricted Payments
Schedule 9.07 – Indebtedness
Schedule 9.09 – Transactions with Affiliates
Schedule 10.02 – Scheduled Payments

 
 

--------------------------------------------------------------------------------

 
 
SECURITIES PURCHASE AGREEMENT
 
SECURITIES PURCHASE AGREEMENT, dated as of September 10, 2010, by and between
TEL-INSTRUMENT ELECTRONICS CORP., a New Jersey corporation (“Issuer”), and BCA
MEZZANINE FUND, L.P., a Delaware limited partnership (the “Purchaser”).
 
W I T N E S S E T H:
 
WHEREAS, the Issuer wishes to sell to the Purchaser, and the Purchaser wishes to
purchase from the Issuer, a promissory note (the “Note”), due on August 31,
2015, in the aggregate principal amount of $2,500,000; and
 
WHEREAS, the Issuer wishes to sell to the Purchaser, and the Purchaser wishes to
purchase from the Issuer, a Warrant (the “Warrant”) to purchase 136,920 shares
of common stock of the Issuer;
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
 
ARTICLE 1
 
DEFINITIONS
 
1.01. Definitions.  As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
 
“Accountants” shall have the meaning assigned to that term in Section 8.01(a).
 
“Affiliate” shall mean, with respect to any Person, any other Person (a)
directly or indirectly controlling, controlled by, or under common control with,
such Person, (b) directly or indirectly owning or holding twelve and one-half
percent (12.5%) or more of any Equity Interests in such Person, or (c) twelve
and one-half percent (12.5%) or more of whose voting stock or other Equity
Interests is directly or indirectly owned or held by such Person.  For purposes
of this definition, “control” (including with correlative meanings, the terms
“controlling”, “controlled by” and under “common control with”) means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
 
“Agreement” shall mean this Securities Purchase Agreement, including the
exhibits and schedules attached hereto, as the same may be amended, restated,
supplemented or modified in accordance with the terms hereof.
 
“Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism or
money laundering, including Executive Order No. 13224, the USA Patriot Act, the
Applicable Laws comprising or implementing the Bank Secrecy Act, and the
Applicable Laws administered by the United States Treasury Department’s Office
of Foreign Asset Control (as any of the foregoing Applicable Laws may from time
to time be amended, renewed, extended, or replaced).
 
 
1

--------------------------------------------------------------------------------

 
 
“Applicable Law” shall mean all international, foreign, Federal, provincial,
state and local statutes, treaties, rules, guidelines, regulations, ordinances,
codes and administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case whether or not having the force of law.
 
“Assignment of Claims Act” means Title 31, United States Code § 3727 and
Title 41, United States Code § 15, as revised or amended, and any rules or
regulations issued pursuant thereto, and also shall be deemed to include any
other laws, rules or regulations governing the assignment of government
contracts or claims against a Governmental Authority.
 
“Authorized Officer” shall mean any of the President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer or Controller of a Credit Party
(or any other officer authorized by a Credit Party to perform all or any portion
of the same or similar functions of any of such enumerated officers, as
applicable).
 
“Bank Secrecy Act” shall mean 31 U.S.C. Sections 5311-5330, as the same has
been, or shall hereafter be, extended, amended or replaced.
 
“Board of Directors” shall mean the board of directors of any corporation, board
of managers of any limited liability company or similar governing body of any
other Person.
 
“Blocked Person” shall mean (i) a Person that is listed in the annex to, or is
otherwise subject to the provisions of, Executive Order No. 13224, (ii) a Person
owned or controlled by, or acting for or on behalf of, any Person that is listed
in the annex to, or is otherwise subject to the provisions of, Executive Order
No. 13224, (iii) a Person with which Purchaser is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law, (iv) a Person
that commits, threatens or conspires to commit or supports “terrorism” as
defined in Executive Order No. 13224, (v) a Person that is named as a “specially
designated national” on the most current list published by the U.S. Treasury
Department Office of Foreign Asset Control at its official website or any
replacement website or other replacement official publication of such list, or
(vi) a Person who is affiliated or associated with a Person listed above.
 
“Business” shall mean the business of design and manufacture of avionics test
and measurement solutions for the commercial air transport, general aviation,
government/military aerospace, and defense markets.
 
“Business Day” shall mean any day other than a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
or executive order to close.
 
“Capital Expenditures” shall mean expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements, substitutions
or additions thereto which have a useful life of more than one year, including
the total principal portion of Capital Lease Obligations, which, in accordance
with GAAP, would be classified as capital expenditures.
 
“Capital Lease Obligations” shall mean any Indebtedness of the Credit Parties
represented by obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
 
 
2

--------------------------------------------------------------------------------

 
 
“Cash Equivalents” shall mean: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date of acquisition thereof;
(ii) commercial paper maturing no more than one (1) year from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor’s Ratings Group, a division of McGraw-Hill, Inc., or at least P-1 from
Moody’s Investors Service, Inc.; (iii) certificates of deposit or bankers’
acceptances maturing within one (1) year from the date of issuance thereof
issued by, or overnight reverse repurchase agreements from, any commercial bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia having combined capital and surplus of not less than
$500,000,000; (iv) time deposits maturing no more than thirty (30) days from the
date of creation thereof with commercial banks having membership in the Federal
Deposit Insurance Corporation in amounts not exceeding the lesser of $100,000 or
the maximum amount of insurance applicable to the aggregate amount of the Credit
Parties’ and their respective Subsidiaries’ deposits at such institution; and
(v) deposits or investments in mutual or similar funds offered or sponsored by
brokerage or other companies having membership in the Securities Investor
Protection Corporation in amounts not exceeding the lesser of $100,000 or the
maximum amount of insurance applicable to the aggregate amount of the Credit
Parties’ and their respective Subsidiaries’ deposits at such
institution.  Notwithstanding the foregoing, Cash Equivalents does not include
and each Credit Party is prohibited from purchasing, purchasing participations
in, entering into any type of swap or other equivalent derivative transaction,
or otherwise holding or engaging in any ownership interest in any type of debt
instrument, including any corporate or municipal bond with a long-term nominal
maturity for which the interest rate is reset through a dutch auction and more
commonly referred to as an auction rate security.
 
“Cash on Hand” shall mean cash balances in the bank accounts of the Credit
Parties, less checks drawn and not as yet presented and provided that all of the
Credit Parties’ debts, obligations and payables are current in accordance with
the Credit Parties’ usual business practices.
 
“CERCLA” shall mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.
 
“Change in Law” shall mean the occurrence, after the date of this Agreement, of
any of the following: (a) the adoption or taking effect of any law, rule,
regulation or treaty, (b) any change in any law, rule, regulation or treaty or
in the administration, interpretation or application thereof by any Governmental
Authority or (c) the making or issuance of any request, guideline or directive
(whether or not having the force of law) by any Governmental Authority.
 
 
3

--------------------------------------------------------------------------------

 
 
“Change of Control” shall mean (a) the occurrence of any of the following (i)
any event or condition as a result of which the power, direct or indirect (A) to
vote 100% of the Equity Interests having ordinary voting power for the election
of directors (or the individuals performing similar functions) of any Subsidiary
of Issuer (other than ITI and Tel Holdings) or (B) to direct or cause the
direction of the management and policies (by contract or otherwise) of any
Subsidiary of Issuer (other than ITI and Tel Holdings) is not held legally and
beneficially by Issuer, (ii) (A) the Specified Holders, collectively, shall
cease to own and control, directly or indirectly, at least forty percent (40%)
of the outstanding voting Equity Interests of Issuer, (B) any Person or group of
Persons (within the meaning of Section 13(d) or Section 14(a) of the Exchange
Act), other than the Specified Holders, shall, following the Closing Date, have
acquired legal or beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Commission under the Exchange Act) of 50% or more of the
voting Equity Interests of Issuer, or (C) within a period of twelve (12)
consecutive months, individuals who were directors of Issuer on the first day of
such period, together with directors who were approved in the ordinary course of
business by the directors then in office during such period, shall cease to
constitute a majority of the board of directors of Issuer, (iii) the combination
of Issuer, with another Person, as a result of which (A) any Person or group
of  Persons (as defined above) other than the Specified Holders, become the
legal or beneficial ownership (as defined above) of 50% or more of the voting
Equity Interests of the combined entity or (B) the directors of Issuer
constitute less than a majority of the Board of Directors of the combined
entity, (iv) the sale or other disposition of all or substantially all of the
assets of any of the Issuer or of one or more of their respective Subsidiaries
that, individually or in the aggregate, constitute 50% or more of the business,
operations or assets of the Credit Parties and their Subsidiaries, taken as a
whole, and (v) the liquidation, dissolution or winding up of any of the Credit
Parties and their Subsidiaries that, individually or in the aggregate,
constitute 50% or more of the business, operations or assets of the Credit
Parties and their Subsidiaries, taken as a whole or (b) the occurrence of any
“Change of Control” (or similar term) under (and as defined in) any documents
evidencing Indebtedness subordinated to the Indebtedness existing pursuant to
the Note and this Agreement.  For purposes of this definition “control” means
the power to direct or cause the direction of management and policies of a
Person, whether by contract or otherwise.
 
“Closing” shall have the meaning assigned to that term in Section 2.04.
 
“Closing Date” shall have the meaning assigned to that term in Section 2.04.
 
“Code” shall mean the Internal Revenue Code of 1986, as the same now exists or
may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
 
“Collateral” shall mean all property and other assets (whether real, personal or
mixed, and whether tangible or intangible) and interests therein and proceeds
thereof now owned or hereafter acquired by any Credit Party and any other Person
who has granted a Lien to Purchaser, in or upon which a Lien now or hereafter
exists in favor of Purchaser, whether under this Agreement or under any Security
Documents executed by any such Persons and delivered to Purchaser.
 
 
4

--------------------------------------------------------------------------------

 
 
“Commission” shall mean the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
 
“Common Stock” shall mean the common stock, par value $.10 per share, of the
Issuer.
 
“Compliance Certificate” shall have the meaning assigned to that term in Section
8.01(d).
 
“Consents” shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Authorities
and other third parties, domestic or foreign, necessary to carry on each Credit
Party’s business or necessary (including to avoid a conflict or breach under any
agreement, instrument, other document, license, permit or other authorization)
for the execution, delivery or performance of this Agreement or any of the
Transaction Documents, including any Consents required under all applicable
federal, state or other Applicable Law.
 
“Consolidated Basis” shall mean, with respect to the financial statements or
other financial information of the Credit Parties, the accounts and other items
of the Credit Parties on a consolidated basis in accordance with GAAP applied on
a basis consistent with prior practices.
 
“Consolidating Basis” shall mean, with respect to the financial statements or
other financial information of the Credit Parties, the accounts and other items
of each of the Credit Parties on a consolidating basis in accordance with GAAP
applied on a basis consistent with prior practices.
 
“Contingent Obligation” shall mean, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
“Contractual Obligations” shall mean as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument or arrangement (whether
in writing or otherwise) to which such Person is a party or by which it or any
of such Person’s property is bound.
 
“Control Agreement” shall mean a tri-party deposit account, securities account
or commodities account control agreement by and among the applicable Credit
Party, the Purchaser and the depository, securities intermediary or commodities
intermediary, each in form and substance reasonably satisfactory in all respects
to the Purchaser and in any event providing to the Purchaser “control” of such
deposit account, securities or commodities account within the meaning of
Articles 8 and 9 of the Uniform Commercial Code, as applicable, on a “springing”
dominion basis upon the occurrence and during the continuance of an Event of
Default.
 
 
5

--------------------------------------------------------------------------------

 
 
“Controlled Group” shall mean all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which are, together with any Credit Party, treated as a single employer under
Section 414 of the Code.
 
“Copyright Licenses” shall mean any agreement, whether written or oral,
providing for the grant by or to a Person of any right under any Copyright,
including, without limitation, any thereof referred to in Schedule 5.23(c).
 
“Copyrights” shall mean all copyrights (other than copyrights of de minimis
value) of the Credit Parties and their Subsidiaries in all works, now existing
or hereafter created or acquired, all registrations and recordings thereof, and
all applications in connection therewith, whether in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country or any political subdivision thereof, or otherwise,
including, without limitation, any thereof referred to in Schedule 5.23(b) and
all renewals thereof.
 
“Credit Parties” shall mean the Issuer and each Guarantor.
 
“Current Market Price” shall mean, with respect to each share of Common Stock
for any day, (a) the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported on the principal national securities
exchange on which the Common Stock is listed or admitted for trading or (b) if
the Common Stock is not listed or admitted for trading on any national
securities exchange, the last reported sale price or, in case no such sale takes
place on such day, the average of the highest reported bid and the lowest
reported asked quotation for the Common Stock, in either case as reported by the
National Quotation Bureau or similar institution compiling and reporting such
information.
 
“Default” shall mean a condition, act or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition, act or
event were not cured or removed within any applicable grace or cure period.
 
“Debt Service Coverage Ratio” shall mean, with respect to any period of the
Credit Parties, the ratio of (a) EBITDA less amounts paid for Permitted Payments
made during such period to (b) the sum for such period of (i) Interest Expense,
plus (ii) Required Principal Amortization.
 
“Earnings Before Interest and Taxes” shall mean for any period the sum of
(i) net income (or loss) of the Credit Parties on a Consolidated Basis for such
period (excluding extraordinary gains and extraordinary losses, so long as any
such exclusion from the calculation of Earnings Before Interest and Taxes is
made in accordance with GAAP), plus (ii) to the extent deducted in the
determination of net income (or loss) for such period, (A) all interest expense
of the Credit Parties on a Consolidated Basis for such period, including
interest expense resulting from original issue discount, plus (B) all charges
against income of the Credit Parties on a Consolidated Basis for such period for
federal, state and local income taxes, plus (C) any non-cash expense associated
with FASB No. 142 or FASB No. 144, plus (D) any non-cash expenses associated
with stock options and stock grants, plus (vi) any non-cash expenses incurred in
connection with the early extinguishment of Indebtedness.  In addition, the
calculation of Earnings Before Interest and Taxes for any period shall be
adjusted to exclude (w) any aggregate net gain or loss arising from any
permitted sale, conversion, exchange or other disposition of capital assets made
during such period, including (1) all non-current assets, and (2) without
duplication, the following assets, whether or not current: fixed assets, whether
tangible or intangible, inventory sold in connection with the disposition of
fixed assets and all Equity Interests and other securities, (x) any net gain
from the collection during such period of any proceeds of life insurance
policies, (y) any gain or loss (or other impact to the financial statements)
arising from the repurchase during such period of Equity Interests permitted
pursuant to Section 9.06 and (z) any non-cash income or expense realized during
such period relating to an Interest Rate Hedge or any Other Hedging Agreement.
 
 
6

--------------------------------------------------------------------------------

 
 
“EBITDA” shall mean for any period, the sum of (i) Earnings Before Interest and
Taxes for such period, plus to the extent deducted in the determination of net
income (or loss) for such period (ii) depreciation expenses of the Credit
Parties on a Consolidated Basis for such period plus (iii) amortization expenses
of the Credit Parties on a Consolidated Basis for such period.
 
“Employee Options” shall have the meaning assigned to that term in Section
5.18(a) hereof.
 
“Environmental Laws” shall mean all present and future Applicable Laws,
Requirements of Law, or Consents, relating to the protection of human health and
safety or the environment, including (a) all Applicable Laws, Requirements of
Law, or Consents, pertaining to reporting, licensing, permitting, investigation,
and remediation of emissions, discharges, releases, or threatened releases of
hazardous materials, chemical substances, pollutants, contaminants, or hazardous
or toxic substances, materials or wastes whether solid, liquid, or gaseous in
nature, into the air, surface water, groundwater, or land, or relating to the
presence, generation, discharge, release, removal, manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, emissions, contaminants, or hazardous,
radioactive or toxic substances, materials, or wastes, whether solid, liquid, or
gaseous in nature; and (b) all Applicable Laws, Requirements of Law or Consents,
pertaining to the protection of the health and safety of employees or the
public.
 
“Equity Documents” shall mean the Warrant, the Investor Rights Agreement, and
all documents, instruments and agreements executed or delivered pursuant
thereto, as each may be amended, modified, supplemented or restated from time to
time.
 
“Equity Interests” of any Person shall mean any and all shares, rights to
purchase, options, warrants, general, limited or limited liability partnership
interests, member interests, participation or other equivalents of or interest
in (regardless of how designated) equity of such Person, whether voting or
nonvoting, including common stock, preferred stock, convertible securities or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the Commission under the Exchange
Act).
 
 
7

--------------------------------------------------------------------------------

 
 
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended and in effect from time to time and the rules and regulations
promulgated thereunder.
 
“ERISA Affiliate” shall mean any trade or business (whether or not incorporated)
under common control with any Credit Party within the meaning of Section 414(b)
or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
 
“Event of Default” shall have the meaning assigned to such term in Section
11.01.
 
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
 
“Excluded Taxes” shall mean, with respect to Purchaser or any other recipient of
any payment to be made by or on account of any obligation of Issuer hereunder,
(i) Taxes imposed on net income imposed by the jurisdiction in which the
Purchaser is organized or doing business by virtue of the Purchaser being
organized or doing business in such jurisdiction and (ii) U.S. withholding taxes
unless such U.S. withholding taxes are imposed as a result of a Change in Law
(including a change in interpretation of existing law by a court or
administrative agency) after the date of this Agreement.
 
“Executive Order No. 13224” shall mean the Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001, as the same has been, or
shall hereafter be renewed, extended, amended or replaced.
 
“Exercisable Interests” shall have the meaning assigned to such term in Section
8.13.
 
“Financial Statements” shall have the meaning assigned to that term in Section
5.11(e) hereof.
 
“Fletcher Life Insurance Policy” shall mean key-man life insurance on the life
of Harold K. Fletcher in the amount of $800,000.
 
“Fletcher Life Insurance Realization Event” shall mean the death of Harold K.
Fletcher and the receipt by any Credit Party of any proceeds from the Fletcher
Life Insurance Policy.
 
“Fixed Charge Coverage Ratio” shall mean, with respect to any period of the
Credit Parties, the ratio of (a) EBITDA less amounts paid for Permitted Payments
made during such period to (b) the sum for such period of (i) Interest Expense
paid in cash, plus (ii) Required Principal Amortization, plus (iii) all income
Taxes paid in cash by the Issuer or any of its Subsidiaries, plus (iii) Capital
Expenditures of the Credit Parties on a Consolidated Basis during such period
which are not funded by borrowed money.
 
“Foreign Purchaser” shall mean a Purchaser that is not a United States Person as
defined in Section 7701(a)(30) of the Code.
 
 
8

--------------------------------------------------------------------------------

 
 
“Funded Debt” shall mean, with respect to the Credit Parties and their
respective Subsidiaries, all Indebtedness for borrowed money for which such
Credit Party or such Subsidiary is obligated including all Capital Lease
Obligations and the Notes.
 
“GAAP” shall mean generally accepted accounting principles in effect within the
United States, consistently applied.
 
“Governmental Authority” shall mean the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, regulation or compliance, and any corporation or other
entity owned or controlled, through stock or capital ownership or otherwise, by
any of the foregoing.
 
“Government Contract” shall mean any contract entered into between a Credit
Party or any of its Subsidiaries and the government of the United States of
America, or any department, agency, public corporation, or other instrumentality
or agent thereof or any state government or any department, agency or
instrumentality or agent thereof.
 
“Guarantor” shall mean any Subsidiary of the Issuer and any other Person who may
hereafter guarantee payment or performance of the whole or any part of the
obligations of the Issuer under the Note and this Agreement, and “Guarantors”
shall mean collectively all such Persons.
 
“Guaranty” shall mean any guaranty of the obligations of the Issuer executed by
a Guarantor in favor of Purchaser.
 
“Hazardous Materials” shall mean any chemical, pollutant, contaminant,
pesticide, petroleum or petroleum product or byproduct, radioactive substance,
solid waste (hazardous or extremely hazardous), special, dangerous or toxic
waste, hazardous or toxic substance, chemical or material regulated, listed,
referred to, limited or prohibited under any Environmental Law, including:  (i)
friable or damaged asbestos, asbestos containing material, polychlorinated
biphenyls (PCBs), solvents and waste oil; (ii) any “hazardous substance” as
defined under CERCLA or any Environmental Law; (iii) any hazardous waste defined
under RCRA or any Environmental Law; and (iv) even if not prohibited, listed,
limited or regulated by an Environmental Law, all pollutants, contaminants,
hazardous, dangerous or toxic chemical, materials, wastes or any other
substances, including any industrial process or pollution control waste (whether
or not hazardous within the meaning of RCRA) which could pose a hazard to the
environment, or the health or safety of any Person or impair the use or value of
any portion of the Real Property of the Credit Parties or their respective
Subsidiaries.
 
“Hazardous Substance” shall mean any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
Hazardous Wastes, hazardous or Toxic Substances or related materials as defined
in CERCLA, the Hazardous Materials Transportation Act, as amended (49 U.S.C.
Sections 1801, et  seq.), RCRA or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.
 
 
9

--------------------------------------------------------------------------------

 
 
“Hazardous Wastes” shall mean all waste materials subject to regulation under
CERCLA, RCRA or applicable state law, and any other applicable Federal and state
laws now in force or hereafter enacted relating to hazardous waste disposal.
 
“Indebtedness” shall mean, as to any Person, without duplication, (i) all
indebtedness of such Person for borrowed money (including any progress payments
or other advances made to such Person pursuant to any Government Contract or
otherwise) or for the deferred purchase price of property or services, (ii) the
maximum amount available to be drawn or paid under all letters of credit,
bankers’ acceptances, bank guaranties, surety and appeal bonds and similar
obligations issued for the account of such Person and all unpaid drawings and
unreimbursed payments in respect of such letters of credit, bankers’
acceptances, bank guaranties, surety and appeal bonds and similar obligations,
(iii) all indebtedness of the types described in clause (i), (ii), (iv), (v),
(vi), (vii) or (viii) of this definition secured by any Lien on any property
owned by such Person, whether or not such indebtedness has been assumed by such
Person (provided that, if the Person has not assumed or otherwise become liable
in respect of such indebtedness, such indebtedness shall be deemed to be in an
amount equal to the fair market value of the property to which such Lien relates
as determined in good faith by such Person), (iv) the aggregate amount of all
Capital Lease Obligations of such Person, (v) all obligations of such Person to
pay a specified purchase price for goods or services, whether or not delivered
or accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person, (vii) all obligations under any Interest Rate
Hedges, Other Hedging Agreements or under any similar type of agreement and
(viii) all Off-Balance Sheet Liabilities of such Person.  Notwithstanding the
foregoing, Indebtedness shall not include trade payables, accrued expenses and
deferred Tax and other credits incurred by any Person in the Ordinary Course of
Business.
 
“Indemnified Party” shall have the meaning assigned to that term in Section
7.01.
 
“Indemnified Taxes” shall mean Taxes other than Excluded Taxes or Other Taxes.
 
“Information” shall have the meaning assigned to that term in Section 12.05(b).

“Intellectual Property” means all (a) foreign and domestic trademarks, service
marks, brand names, certification marks, collective marks, d/b/a’s, Internet
domain names, logos, symbols, trade dress, assumed names, fictitious names,
trade names, and other indicia of origin, all applications and registrations for
all of the foregoing, and all goodwill associated therewith and symbolized
thereby, including, but not limited to, all extensions, modifications and
renewals of same; (b) foreign and domestic inventions, discoveries and ideas,
whether patentable or not, and all patents, registrations, and applications
therefor, including, but not limited to, divisions, continuations and
continuations-in-part and including, but not limited to, extensions and
reissues; (c) Trade Secrets; (d) foreign and domestic published and unpublished
works of authorship, whether copyrightable or not, copyrights therein and
thereto, and registrations and applications therefor, and all renewals,
extensions, restorations and reversions thereof, including computer software and
data; and (e) all other intellectual property or proprietary rights and claims
or causes of action arising out of or related to any infringement,
misappropriation or other violation of any of the foregoing, including, but not
limited to, rights to recover for past, present and future violations thereof.
 
 
10

--------------------------------------------------------------------------------

 
 
“Interest” shall have the meaning assigned to that term in Section 2.06.
 
“Interest Expense” shall mean for any period the interest expense of the Credit
Parties on a Consolidated Basis for such period (including all imputed interest
on Capital Lease Obligations).
 
“Interest Payment Date” shall have the meaning assigned to that term in Section
2.06(a).
 
“Interest Rate” shall have the meaning assigned to that term in Section 2.06.
 
“Interest Rate Hedge” shall mean an interest rate exchange, collar, cap, swap,
adjustable strike cap or similar agreements entered into by any Credit Party
solely to provide protection to, or minimize the impact upon, the Credit Parties
of increasing floating rates of interest applicable to Indebtedness.
 
“Investment” shall mean, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other
acquisition of the Equity Interests of another Person, (b) a loan, advance or
capital contribution to, guarantee or assumption of debt of, or purchase or
other acquisition of any other debt or equity participation or interest in,
another Person, including any partnership or joint venture interest in such
other Person, or (c) the purchase or other acquisition (in one transaction or a
series of transactions) of assets of another Person that constitute a business
unit.  For purposes of covenant compliance, the amount of any Investment shall
be the amount actually invested, without adjustment for subsequent increases or
decreases in the value of such Investment.
 
“Investor Rights Agreement” shall mean that certain Investor Rights Agreement,
dated as of the Closing Date, among the Issuer, the Purchaser and certain
Specified Holders substantially in the form of Exhibit E, as amended,
supplemented or otherwise modified from time to time.
 
“Issuer” shall have the meaning set forth in the first paragraph of this
Agreement, and shall include each Person which becomes a successor or permitted
assign of Issuer.
 
“ITI” shall mean Innerspace Technology, Inc., a New Jersey corporation.
 
“Judgment” shall mean any order, decision, decree, award or injunction of any
Governmental Authority.
 
“Lending Office” shall mean, with respect to the Purchaser, the office or
offices of the Purchaser specified in Section 12.02, or such other office or
offices of the Purchaser as it may notify the Issuer pursuant to Section 12.02
from time to time.
 
“Liabilities” shall have the meaning assigned to that term in Section 7.01.
 
 
11

--------------------------------------------------------------------------------

 
 
“License” or “Licenses” shall mean any license, permit, directive,
authorization, approval or stipulation required to operate the Business at any
location.
 
“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever, including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code or comparable law of any jurisdiction.
 
“Life Insurance Policy” shall mean, collectively, the Fletcher Life Insurance
Policy and the O’Hara Life Insurance Policy.
 
“Litigation” shall mean any action, proceeding, litigation, investigation,
arbitration, mediation or claim.
 
“Loan Year” shall mean each period of twelve consecutive months beginning on the
Closing Date and each anniversary thereof.
 
“Mandatory Redemption Payment” shall have the meaning assigned to that term in
Section 10.02(b) hereof.
 
“Mandatory Redemption Prices” shall have the meaning assigned to that term in
Section 10.02(b) hereof.
 
“Margin Stock” shall have the meaning assigned to that term in Regulation U of
the Federal Reserve Board.
 
“Marketable Securities” shall means shares of Common Stock which (i) are listed
or quoted on a United States national securities exchange or quoted on any
United States national automated inter dealer quotation system and (ii) are
eligible for sale by the Purchaser pursuant to a registration statement
effective under the Securities Act, or pursuant to Rule 144(b)(1) of the
Securities Act or any similar provision then in force and (iii) are not, at such
time, subject to (x) any lock-up or similar restrictions on transfer or (y) any
volume restrictions on trading by the Purchaser pursuant to Rule 144(e).
 
“Material Adverse Effect” shall mean (a) a material adverse change in, or a
material adverse effect upon, the assets, properties, operations, business,
condition (financial or otherwise), or prospects of the Business, any Credit
Party or any of its Subsidiaries, or, (b) a material impairment of the ability
of any Credit Party or any Affiliate of any Credit Party to perform under any
Transaction Document to which it is a party, or (c) a material adverse effect
upon the legality, validity, binding effect, or enforceability against each
Credit Party of any Transaction Document to which it is a party.
 
“Material Contracts” shall have the meaning assigned to that term in Section
5.27.
 
 
12

--------------------------------------------------------------------------------

 
 
“Maturity Date” shall mean August 31, 2015.
 
“Modification” shall mean, with respect to any agreement, instrument or other
document, any amendment, supplement or modification of or to any provision of
such document, any waiver of any provision of such document, and any consent to
any departure by any party from the terms of any provision of such document.
 
“Multiemployer Plan” shall mean a multiemployer plan within the meaning of
Section 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code.
 
“Net Operating Cash Flow” shall mean with respect to any fiscal period of the
Credit Parties, EBITDA less (i) Capital Expenditures of the Credit Parties
determined on a Consolidated Basis during such period, less (ii) all other cash
expenditures of the Credit Parties that are not included in net income of the
Credit Parties determined on a Consolidated Basis during such period.
 
“Net Proceeds” with respect to any sale of assets shall mean cash proceeds
received by any of the Credit Parties from such sale, net of (x) the costs of
such sale (including Taxes attributable to such sale), and (y) amounts applied
to repayment of Indebtedness secured by a Lien on the assets sold.
 
“New Mortgages” shall have the meaning assigned to that term in Section 8.14.
 
“Note Register” shall have the meaning assigned to that term in Section
12.17(b).
 
“Note” shall have the meaning assigned to that term in the recitals to this
Agreement.
 
“Off-Balance Sheet Liabilities” of any Person shall mean (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability of such Person under any sale
and leaseback transactions that do not create a liability on the balance sheet
of such Person, (iii) any obligation under any lease that is treated as an
operating lease for financial accounting purposes and a financing lease for tax
purposes (i.e., a synthetic lease) or (iv) any obligation arising with respect
to any other transaction which is the functional equivalent of or takes the
place of borrowing but which does not constitute a liability on the balance
sheet of such Person.
 
“O’Hara Life Insurance Policy” shall mean key-man life insurance on the life of
Jeffrey C. O’Hara in the amount of $2,500,000.
 
“O’Hara Life Insurance Realization Event” shall mean the death of Jeffrey C.
O’Hara and the receipt by any Credit Party of any proceeds from the O’Hara Life
Insurance Policy.
 
“Ordinary Course of Business” shall mean the ordinary course of the Credit
Parties’ business as conducted on the Closing Date.
 
 
13

--------------------------------------------------------------------------------

 
 
“Organization Documents” shall mean, (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.
 
“Other Hedging Agreements” shall mean any foreign exchange contracts, cur­rency
swap agreements, commodity agreements or other similar agreements or
arrangements designed to protect against fluctuations in currency or commodity
values.
 
“Other Taxes” shall mean all present or future stamp or documentary Taxes or any
other excise or property Taxes, charges or similar levies arising from any
payment made hereunder or under any other Transaction Document or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement or any other Transaction Document.
 
“Patent Licenses” shall mean all agreements, whether written or oral, providing
for the grant by or to a Person of any right to manufacture, use or sell any
invention covered by a Patent, including, without limitation, any thereof
referred to in Schedule 5.23(c).

“Patents” shall mean (a) all letters patent (other than letters patent of de
minimis value) of the United States or any other country, now existing or
hereafter arising, and all improvement patents, reissues, reexaminations,
patents of additions, renewals and extensions thereof, including, without
limitation, any thereof referred to in Schedule 5.23 (b), and (b) all
applications for letters patent of the United States or any other country, now
existing or hereafter arising, and all provisionals, divisions, continuations
and continuations-in-part and substitutes thereof, including, without
limitation, any thereof referred to in Schedule 5.23(b).

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant
to Title IV of ERISA, or any successor agency or other Governmental Authority
succeeding to the functions thereof.

“Pension Plan” shall mean any “employee pension benefit plan” (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by any Credit Party
or any ERISA Affiliate or to which any Credit Party or any ERISA Affiliate
contributes or has an obligation to contribute, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has made
contributions at any time during the immediately preceding five plan years.
 
“Permitted Acquisition” means any acquisition, whether by merger or otherwise,
of all or a substantial portion of the assets or Equity Interests of any Person
(the “Target”) by a Credit Party, in each case to the extent that: (a) such
acquisition shall not be hostile and shall have been approved by the board of
directors (or other similar body) and/or the stockholders or other equity
holders of the Target; (b) the aggregate consideration paid in respect of all
such acquisitions shall not exceed $500,000, and (c) no Default or Event of
Default is in existence or would occur after giving effect to such acquisition.
 
 
14

--------------------------------------------------------------------------------

 
 
“Permitted Liens” shall mean (a) Liens in favor of the Purchaser, for its
benefit, (b) Liens for Taxes, assessments or other governmental charges not
delinquent or being Properly Contested; (c) deposits or pledges to secure
obligations under worker’s compensation, social security or similar laws, or
under unemployment insurance; (d) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the Ordinary Course of Business; (e) Liens arising by virtue of the
rendition, entry or issuance against any Credit Party or any of its
Subsidiaries, or any property of any such Person, of any judgment, writ, order
or decree, provided that such Liens are in existence for less than twenty (20)
consecutive days after it first arises or are being contested in good faith by
appropriate proceedings diligently conducted which stay the enforcement of any
Lien and for which adequate reserves in accordance with GAAP are being
maintained by the Credit Parties and their Subsidiaries; (f) mechanics’,
workers’, materialmen’s or other like Liens arising in the Ordinary Course of
Business with respect to obligations which are not due or which are being
contested in good faith by appropriate proceedings diligently conducted which
stay the enforcement of any Lien and for which adequate reserves in accordance
with GAAP are being maintained by the Credit Parties and their Subsidiaries; (g)
Liens placed upon equipment or Real Estate hereafter acquired or leased to
secure a portion of the purchase price or lease thereof, provided that (A) any
such lien shall not encumber any other property of the Credit Parties and (B)
the aggregate amount of Indebtedness incurred as a result of such purchases,
during any fiscal year, shall not exceed the amount provided for in Section
9.15(d); (h) Liens disclosed on Schedule 9.02; and (i) non-exclusive licenses of
Intellectual Property, and leases or subleases of equipment or Real Property, in
each case granted to third Persons in the Ordinary Course of Business and which
do not interfere in any material respect with the operations of the business of
the Credit Parties.
 
“Permitted Payment” shall mean any Permitted Share Repurchase and any Permitted
Debt Prepayment.
 
“Permitted Share Repurchase” shall have the meaning assigned to that term in
Section 9.06.
 
“Permitted Debt Prepayment” shall have the meaning assigned to that term in
Section 9.06.
 
“Person” shall mean any individual, firm, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
 
“Plan” shall mean any employee benefit plan within the meaning of Section 3(3)
of ERISA, other than a Multiemployer Plan, maintained for employees of the
Credit Parties prior to the Closing Date, or any member of the Controlled Group
or any such Plan to which any Credit Party or any member of the Controlled Group
is required to contribute on behalf of any of its employees.
 
 
15

--------------------------------------------------------------------------------

 
 
“Prior Debt” shall mean all Indebtedness (including any principal amount and
interest thereon) and all other amounts and obligations, in each case, due and
owing by the Issuer under the Prior Debt Documents.
 
“Prior Debt Documents” shall mean that certain Note and Agreement, dated as of
November 9, 2005, by and between Bank of America, N.A. and Issuer, as amended by
that certain Loan Modification Agreement, dated as of December 31, 2007, that
certain Second Loan Modification Agreement, dated as November 20, 2008, and that
certain Third Loan Modification Agreement, dated as of March 1, 2010, and all
documents and agreements related thereto.
 
 “Pro Forma Balance Sheet” shall have the meaning assigned to that term in
Section 5.11(c).
 
“Pro Forma Financial Statements” shall have the meaning assigned to that term in
Section 5.11(d).
 
“Projections” shall have the meaning assigned to that term in Section 5.11(d).
 
“Properly Contested” shall mean contested in good faith by appropriate
proceedings diligently conducted which stay the enforcement of any Lien and for
which adequate reserves in accordance with GAAP are being maintained by the
Credit Parties and their Subsidiaries; provided, that no such Lien shall have
any effect on the priority of the Liens in favor of Purchaser or the value of
the assets on which Purchaser has such a Lien and a stay of enforcement of any
such Lien shall be in effect.
 
“Purchase Money Indebtedness” shall mean and include (i) Indebtedness (other
than the Indebtedness under the Note) of any Credit Party for the payment of all
or any part of the purchase price of any equipment, (ii) any Indebtedness (other
than the Indebtedness under the Note) of any Credit Party incurred at the time
of or within thirty (30) days prior to or one hundred twenty (120) days after
the acquisition of any equipment for the purpose of financing all or any part of
the purchase price thereof (whether by means of a loan agreement, Capital Lease
or otherwise), and (iii) any renewals, extensions or refinancings (but not any
increases in the principal amounts) thereof outstanding at the time.
 
“Purchaser” shall have the meaning set forth in the first paragraph of this
Agreement, and shall include each Person which becomes a transferee, successor
or assign of the Purchaser.
 
“Questionnaire” shall mean the perfection questionnaire and the responses
thereto provided by the Credit Parties and delivered to Purchaser.
 
“RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901
et seq., as same may be amended from time to time.
 
 
16

--------------------------------------------------------------------------------

 
 
“Real Property” shall mean, with respect to each Credit Party, all of such
Credit Party’s right, title and interest in and to (x) the leased premises
identified on Schedules 5.08(a) and 5.08(b) hereto, and (y) any owned or leased
premises acquired by such Credit Party after the Closing Date.
 
“Recovery Event” shall mean any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating to
any asset of any Credit Party.
 
“Reinvestment Deferred Amount” shall mean, with respect to any Reinvestment
Event, the aggregate proceeds received by any Credit Party in connection
therewith that are not applied to prepay the Note pursuant to Section 10.02(d)
as a result of the delivery of a Reinvestment Notice.
 
“Reinvestment Event” shall mean any Recovery Event in respect of which the
Issuer has delivered a Reinvestment Notice.
 
“Reinvestment Notice” shall mean a written notice delivered within five (5)
Business Days after a Recovery Event, executed by an Authorized Officer stating
that no Event of Default has occurred and is continuing and that the Issuer
intends and expects to use all or a specified portion of the proceeds in respect
of a Recovery Event to acquire or repair assets useful in its business.
 
“Reinvestment Prepayment Amount” shall mean, with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire or repair
assets useful in the Issuer’s business.
 
“Reinvestment Prepayment Date” shall mean, with respect to any Reinvestment
Event, the earlier of (a) the date occurring 120 days after such Reinvestment
Event and (b) the date on which the Issuer shall have determined not to, or
shall have otherwise ceased to, acquire or repair assets useful in the Issuer’s
business with all or any portion of the relevant Reinvestment Deferred Amount.
 
“Releases” shall have the meaning assigned to that term in Section 5.15(c)
hereof.
 
“Reportable Event” shall mean a reportable event described in Section 4043(b) of
ERISA or the regulations promulgated thereunder.
 
“Required Principal Amortization” shall mean for any period the payments of
principal of Indebtedness of the Credit Parties on a Consolidated Basis required
to be made during such period (including with respect to Capital Lease
Obligations).
 
“Requirement of Law” or “Requirements of Law” shall mean any requirement,
direction, policy or procedure of any Applicable Law or License, Judgment, or
Consent.
 
 
17

--------------------------------------------------------------------------------

 
 
“Restricted Payment” shall mean: (a) any dividend or other distribution, direct
or indirect (whether in cash or property), on account of any Equity Interests of
any Credit Party or any of its Subsidiaries, now or hereafter outstanding,
except a dividend payable solely in shares of that class of Equity Interest to
the holders of that class; (b) any payment or prepayment of principal of,
premium, if any, or interest on, or any redemption, conversion, exchange,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Equity Interests of any Credit
Party or any of its Subsidiaries now or hereafter outstanding, or the issuance
of a notice of an intention to do any of the foregoing (or setting aside any
funds for any of the foregoing purposes); (c) any payment or prepayment of
interest on, principal of, premium, if any, redemption, conversion, exchange,
purchase, retirement, defeasance, sinking fund or similar payment with respect
to, any Indebtedness subordinated to the Indebtedness existing pursuant to the
Note and this Agreement; (d) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any Equity Interests of any Credit Party or any of its Subsidiaries
now or hereafter outstanding; (e) any director fee paid to any member of the
Board of Directors of any Credit Party who is also an employee of any Credit
Party; (f) any payment by any Credit Party of any management, consulting or
similar fees to any Affiliate of any Credit Party, whether pursuant to a
management agreement or otherwise; or (g) any payment under any non-compete
agreement.
 
“SBA Side Letter” shall mean the letter agreement between Issuer and Purchaser
substantially in the form of Exhibit H, as amended, supplemented or otherwise
modified from time to time.
 
“SBIC Regulations” means the rules and regulations set forth in 13 C.F.R. 107
governing the Purchaser as a Licensee (as defined therein) and any other rules
and regulations that may be implemented with respect to Licensees from time to
time.
 
“SEC Reports” with respect to any Person shall mean all forms, reports,
statements and other documents (including, without limitation, exhibits,
annexes, supplements and amendments to such documents) filed or required to be
filed by it, or sent or made available by it to its security holders, under the
Exchange Act, the Securities Act, any national securities exchange or quotation
system or comparable Governmental Authority since the date of such Person’s
initial public offering.
 
“Securities” shall mean the Note and the Warrant.
 
“Securities Act” shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder as the same
shall be in effect at the time.
 
“Security Agreement” shall mean the Security Agreement, dated as of the Closing
Date, by and among each Credit Party and the Purchaser, substantially in the
form of Exhibit D hereto, as amended, supplemented or otherwise modified from
time to time.
 
“Security Documents” shall mean the Security Agreement, any Control Agreement,
any New Mortgage and any other agreement delivered in connection herewith or
therewith which purports to grant a Lien in the Purchaser, to secure all or any
of the Indebtedness under this Agreement and the Note (or any Guaranty thereof).
 
 
18

--------------------------------------------------------------------------------

 
 
“Semaphore Warrants” shall have the meaning assigned to that term in Section
5.18(a) hereof.
 
“Senior Debt” shall mean, (x) principal, interest and premiums due in respect of
the Notes and this Agreement, (y) all fees, commissions and charges with respect
to such Senior Debt described in the foregoing clause (x) and (z) all Capital
Lease Obligations.
 
“Senior Debt Payments” shall mean and include all cash expended to make payment
of the Senior Debt.
 
“Solvent” shall mean, with respect to the Credit Parties and their Subsidiaries
considered as a whole, based on the Pro Forma Balance Sheet, that (i) the assets
and the property of the Credit Parties and their Subsidiaries, considered as a
whole, exceed the aggregate liabilities (including contingent and unliquidated
liabilities) of the Credit Parties and their Subsidiaries, considered as a
whole, (ii) after giving effect to the transactions contemplated by this
Agreement and the other Transaction Documents (including the repayment in full
of the Prior Debt), the Credit Parties and their Subsidiaries, considered as a
whole, will not be left with unreasonably small capital, and (iii) after giving
effect to the transactions contemplated by this Agreement, the Credit Parties
and their Subsidiaries, considered as a whole, are able to both service and pay
their liabilities as they mature.  In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed as the
amount that, in light of all the facts and circumstances existing at such time,
represents the amount that is likely to become an actual or matured liability.
 
“Specified Fiscal Year” shall have the meaning assigned to that term in Section
8.01(g) hereof.
 
“Specified Holders” shall mean Harold K. Fletcher, George J. Leon, George J.
Leon Family Trust and Jeffrey C. O’Hara.
 
“Subordinated Debt” shall mean the unpaid principal of and interest due and
owing by the Issuer under the Subordinated Notes (as defined in the
Subordination Agreement).
 
“Subordination Agreement” shall mean the Intercreditor and Subordination
Agreement, dated as of the Closing Date, by and among Harold K. Fletcher,
Jeffrey C. O’Hara, Issuer and Purchaser, substantially in the form of Exhibit I
hereto, as amended, supplemented or otherwise modified from time to time.
 
 
19

--------------------------------------------------------------------------------

 
 
“Subsidiary” of a Person (the “parent”), shall mean a corporation, partnership,
joint venture, limited liability company or other business entity of which a
majority of the shares of securities or other interests having ordinary voting
power for the election of directors or other governing body (other than
securities or interests having such power only by reason of the happening of a
contingency) are at the time beneficially owned, or the management of which is
otherwise controlled, by such parent.  For purposes of this definition,
“controlled by” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise.  Unless otherwise specified, all references herein to a “Subsidiary”
or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of a Credit
Party.
 
“Tax” shall mean any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
 
“Tax Return” shall mean any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
 
“Tel Holdings” shall mean Tel Holdings Inc., a New Jersey corporation.
 
“Termination Event” shall mean (i) a Reportable Event with respect to any Plan
or Multiemployer Plan; (ii) the withdrawal of any Credit Party or any member of
the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a “substantial employer” as defined in Section 4001(a)(2)
of ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the institution
by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any
event or condition (a) which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
any Credit Party or any member of the Controlled Group from a Multiemployer
Plan.
 
“Total Leverage Ratio” shall mean, with respect to each measuring period, the
ratio of (a) the aggregate principal balance of all Funded Debt outstanding on
the last day of such measuring period to (b) EBITDA for such measuring period.
 
“Trademark License” shall mean any agreement, whether written or oral, providing
for the grant by or to a Person of any right to use any Trademark, including,
without limitation, any thereof referred to in Schedule 5.23(c).

“Trademarks” shall mean (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, service marks,
elements of package or trade dress of goods or services, logos and other source
or business identifiers (other than such items that are of de minimis value),
together with the goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof,
including, without limitation, any thereof referred to in Schedule 5.23(b), and
(b) all renewals thereof including, without limitation, any thereof referred to
in Schedule 5.23(b).

“Trade Secrets” means confidential and proprietary information, trade secrets
and know-how, including, but not limited to, processes, schematics, databases,
formulae, drawings, prototypes, models, designs, price lists, cost data,
financial data, and customer lists.
 
 
20

--------------------------------------------------------------------------------

 
 
“Trading with the Enemy Act” shall mean the foreign assets control regulations
of the United States Treasury Department (31CFR, Subtitle B, Chapter V, as
amended) and any enabling legislation, regulations or executive order relating
thereto.
 
“Transaction Documents” shall mean collectively, this Agreement, the Note, any
Guaranty, the Security Documents, the Equity Documents, the Subordination
Agreement and the SBA Side Letter, as each may be amended, modified,
supplemented or restated from time to time.
 
“Transactions” shall have the meaning assigned to that term in Section 5.11(c)
hereof.
 
“Uniform Commercial Code” shall have assigned to that term in Section 1.04
hereof.
 
“USA PATRIOT Act” shall mean the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Public Law 107-56, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.
 
“Warrant” shall have the meaning assigned to that term in the recitals to this
Agreement.
 
1.02. Accounting Terms; Financial Statements.  All accounting terms used herein
and not expressly defined in this Agreement shall have the respective meanings
given to them in conformance with GAAP, as consistently applied to the
applicable Person.  Financial statements and other information furnished after
the date hereof pursuant to the Agreement or the other Transaction Documents
shall be prepared in accordance with GAAP as in effect at the time of such
preparation, provided, however, that if at any time any change in GAAP would
affect the computation of any financial ratio or financial requirement set forth
in any Transaction Document, and either the Issuer or the Purchaser shall so
request, the Purchaser and the Issuer shall negotiate in good faith to amend
such ratio or requirement to preserve the original intent thereof in light of
such change in GAAP; provided that, until so amended, (i) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to such
change therein and (ii) the Credit Parties shall provide to the Purchaser
financial statements and other documents required under this Agreement which
include a reconciliation between calculations of such ratio or requirement made
before and after giving effect to such change in GAAP.
 
1.03. Knowledge of the Credit Parties.  All references to the knowledge of any
Credit Party or to facts known by any Credit Party shall mean actual knowledge
or notice of a senior officer of such Credit Party or of any of such Credit
Party’s Subsidiaries or any division of such Credit Party, as the case may be,
or knowledge which such Person could reasonably have acquired through the
exercise of reasonable inquiry regarding the accuracy of any representation,
warranty, covenant or agreement contained in this Agreement.
 
 
21

--------------------------------------------------------------------------------

 
 
1.04. Uniform Commercial Code Terms.  All terms used herein and defined in the
Uniform Commercial Code as adopted in the State of New York from time to time
(the “Uniform Commercial Code”) shall have the meaning given therein unless
otherwise defined herein.  Without limiting the foregoing, the terms “accounts”,
“chattel paper”, “instruments”, “general intangibles”, “payment intangibles”,
“supporting obligations”, “securities”, “investment property”, “documents”,
“deposit accounts”, “software”, “letter of credit rights”, “inventory”,
“equipment” and “fixtures”, as and when used shall have the meanings given to
such terms in Articles 8 or 9 of the Uniform Commercial Code.  To the extent the
definition of any category or type of collateral is expanded by any amendment,
modification or revision to the Uniform Commercial Code, such expanded
definition will apply automatically as of the date of such amendment,
modification or revision.
 
1.05. Certain Matters of Construction.  The terms “herein”, “hereof” and
“hereunder” and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision.  All references
herein to Articles, Sections, Exhibits and Schedules shall be construed to refer
to Articles and Sections of, and Exhibits and Schedules to, this Agreement.  Any
pronoun used shall be deemed to cover all genders.  Wherever appropriate in the
context, terms used herein in the singular also include the plural and vice
versa.  All references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations.  Unless otherwise
provided, all references to any instruments or agreements to which Purchaser is
a party, including references to any of the Transaction Documents, shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.  All references herein to the time of day shall mean the time
in New York, New York.  Whenever the words “including” or “include” shall be
used, such words shall be understood to mean “including, without limitation” or
“include, without limitation”.  Unless the context otherwise requires, “or” is
not exclusive.  A Default or Event of Default shall be deemed to exist at all
times during the period commencing on the date that such Default or Event of
Default occurs to the date on which such Default or Event of Default is waived
in writing pursuant to this Agreement or, in the case of a Default, is cured
within any period of cure expressly provided for in this Agreement; and an Event
of Default shall “continue” or be “continuing” until such Event of Default has
been waived in writing by the Purchaser.  Any Lien referred to in this Agreement
or any of the Security Documents as having been created in favor of Purchaser,
any agreement entered into by Purchaser pursuant to this Agreement or any of the
Transactions Documents, any payment made by or to or funds received by Purchaser
pursuant to or as contemplated by this Agreement or any of the Transaction
Documents, or any act taken or omitted to be taken by Purchaser, shall, unless
otherwise expressly provided, be created, entered into, made or received, or
taken or omitted, for the benefit or account of Purchaser.  All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or otherwise within the limitations of, another
covenant shall not avoid the occurrence of a default if such action is taken or
condition exists.  In addition, all representations and warranties hereunder
shall be given independent effect so that if a particular representation or
warranty proves to be incorrect or is breached, the fact that another
representation or warranty concerning the same or similar subject matter is
correct or is not breached will not affect the incorrectness of a breach of a
representation or warranty hereunder.
 
 
22

--------------------------------------------------------------------------------

 
 
ARTICLE 2
PURCHASE AND SALE OF THE SECURITIES
 
2.01. Purchase and Sale of the Note.  Subject to the terms and conditions herein
set forth, Issuer agrees that it will issue and sell to Purchaser, and Purchaser
agrees that it will acquire from the Issuer, on the Closing Date, the Note
substantially in the form attached hereto as Exhibit A, appropriately completed
in conformity herewith, in the principal amount of $2,500,000, at the purchase
price of $2,385,633.
 
2.02. Purchase and Sale of the Warrant.  Subject to the terms and conditions
herein set forth, Issuer agrees that it will issue and sell to Purchaser, and
Purchaser agrees that it will acquire from Issuer, on the Closing Date, the
Warrant in substantially the form attached hereto as Exhibit B, appropriately
completed in conformity herewith initially exercisable for 136,920 shares of
Common Stock at the purchase price of $114,367.
 
2.03. Fees; Expenses.  Purchaser hereby acknowledges receipt of a $25,000
application fee previously paid by Issuer to Purchaser.  At the Closing, the
Issuer shall (a) pay to, or as directed by, the Purchaser a transaction fee in
an amount equal to $37,500 and (b) reimburse all of the Purchaser’s reasonable
out-of-pocket expenses (including fees, charges and disbursements of counsel and
consultants) incurred in connection with (i) the negotiation and execution and
delivery of this Agreement and the other Transaction Documents and the
Purchaser’s due diligence investigation and (ii) the transactions contemplated
by this Agreement and the other Transaction Documents against receipt of
reasonably detailed invoices therefor, which payments shall be made by wire
transfer of immediately available funds to an account or accounts designated by
the Purchaser.
 
2.04. Closing.  The purchase and issuance of the Securities shall take place at
the closing (the “Closing”) to be held at the offices of Morrison Cohen LLP, 909
Third Avenue, New York, NY 10022 at 10:00 a.m., New York time, on September 10,
2010 (the “Closing Date”).  At the Closing, the Issuer shall deliver the Note
and the Warrant to the Purchaser against delivery by the Purchaser to the Issuer
of the respective purchase prices therefor.  Payment of the purchase price for
the Note and the purchase price for the Warrant shall be by wire transfer of
immediately available funds to an account designated by the Issuer at least two
(2) Business Days prior to the Closing.
 
2.05. Financial Accounting Positions; Tax Reporting.  Each of the parties hereto
agrees to take reporting and other positions with respect to the Securities
which are consistent with the purchase price of the Securities set forth herein
for all financial accounting purposes, unless otherwise required by applicable
GAAP or Commission rules (in which case the parties agree only to take positions
inconsistent with the purchase price of the Securities set forth herein provided
that the Purchaser has consented thereto, which consent shall not be
unreasonably withheld).  If any position inconsistent with the purchase price of
the Securities set forth herein is taken, the covenants shall be adjusted to the
extent necessary to eliminate any impact caused by such inconsistent
position.  Each of the parties to this Agreement agrees to take reporting and
other positions with respect to the Securities which are consistent with the
purchase price of the Securities set forth herein for all other purposes,
including for all federal, state and local tax purposes, except as otherwise
required by Applicable Law.
 
 
23

--------------------------------------------------------------------------------

 
 
2.06. Interest.  The Issuer shall pay interest (“Interest”) on the outstanding
principal amount of the Note at the rate of fourteen percent (14%) per annum
(the “Interest Rate”).  Interest on the Note shall accrue from and including the
date of issuance through and until repayment of the principal amount of the Note
and payment of all Interest in full, and all computations of Interest hereunder
shall be made based on the actual number of days elapsed over a year of 360
days.  Interest shall be paid as provided in this Section 2.06 and Section 10.02
and all Interest accrued and unpaid through the Maturity Date shall be paid in
full on the Maturity Date:
 
(a) Basic Interest.  Interest shall be paid monthly in arrears on the last day
of each calendar month of each year or, if any such date shall not be a Business
Day, on the immediately preceding Business Day to occur prior to such date (each
date upon which interest shall be so payable, an “Interest Payment Date”),
beginning on September 30, 2010, by wire transfer of immediately available funds
to an account at a bank designated in writing by the Purchaser.  In the absence
of any such written designation, any such Interest payment shall be deemed made
on the date a check in the applicable amount payable to the order of the
Purchaser is delivered to the Purchaser at its last address as reflected in the
Note Register of the Issuer; if no such address appears, then to the Purchaser
in care of the last address in such Note Register of any predecessor holder of
the Note (or its predecessor).
 
(b) Default Interest.  Notwithstanding any provision of this Agreement to the
contrary, but subject to Section 2.06(c), any overdue principal of and overdue
Interest on the Note shall bear interest, payable on demand in immediately
available funds, for each day from the date payment thereof was due to the date
of actual payment, at a rate equal to the sum of (i) the Interest Rate and (ii)
an additional five percent (5%) per annum.  Additionally, upon and during the
occurrence of an Event of Default, the Note shall bear interest in addition to
(and not in substitution of) the Interest Rate, from the date of the occurrence
of such Event of Default until such Event of Default is cured or waived, payable
on demand in immediately available funds, at a rate equal to five percent (5%)
per annum.  Subject to Applicable Law, any interest that shall accrue on overdue
interest on the Note (as provided in this Section 2.06(b)) and shall not have
been paid in full on or before the next Interest Payment Date to occur after the
date on which the overdue interest became due and payable shall itself be deemed
to be overdue interest to which this Section 2.06(b) shall apply.
 
(c) No Usurious Interest. In the event that any interest rate(s) or premiums
provided for in this Section 2.06 or otherwise in this Agreement, shall be
determined to be unlawful, such interest rate(s) shall be computed at the
highest rate permitted by Applicable Law.  Any payment by the Credit Parties of
any interest amount in excess of that permitted by Applicable Law shall be
considered a mistake, with the excess being applied to the principal amount of
the Note without prepayment premium or penalty; if no such principal amount is
outstanding, such excess shall be returned to the Credit Parties.
 
 
24

--------------------------------------------------------------------------------

 
 
ARTICLE 3
CONDITIONS TO THE OBLIGATIONS OF THE
PURCHASERS TO PURCHASE THE SECURITIES
 
The obligation of the Purchaser to purchase the Securities and to pay the
purchase price therefor at the Closing and to perform any obligations hereunder
shall be subject to the satisfaction as determined by, or waiver by, the
Purchaser of the following conditions on or before the Closing Date; provided,
however, that any waiver of a condition shall not be deemed a waiver of any
breach of any representation, warranty, agreement, term or covenant or of any
misrepresentation by the Credit Parties.
 
3.01. Representations and Warranties.  The representations and warranties of the
Credit Parties contained in Article 5 hereof shall be true and correct at and as
of the date hereof and the Closing Date as if made at and as of such date, and
the Purchaser shall have received at the Closing a certificate to the foregoing
effect, dated the Closing Date, and executed by the Chief Executive Officer,
President or a Vice President of each Credit Party.
 
3.02. Compliance with this Agreement.  The Credit Parties shall have performed
and complied with all of their agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Credit Parties on or before the Closing Date, and the Purchaser shall have
received at the Closing certificates to the foregoing effect, dated the Closing
Date, and executed by the Chief Executive Officer, President or a Vice President
of each Credit Party.
 
3.03. Secretary’s Certificates.  The Purchaser shall have received a certificate
from each Credit Party, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of such Credit Party, certifying (a) that the attached
copies of the Organization Documents of such Credit Party, as the case may be,
(or other applicable organizational or constituent documents), and resolutions
of the Board of Directors (or other applicable authority) of such Credit Party
approving the Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby are all true, complete and correct and remain
unamended and in full force and effect, and (b) the incumbency and specimen
signature of each officer of such Credit Party executing any Transaction
Document to which it is a party or any other document delivered in connection
herewith and therewith on behalf of such Credit Party.
 
3.04. Transaction Documents.  The Purchaser shall have received duly executed
Transaction Documents and true, complete and correct copies of such agreements,
schedules, exhibits, certificates, documents, financial information and filings
as it may reasonably request in connection with or relating to the transactions
contemplated hereby, all in form and substance satisfactory to the Purchaser.
 
3.05. Purchase of Securities Permitted by Applicable Laws.  The acquisition of
and payment for the Securities to be acquired by the Purchaser hereunder and the
consummation of the transactions contemplated hereby and by the Transaction
Documents (a) shall not be prohibited by any Requirement of Law, (b) shall not
subject the Purchaser to any penalty or other onerous condition under or
pursuant to any Requirement of Law, and (c) shall be permitted by all
Requirements of Law to which the Purchaser or the transactions contemplated by
or referred to herein or in the Transaction Documents are subject; and the
Purchaser shall have received such certificates or other evidence as the
Purchaser may reasonably request to establish compliance with this condition.
 
 
25

--------------------------------------------------------------------------------

 
 
3.06. Opinions of Counsel.  The Purchaser shall have received an opinion of
outside counsel to the Credit Parties, dated as of the Closing Date, relating to
the transactions contemplated by or referred to herein, in form and substance
acceptable to the Purchaser.
 
3.07. Approval of Counsel to the Purchaser.  All actions and proceedings
hereunder and all agreements, schedules, exhibits, certificates, financial
information, filings and other documents required to be delivered by the Credit
Parties and each of their respective Subsidiaries hereunder or in connection
with the consummation of the transactions contemplated hereby, and all other
related matters, shall have been in form and substance acceptable to Morrison
Cohen LLP, counsel to the Purchaser, in its reasonable judgment (including the
opinions of counsel referred to in Section 3.06 hereof).
 
3.08. Consents and Approvals.  All Consents, exemptions, authorizations, or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to those
Contractual Obligations of each Credit Party and each of its Subsidiaries
necessary, desirable, or required in connection with the execution, delivery or
performance (including the payment of interest on the Note and the issuance of
Common Stock upon the exercise of the Warrant) by such Credit Party, or
enforcement against such Credit Party of the Transaction Documents to which it
is a party, shall have been obtained and be in full force and effect, and the
Purchaser shall have been furnished with appropriate evidence thereof, and all
waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
 
3.09. Lien Searches; Payment of Outstanding Indebtedness; Security
Documents.  The Purchaser shall have received copies of all uniform commercial
code financing statements and federal and state tax lien searches as Purchaser
shall have reasonably requested of the Credit Parties, and such termination
statements, releases or other documents as may be reasonably necessary to
confirm that the Collateral is subject to no other Liens in favor of any Persons
(other than Permitted Liens, and Liens to be terminated on the Closing
Date).  Without limiting the foregoing, all Prior Debt (including all interest,
all payment premiums and all other amounts due and payable with respect thereto)
shall have been paid in full from the proceeds of the issuance of the Securities
and all commitments in respect of such Indebtedness shall have been permanently
terminated, and all Liens securing payment of any such Indebtedness shall have
been released, and the Purchaser shall have received all payoff and release
letters, Uniform Commercial Code Form UCC-3 termination statements or other
instruments or agreements as may be suitable or appropriate in connection with
the release of any such Liens.
 
3.10. No Material Judgment or Order.  There shall not be on the Closing Date any
judgment or order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which, in the judgment of the Purchaser, would prohibit the purchase of the
Securities hereunder or subject the Purchaser to any penalty or other onerous
condition under or pursuant to any Requirement of Law if the Securities were to
be purchased hereunder.
 
 
26

--------------------------------------------------------------------------------

 
 
3.11. Pro Forma Balance Sheet.  The Credit Parties shall have delivered to the
Purchaser as of the Closing Date the Pro Forma Financial Statements, certified
by the chief financial officer of the Issuer that they fairly present the pro
forma adjustments reflecting the consummation of the transactions contemplated
by the Transaction Documents, including all fees and expenses in connection
therewith.
 
3.12. Good Standing Certificates.  Each Credit Party shall have its delivered to
the Purchaser as of the Closing Date, good standing certificates for itself and
each of its Subsidiaries for each of their respective jurisdictions of
incorporation and all other jurisdictions where they are qualified to do
business.
 
3.13. No Litigation.  No Litigation shall have been commenced or threatened, and
no investigation by any Governmental Authority shall have been commenced or
threatened:  (i) seeking to restrain, prevent or change the transactions
contemplated hereby or questioning the validity or legality of any of such
transactions, or (ii) which, if resolved adversely to any such Person, could
reasonably be expected to have a Material Adverse Effect.
 
3.14. Interim Financial Statements; Projections.  The Purchaser shall have
received and reviewed to its reasonable satisfaction copies of the Credit
Parties’ financial statements for the three (3) month period ended on June 30,
2010.  In addition, Purchaser shall have received and reviewed to its reasonable
satisfaction a set of financial projections (i) prepared on a quarterly basis,
for each of the Credit Parties’ fiscal years ending March 31, 2011 and March 31,
2012 and (ii) prepared on a year-by-year basis, for each of the Credit Parties’
fiscal years ending March 31, 2013 and March 31, 2014 (such projections to be
prepared by or under the direction of an Authorized Officer of the Credit
Parties).
 
3.15. Flow of Funds.  The Purchaser shall have received a certificate executed
by an Authorized Officer of the Issuer setting forth a flow of funds evidencing
the accounts to which the loans evidenced by the Note being made on the Closing
Date are to be funded and the amounts being funded into each account.
 
3.16. Adverse Change.  Nothing shall have occurred since March 31, 2010, which
the Purchaser shall determine has had, or could reasonably be expected to have,
a Material Adverse Effect.
 
3.17. Solvency Certificate; Insurance Certificates.  On the Closing Date, the
Purchaser shall have received:
 
(a) a solvency certificate from an authorized officer of each Credit Party in
the form of Exhibit F; and
 
(b) evidence of insurance complying with the requirements of Section 8.09 for
the business and properties of the Credit Parties and their respective
Subsidiaries.
 
 
27

--------------------------------------------------------------------------------

 
 
3.18. Fees and Expenses.  On the Closing Date, the Purchaser shall have received
all costs, fees and expenses contemplated by Section 2.03.
 
3.19. Conduct of Business.  Since March 31, 2010, the Credit Parties shall have
conducted their business in the Ordinary Course of Business.
 
3.20. Transfer Taxes.  The Credit Parties shall pay all (i) sales, use,
transfer, real property transfer and other similar Taxes, if any, arising out of
or in connection with the transactions effected pursuant to this Agreement and
(ii) costs relating to the preparation and filing of any Tax Returns relating
thereto.
 
3.21. Landlord Waivers and Agreements. The Purchaser shall have received the
waivers and agreements in accordance with Section 8.16.
 
ARTICLE 4
CONDITIONS TO THE OBLIGATIONS OF
THE ISSUER TO ISSUE AND SELL THE SECURITIES
 
The obligations of the Issuer to issue and sell the Securities and to perform
their other obligations hereunder relating thereto shall be subject to the
satisfaction as determined by, or waiver by, the Issuer of the following
conditions on or before the Closing Date:
 
4.01. Representations and Warranties.  The representations and warranties of the
Purchaser contained in Article 6 hereof shall be true and correct at and as of
the date hereof and the Closing Date as if made at and as of such date.
 
4.02. Compliance with this Agreement.  The Purchaser shall have performed and
complied with all of the agreements and conditions set forth or contemplated
herein that are required to be performed or complied with by the Purchaser on or
before the Closing Date.
 
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES
 
The Credit Parties, jointly and severally, represent and warrant to the
Purchaser that the following are, and after giving effect to the transactions
contemplated by the Transaction Documents will be, true, correct and complete:
 
5.01. Corporate Existence and Power.  Each Credit Party and each of its
Subsidiaries:  (a) is a corporation, limited liability company or limited
partnership, as applicable, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite power and authority to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently, or is currently proposed to be, engaged; (c) is duly qualified as a
foreign entity, licensed and in good standing under the laws of its state of
organization and of each other jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except to the extent that the failure to so qualify would not
have a Material Adverse Effect; and (d) has the power and authority to execute,
deliver and perform its obligations under each Transaction Document to which it
is or will be a party and to borrow hereunder.  Schedule 5.01 contains a true,
complete and correct list of each Credit Party’s and each of its Subsidiaries’
jurisdiction of organization and each jurisdiction where it is qualified to do
business as a foreign entity.  Neither ITI nor Tel Holdings engages in any
business or otherwise conducts any activities.
 
 
28

--------------------------------------------------------------------------------

 
 
5.02. Authorization; No Contravention.  The execution, delivery and performance
by each Credit Party of this Agreement and each other Transaction Document to
which it is or will be a party and the consummation of the transactions
contemplated hereby and thereby, including the issuance of, or performance of
the terms of, the Securities:  (a) has been duly authorized by all necessary
action (including, obtaining approval of its stockholders, partners, general
partners, members or other applicable equity owners, if necessary); (b) do not
and will not contravene the terms of the Organization Documents of such Credit
Party or any of its Subsidiaries (or any other applicable organizational or
constituent documents), or any amendment thereof or any Requirement of Law
applicable to such Person or such Person’s assets, business or properties; (c)
do not and will not (i) conflict with, contravene, result in any violation or
breach of or default under (with or without the giving of notice or the lapse of
time or both), (ii) create in any other Person a right or claim of termination
or amendment of, or (iii) require modification, acceleration or cancellation of,
any Contractual Obligation of any Credit Party or any of its Subsidiaries; and
(d) do not and will not result in the creation of any Lien (or obligation to
create a Lien) against any property, asset or business of any Credit Party or
any of its Subsidiaries (other than Permitted Liens).
 
5.03. Governmental Authorization; Third Party Consents.  No approval, consent,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law
or Contractual Obligation, and no lapse of a waiting period under a Requirement
of Law or Contractual Obligation, is necessary or required in connection with
the execution, delivery or performance by (including the payment of interest on
the Note), or enforcement against, any Credit Party of the Transaction Documents
to which it is a party or the consummation of the transactions contemplated
hereby or thereby.
 
5.04. Binding Effect.  This Agreement has been, and each of the Transaction
Documents to which any Credit Party will be a party will be, duly executed and
delivered by such Credit Party and this Agreement constitutes, and such
Transaction Documents will constitute, the legal, valid and binding obligation
of such Credit Party enforceable against such Credit Party in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity relating to
enforceability.
 
5.05. Litigation.  Except as set forth on Schedule 5.05, there are no legal
actions, suits, proceedings, claims or disputes pending or, to the knowledge of
any Credit Party, threatened, at law, in equity, in arbitration or before any
Governmental Authority against or affecting such Credit Party or any of its
Subsidiaries that (a) purport to affect or pertain to this Agreement, any other
Transaction Document, or any of the transactions contemplated hereby or thereby,
or (b) could reasonably be expected to result in equitable relief or in monetary
judgments, individually or in the aggregate, in excess of $100,000.  No
injunction, writ, temporary restraining order, decree or any order of any nature
has been issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery or performance of the Transaction
Documents.
 
 
29

--------------------------------------------------------------------------------

 
 
5.06. Compliance with Laws.  Each Credit Party and each of its Subsidiaries is
in compliance with all Requirements of Law.
 
5.07. No Default or Breach.  No event has occurred and is continuing or would
result from the incurring of obligations by the Credit Parties under the
Transaction Documents which constitutes or, with the giving of notice or lapse
of time or both, would constitute an Event of Default.  Neither any Credit Party
nor any of its Subsidiaries is in default under or with respect to any
Contractual Obligation in any material respect.
 
5.08. Title to Properties.
 
(a) Schedule 5.08(a) contains a true, complete and correct list of all owned
real property reflected on the Pro Forma Balance Sheet or used in connection
with the respective businesses of the Credit Parties and each of their
respective Subsidiaries.  Each Credit Party and/or each of its Subsidiaries has
good indefeasible and marketable title in and to all real property and good
title to all other properties reflected on the Pro Forma Balance Sheet or used
in connection with their respective businesses, in each case, free and clear of
all Liens, liabilities and rights except as provided on Schedule 5.08(a).
 
(b) Schedule 5.08(b) contains a list of all real property leases reflected on
the Pro Forma Balance Sheet or used in connection with the respective businesses
of the Credit Parties and each of their respective Subsidiaries.  Each Credit
Party and/or each of its Subsidiaries holds all of the right, title and interest
of the tenant under the leases reflected on the Pro Forma Balance Sheet or used
in connection with their respective businesses free and clear of all Liens,
liabilities and rights except as provided on Schedule 5.08(b).
 
5.09. Use of Real Property.  None of the Credit Parties nor any of their
Subsidiaries owns any Real Property.  Except as set forth on Schedule 5.09, (x)
the leased real properties reflected on the Pro Forma Balance Sheet or used in
connection with the respective businesses of the Credit Parties and their
respective Subsidiaries are used and operated in compliance and conformity with
all Contractual Obligations and Requirements of Law, except to the extent that
the failure so to comply would not have a Material Adverse Effect, and (y)
neither any Credit Party nor any of its Subsidiaries has received notice of
violation of any applicable zoning or building regulation, ordinance or other
law, order, regulation or other Requirements of Law relating to the operations
of any Credit Party or any of its Subsidiaries and there is no such
violation.  Except as set forth on Schedule 5.09, all structures, improvements
and other buildings that are owned or covered by leases reflected on the Pro
Forma Balance Sheet or used in connection with the business of the Credit
Parties and their respective Subsidiaries comply with all applicable ordinances,
codes, regulations and other Requirements of Law, have a valid and subsisting
certificate of occupancy for their present use, and neither any Credit Party nor
any of its Subsidiaries has received any written notice from any Governmental
Authority which is still outstanding of any failure to obtain any certificate,
permit, license, authorization or approval with respect to the real property, or
any intended revocation, modification or cancellation of same, and no
Requirement of Law presently in effect or condition precludes or materially
restricts continuation of the present use of such properties.  Each lease
relating to leased real property reflected on the Pro Forma Balance Sheet or
used in connection with the business of the Credit Parties or any of their
respective Subsidiaries, is in full force and effect, and the applicable Credit
Party and/or Subsidiary enjoys peaceful and undisturbed possession
thereunder.  There is no default on the part of any Credit Party or any of its
Subsidiaries or event or condition which (with notice or lapse of time, or both)
would constitute a default on the part of any Credit Party or any of its
Subsidiaries, under any such lease.  There are no service contracts, maintenance
contracts, union contracts, concession agreements, licenses, agency agreements
or any other Contractual Obligations affecting the real property or the leased
property reflected on the Pro Forma Balance Sheet or used in connection with the
business of the Credit Parties and their respective Subsidiaries or the
operation thereof, other than those listed on Schedule 5.09, except for
Contractual Obligations which are cancelable on no more than thirty (30) days’
notice.  There are no pending or, to the knowledge of any Credit Party,
threatened condemnation or eminent domain proceedings that would affect any part
of the leased property reflected on the Pro Forma Balance Sheet or used in
connection with the business of the Credit Parties and their respective
Subsidiaries.  There is no Litigation pending or, to the knowledge of any Credit
Party, threatened against the real property or the leased property on the Pro
Forma Balance Sheet or used in connection with the business of the Credit
Parties and their respective Subsidiaries which would in any way affect title to
such real property or leased property.
 
 
30

--------------------------------------------------------------------------------

 
 
5.10. Taxes.
 
(a) Each Credit Party and each of its Subsidiaries has filed all Tax Returns
that it was required to file.  All such Tax Returns were true, correct and
complete in all material respects.  All Taxes owed by any Credit Party or any of
its Subsidiaries (whether or not shown on any Tax Return) have been
paid.  Except as set forth on Schedule 5.10, neither any Credit Party nor any of
its Subsidiaries currently is the beneficiary of any extension of time within
which to file any Tax Return.  There are no Liens on any of the assets of any
Credit Party or any of their respective Subsidiaries that arose in connection
with any failure (or alleged failure) to pay any Tax, other than Permitted Liens
as provided on Schedule 5.10.  The Issuer has, since its inception, been treated
as a corporation for federal, state and local income Tax purposes.
 
(b) Each Credit Party and each of its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
 
(c) There is no dispute or claim concerning any Tax liability of any Credit
Party or any of its Subsidiaries either (i) claimed or raised by any
Governmental Authority in writing or (ii) as to which any Credit Party has
knowledge based upon personal contact with any agent of such authority.
 
(d) Neither any Credit Party nor any of its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
 
 
31

--------------------------------------------------------------------------------

 
 
(e) Neither any Credit Party nor any of its Subsidiaries has any liability for
the Taxes of any Person other than such Credit Party and its Subsidiaries (i) as
a transferee or successor, (ii) by contract, or (iii) otherwise.
 
(f) The Issuer has not been a United States real property holding corporation
within the meaning of Code Sec. 897(c)(2) during the applicable period specified
in Code Sec. 897(c)(1)(A)(ii).
 
(g) Neither any Credit Party nor any of its Subsidiaries has participated in any
listed transaction, tax shelter or reportable transaction as described in the
Code and Treasury Regulations.
 
(h) Neither any Credit Party nor any of its Subsidiaries (i) has been a member
of an affiliated group (within the meaning of Code Section 1504) filing a
consolidated federal income Tax Return (other than an affiliated group the
common parent of which was the Issuer) or (ii) has any liability for the Taxes
of any Person (other than any of the Credit Parties or its Subsidiaries) under
Treas. Reg. § 1.1502-6 (or any similar provision of state, local, or foreign
law).
 
(i) The unpaid Taxes of the Credit Parties do not, as of the Closing Date,
exceed the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the most recent balance sheet (rather than in any notes thereto).
 
(j) Neither any Credit Party nor any of its Subsidiaries has a permanent
establishment or office or fixed place of business outside the United States.
 
(k) Any reference in this Section 5.10 to any Credit Party shall be deemed to
include each predecessor of such Credit Party, each subsidiary of such Credit
Party, and each entity with respect to which such Credit Party has successor or
transferee liability.
 
5.11. SEC Reports; Financial Statements and Projections.
 
(a) Issuer has filed all SEC Reports and has made available to the Purchaser
each SEC Report.  None of the Credit Parties has any knowledge of any event
occurring on or prior to the Closing Date (other than the transactions
contemplated by this Agreement) that would require the filing of a Form 8-K
after the Closing.  The SEC Reports of Issuer, including, without limitation,
any financial statements or schedules included or incorporated therein by
reference, (i) comply in all material respects with the requirements of the
Exchange Act or the Securities Act or both, as the case may be, applicable to
those SEC Reports and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated or necessary in order to make the statements made in those SEC
Reports, in light of the circumstances under which they were made, not
misleading.  None of the Credit Parties (other than Issuer) (i) is subject to
the periodic reporting requirements of the Exchange Act or is otherwise required
to file any documents with the Commission or any national securities exchange or
quotation service or comparable Governmental Authority, or (ii) has filed a
registration statement that has not yet become effective under the Securities
Act.
 
 
32

--------------------------------------------------------------------------------

 
 
(b) The Chief Executive Officer and the Chief Financial Officer of Issuer have
signed, and Issuer has furnished to the Commission, all certifications required
by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.  Such certifications
contain no qualifications or exceptions to the matters certified therein and
have not been modified or withdrawn; and none of the Credit Parties and any of
their respective officers has received notice from any governmental entity
questioning or challenging the accuracy, completeness, form or manner of filing
or submission of such certifications.  The Credit Parties are otherwise in
compliance in all material respects with all applicable effective provisions of
the Sarbanes-Oxley Act of 2002 and the rules and regulations issued thereunder
by the Commission.
 
(c) The pro-forma balance sheet of the Credit Parties on a Consolidated Basis
dated as of June 30, 2010 (the “Pro Forma Balance Sheet”) furnished to the
Purchaser on the Closing Date reflects the consummation of the transactions
contemplated under this Agreement and under the Transaction Documents (all such
transactions, collectively, the “Transactions”), is complete in all material
respects (but without footnote disclosures) and fairly reflects the financial
condition of the Credit Parties on Consolidated Basis as of the Closing Date
after giving effect to the Transactions.  The Pro Forma Balance Sheet has been
certified by an Authorized Officer of each Credit Party as fairly presenting the
financial condition of the Credit Parties, on a pro forma basis, and as complete
in all material respects.
 
(d) The twelve-month cash flow projections of the Credit Parties on a
Consolidated Basis and their projected balance sheet as of the Closing Date,
copies of which are annexed hereto as Exhibit G (the “Projections”) were
prepared by an Authorized Officer of the Credit Parties in good faith, are based
on underlying assumptions which provide a reasonable basis for the projections
contained therein and reflect the Credit Parties’ judgment based on present
circumstances of the most likely set of conditions and course of action for the
projected period.  The Projections, together with the Pro Forma Balance Sheet,
are referred to as the “Pro Forma Financial Statements”.
 
(e) Except as set forth on Schedule 5.11, each of the consolidated balance
sheets of the Credit Parties and the related consolidated statements of income,
stockholders’ equity and cash flow, together with the notes thereto
(collectively, the “Financial Statements”), which are included in or
incorporated by reference into the SEC Reports of the Issuer filed on or after
January 1, 2007 fairly present, in all material respects, the financial position
of each of the Credit Parties as of the respective dates thereof, and the
results of operations and cash flows of each of the Credit Parties as of the
respective dates or for the respective periods set forth therein, all in
conformity with GAAP consistently applied during the periods involved, except as
otherwise set forth in the notes thereto and subject, in the case of unaudited
quarterly financial statements, to normal year-end audit adjustments.  Except as
set forth on Schedule 5.11 or on the face of the balance sheets which are a part
of the Financial Statements, none of the Credit Parties had any material
obligation, indebtedness or liability (whether accrued, absolute, contingent or
otherwise, and whether due or to become due), other than those incurred since
March 31, 2010 in the Ordinary Course of Business and which are fully reflected
on the Credit Parties’ books of account and which, individually or in the
aggregate, would not have a Material Adverse Effect.
 
5.12. Operating Company.  Each Credit Party is “an entity that is primarily
engaged, directly or through a majority owned subsidiary or subsidiaries, in the
production or sale of a product or service other than the investment of capital”
within the meaning of the U.S. Department of Labor plan asset regulations, 29
C.F. R. §2510.3 101.
 
 
33

--------------------------------------------------------------------------------

 
 
5.13. Disclosure.
 
(a) Agreement and Other Documents.  This Agreement, together with all exhibits
and schedules hereto, and the agreements, certificates and other documents
furnished to the Purchaser by or on behalf of the Credit Parties and their
respective Subsidiaries at the Closing, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which they were made, not misleading.
 
(b) Material Adverse Effects.  There is no fact known to any Credit Party which
such Credit Party has not disclosed to the Purchaser in writing which could
reasonably be expected to have a Material Adverse Effect.
 
5.14. Absence of Certain Changes or Events.  Since March 31, 2010, except as set
forth on Schedule 5.14, neither any Credit Party nor any of its Subsidiaries has
(i) issued any stock, bonds or other corporate securities, (ii) borrowed any
amount or incurred any liabilities (absolute or contingent), other than in the
Ordinary Course of Business, in excess of $25,000, (iii) discharged or satisfied
any Lien or incurred or paid any obligation or liability (absolute or
contingent), other than in the Ordinary Course of Business, in excess of
$25,000, (iv) declared or made any payment or distribution to the holders of its
Equity Interests or purchased or redeemed any shares of its Equity Interests,
(v) mortgaged, pledged or subjected to Lien any of its assets, tangible or
intangible, (vi) sold, assigned or transferred any of its tangible assets, or
canceled any debts or claims, (vii) sold, assigned or transferred any patents,
trademarks, trade names, copyrights, trade secrets or other intangible assets,
(viii) suffered any losses of property, or waived any rights of substantial
value, (ix) suffered any Material Adverse Effect, (x) expended any material
amount, granted any bonuses or extraordinary salary increases, (xi) entered into
any transaction involving consideration in excess of $50,000, except in
connection with such Person’s performance, in the Ordinary Course of Business,
under any Government Contract in effect as of March 31, 2010, or as otherwise
contemplated hereby, or (xii) entered into any agreement or transaction, or
amended or terminated any agreement, with an Affiliate.
 
5.15. O.S.H.A. and Environmental Compliance.
 
(a) Each Credit Party and each of its Subsidiaries has duly complied in all
material respects with, and its facilities, business, assets, property,
leaseholds, Real Property and equipment are in compliance in all material
respects with and (the provisions of the Federal Occupational Safety and Health
Act, the Environmental Protection Act, RCRA and all other Environmental Laws;
there are no outstanding citations, notices or orders of non-compliance issued
to any Credit Party or any of its Subsidiaries as of the Closing Date or
relating to their business, assets, property, leaseholds, Real Property or
equipment under any such laws, rules or regulations;
 
 
34

--------------------------------------------------------------------------------

 
 
(b) Each Credit Party and each of its Subsidiaries has all federal, state and
local licenses, certificates or permits relating to all applicable Environmental
Laws necessary to operate the business of the Credit Parties and its
Subsidiaries; and
 
(c) (i) There are no signs of releases, spills, discharges, leaks or disposal
(collectively referred to as “Releases”), of Hazardous Substances at, upon,
under or within any Real Property owned or leased by any Credit Party or any of
its Subsidiaries, (ii) there are no underground storage tanks or to the best of
any Credit Party’s knowledge polychlorinated biphenyls on any Real Property
owned or leased by any Credit Party or any of its Subsidiaries, (iii) no Real
Property owned or leased by any Credit Party or any of its Subsidiaries has ever
been used as a treatment, storage or disposal facility of Hazardous Waste; (iv)
no Hazardous Substances or substances governed by an Environmental Law are
present on any Real Property owned or leased by any Credit Party or any of its
Subsidiaries excepting such quantities as are handled in compliance with all
applicable manufacturer’s instructions and Environmental Laws and in proper
storage containers and as are necessary for the operation of the commercial
business of the Credit Parties, their respective Subsidiaries or of their
respective tenants; and (v) all underground storage tanks on the Real Property
are in good condition and are being maintained in compliance with all applicable
federal, state and local laws and regulations, including all Environmental Laws.
 
5.16. Investment Company
 
.  No Credit Party is an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.
 
5.17. Subsidiaries.
 
(a) Schedule 5.17 sets forth a complete and accurate list of all of the
Subsidiaries of each Credit Party as of the Closing Date together with their
respective jurisdictions of incorporation or organization.  All of the
outstanding Equity Interests in, the Subsidiaries are validly issued, fully paid
and non-assessable.  Except as set forth on Schedule 5.17, as of the Closing
Date, all of the outstanding Equity Interests in each of the Subsidiaries are
owned by a Credit Party or by a wholly-owned Subsidiary free and clear of any
Liens.  No Subsidiary has outstanding options, warrants, subscriptions, calls,
rights, convertible securities or other agreements or commitments obligating the
Subsidiary to issue, transfer or sell any securities of the Subsidiary.
 
(b) Except for the Subsidiaries of the Credit Parties, no Credit Party owns of
record or beneficially, directly or indirectly, (i) any Equity Interests
convertible into Equity Interests any other Person, and (ii) any Equity Interest
in any limited liability company, partnership, joint venture or other
non-corporate business enterprises.
 
5.18. Capitalization.
 
(a) Schedule 5.18 sets forth, as of the Closing Date (after giving effect to the
transactions contemplated hereby), a true and complete listing of each class of
authorized Equity Interests of each Credit Party and its Subsidiaries, of which
all of such issued Equity Interests are validly issued and outstanding, and,
with respect to the Equity Interests of Issuer’s Subsidiaries, such Equity
Interests are owned beneficially and of record by the Persons and in the amounts
listed on Schedule 5.18.  Schedule 5.18 also sets forth a list of all holders of
warrants, rights and securities convertible into Equity Interests of each Credit
Party, together with the number of Equity Interests to be issued upon the
exercise or conversion of such warrants, rights and convertible securities.  No
Credit Party has any Equity Interests held in treasury.  As of the Closing Date,
after giving effect to the transactions contemplated hereby and in the other
Transaction Documents, there will be:  (i) 2,625,323 shares of Common Stock
issued and outstanding; (ii) 136,920 shares of Common Stock reserved for
issuance upon exercise of the Warrant; (iii) 434,070 shares of Common Stock
reserved for issuance pursuant to the exercise of stock options issued or
issuable in accordance with the terms of the 2003 and 2006 Employee Stock Option
Plans of the Credit Parties (which options shall not in the aggregate exceed
14.27% of the fully diluted capital stock of the Issuer) (“Employee Options”);
and (iv) 10,416 shares of Common Stock reserved for issuance upon exercise of
the warrants issued to Semaphore Capital Advisors LLC (the “Semaphore
Warrants”).  The Warrant, the Employee Options, the Semaphore Warrants and all
outstanding Equity Interests of the Issuer have been duly authorized by all
necessary corporate action.  All outstanding Equity Interests of the Issuer are,
and upon exercise of the Warrant, the Employee Options and the Semaphore
Warrants, when issued and paid for in accordance with their terms, will be,
validly issued, fully paid and non-assessable and shall be free and clear of all
Liens and the issuance of the foregoing has not been or will not be, as the case
may be, subject to preemptive rights in favor of any Person and will not result
in the issuance of any additional Equity Interests of the Issuer or the
triggering of any anti-dilution or similar rights contained in any options,
warrants, debentures or other securities or agreements of the Issuer.
 
 
35

--------------------------------------------------------------------------------

 
 
(b) On the Closing Date, except for the Warrant, the Semaphore Warrants and the
Employee Options, there will be no outstanding securities convertible into or
exchangeable for the Equity Interests of any Credit Party or any of its
Subsidiaries or options, warrants or other rights to purchase or subscribe to
the Equity Interests of any Credit Party or any of its Subsidiaries or
contracts, commitments, agreements, understandings or arrangements of any kind
to which any Credit Party or any of its Subsidiaries is a party relating to the
issuance of any Equity Interests of any Credit Party or any of its Subsidiaries,
any such convertible or exchangeable securities or any such options, warrants or
rights.
 
5.19. Private Offering.  No form of general solicitation or general advertising
was used by any Credit Party or any of its Subsidiaries, or their respective
representatives in connection with the offer or sale of the Securities.  No
registration of the Securities pursuant to the provisions of the Securities Act
or the state securities or “blue sky” laws will be required for the offer, sale
or issuance of the Securities pursuant to this Agreement.  Assuming the accuracy
of Purchaser’s representations and warranties contained in Section 6.04, each
Credit Party agrees that neither it, nor anyone acting on its behalf, will offer
or sell the Securities or any other security so as to require the registration
of the Securities pursuant to the provisions of the Securities Act or any state
securities or “blue sky” laws, unless such Securities are so registered.
 
5.20. Broker’s, Finder’s or Similar Fees.  Except as set forth on Schedule 5.20,
there are no brokerage commissions, finder’s fees or similar fees or commissions
payable in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with any Credit Party or any of its
Subsidiaries, or any action taken by any such Person.
 
 
36

--------------------------------------------------------------------------------

 
 
5.21. Labor Relations.  Neither any Credit Party nor any of its Subsidiaries has
committed or is engaged in any unfair labor practice.  Except as set forth in
Schedule 5.21, there is (a) no unfair labor practice complaint pending or
threatened against any Credit Party or any of its Subsidiaries before the
National Labor Relations Board or any other Governmental Authority and no
grievance or arbitration proceeding arising out of or under collective
bargaining agreements is so pending or threatened, (b) no strike, labor dispute,
slowdown or stoppage pending or threatened against any Credit Party or any of
its Subsidiaries, (c) no union representation question existing with respect to
the employees of any Credit Party or any of its Subsidiaries and no union
organizing activities are taking place, and (d) no employment contract with any
employee or independent contractor of any Credit Party or any of its
Subsidiaries.  Each Credit Party and each of its Subsidiaries is in compliance
in all material respects with all Applicable Laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours.  Neither any Credit Party nor any of its Subsidiaries is a party to any
collective bargaining agreement.
 
5.22. Employee Benefit Plans.  Neither any Credit Party nor any member of the
Controlled Group maintains or contributes to any Plan other than those listed on
Schedule 5.22(a) hereto.  Except as set forth in Schedule 5.22(b), (i) no Plan
has incurred any “accumulated funding deficiency,” as defined in Section
302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, and
each Credit Party and each member of the Controlled Group has met all applicable
minimum funding requirements under Section 302 of ERISA in respect of each Plan,
(ii) each Plan which is intended to be a qualified plan under Section 401(a) of
the Code as currently in effect has been determined by the Internal Revenue
Service to be qualified under Section 401(a) of the Code and the trust related
thereto is exempt from federal income Tax under Section 501(a) of the Code,
(iii) neither any Credit Party nor any member of the Controlled Group has
incurred any liability to the PBGC other than for the payment of premiums, and
there are no premium payments which have become due which are unpaid, (iv) no
Plan has been terminated by the plan administrator thereof nor by the PBGC, and
there is no occurrence which would cause the PBGC to institute proceedings under
Title IV of ERISA to terminate any Plan, (v) at this time, the current value of
the assets of each Plan exceeds the present value of the accrued benefits and
other liabilities of such Plan and neither any Credit Party nor any member of
the Controlled Group knows of any facts or circumstances which would materially
change the value of such assets and accrued benefits and other liabilities, (vi)
neither any Credit Party nor any member of the Controlled Group has materially
breached any of the responsibilities, obligations or duties imposed on it by
ERISA with respect to any Plan, (vii) neither any Credit Party nor any member of
a Controlled Group has incurred any material liability for any excise Tax
arising under Section 4972 or 4980B of the Code, and, to the best of each Credit
Party’s knowledge, no fact exists which could give rise to any such liability,
(viii) neither any Credit Party nor any member of the Controlled Group nor any
fiduciary of, nor any trustee to, any Plan, has engaged in a material non-exempt
“prohibited transaction” described in Section 406 of the ERISA or Section 4975
of the Code, nor taken any action which would constitute or result in a
Termination Event with respect to any such Plan which is subject to ERISA, (ix)
each Credit Party and each member of the Controlled Group has made all
contributions due and payable with respect to each Plan, (x) there exists no
event described in Section 4043(b) of ERISA, for which the thirty (30) day
notice period contained in 29 C.F.R. §2615.3 has not been waived, (xi) neither
any Credit Party nor any member of the Controlled Group has any fiduciary
responsibility for investments with respect to any Plan existing for the benefit
of persons other than employees or former employees of the Credit Parties or any
member of the Controlled Group, (xii) neither any Credit Party nor any member of
the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980; and (xiii) no Credit Party is, and no Credit Party shall
become, a member of a Multiemployer Plan.
 
 
37

--------------------------------------------------------------------------------

 
 
5.23. Intellectual Property.
 
(a)           Each Credit Party and each of its Subsidiaries owns, or has the
legal right to use, all Intellectual Property necessary for each of them to
conduct its respective business as currently conducted.

(b)       Schedule 5.23(b) (together with any supplements or modifications
thereto provided by the Credit Parties from time to time) contains a list and
description (including application number, registration number or equivalent
identifying information, where applicable) of all registered and pending
applications to register (x) Copyrights (y) Patents and (z) Trademarks, owned by
any Credit Party or any Subsidiary of any Credit Party.

(c)           Schedule 5.23(c) (together with any supplements or modifications
thereto provided by the Credit Parties from time to time) contains a list and
description (stating the name of the licensee and licensor and either date of
execution or effectiveness) of each Copyright License, Patent License and
Trademark License to which any Credit Party or any Subsidiary of any Credit
Party is a party, other than such licenses the lack of which, singly or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect. 

(d)       Except as disclosed in Schedule 5.23(d) hereto, (i) one or more of the
Credit Parties and its Subsidiaries has the right to use the Intellectual
Property disclosed in Schedule 5.23(b) for the duration of their legal existence
and without payment of royalties, (ii) each Credit Party and its Subsidiaries,
is currently in compliance in all material respects with legal requirements
(including timely payment of filing, examination and maintenance fees, as well
as timely post-registration filing of affidavits of use, incontestability and
renewal applications) with respect to the Intellectual Property disclosed in
Schedule 5.23(b), and (iii) to the knowledge of any Credit Party there are no
restrictions on the direct or indirect transfer of any Contractual Obligation,
or any interest therein, held by any of the Credit Parties or any of their
respective Subsidiaries in respect of the Intellectual Property disclosed in
Schedule 5.23(b) or 5.23(c).

(e)       Except as disclosed in Schedule 5.23(d), none of the Credit Parties is
in default (or with the giving of notice or lapse of time or both, would be in
default) under any Copyright License, Patent License or Trademark License listed
on Schedule 5.23(c); no claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property licensed
pursuant thereto or the validity or effectiveness of any such Intellectual
Property license, nor does any Credit Party or any Subsidiary of any Credit
Party know of any such claim; and, to the knowledge of any Credit Party, the use
of Intellectual Property subject to such license by the any Credit Party or any
Subsidiary of any Credit Party does not infringe on the rights of any Person.
 
 
38

--------------------------------------------------------------------------------

 

 
(f)           Each Credit Party and each of its Subsidiaries has taken
reasonable steps to maintain the confidentiality of all material Trade Secrets
used, in development or for use in the Business, including the adoption and
implementation of physical and electronic security measures and controls.  To
any Credit  Party’s Knowledge, there has been no misappropriation of any such
Trade Secrets by any Person, and no such Trade Secrets or other proprietary
information have been used by, disclosed to or discovered by any Person except
pursuant to valid and appropriate non-disclosure, assignment and/or license
agreements that have not been breached.  Each Credit Party and each of its
Subsidiaries owns and has the exclusive right to use in its Business all Trade
Secrets relating to all of its existing and currently planned products,
including product formulations, ingredient lists, and methods and processes of
manufacture.

(g)        Either or both of Schedules 5.23 (b) and 5.23(c) may be updated from
time to time by the Credit Parties to include new Intellectual Property acquired
after the Closing Date by giving written notice thereof to the Purchaser.

5.24. Potential Conflicts of Interest.  Except as set forth on Schedule 5.24, no
officer or director of any Credit Party or any of its Subsidiaries:  (a) owns,
directly or indirectly, any interest in (excepting less than 5% holdings for
investment purposes in Equity Interests of publicly held and traded companies),
or is an officer, director, employee or consultant of, any Person that is, or is
engaged in business as, a competitor, lessor, lessee, supplier, distributor,
sales agent or customer of, or lender to or from, such Credit Party or any of
such Credit Party’s Subsidiaries; (b) owns, directly or indirectly, in whole or
in part, any tangible or intangible property that any Credit Party or any of its
Subsidiaries uses in the conduct of business; or (c) has any cause of action or
other claim whatsoever against, or owes or has advanced any amount to, any
Credit Party or any of its Subsidiaries, except for claims in the Ordinary
Course of Business such as for accrued vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements existing on the date
hereof.  Except as disclosed in the SEC Reports, none of the directors or
officers of any of the Credit Parties or any Persons covered under Item 404(a),
(b) or (c) of Regulation S-K of the Commission has entered into any transaction
with any Credit Party that would be required to be disclosed pursuant to Item
404(a), (b) or (c) of Regulation S-K of the Commission.
 
5.25. Government Contracts.
 
(a) No Credit Party or any of its Subsidiaries is materially in default as to
the terms of any Government Contract or has received any notices of default or
notices to cure under any Government Contract for which the performance
deficiency noted by any Governmental Authority has not been cured or otherwise
resolved to such Governmental Authority’s satisfaction.
 
(b) Each Government Contract has been properly approved and executed by each
Credit Party party thereto and, to the knowledge of such Credit Party, by the
applicable Governmental Authority party thereto.
 
 
39

--------------------------------------------------------------------------------

 
 
(c) No Credit Party is currently, or has ever been, debarred or suspended from
(or has received notice that it is under investigation with respect to a
possible debarment or suspension from) bidding on or entering into any
Government Contract with or for any Governmental Authority.  No event has
occurred and no condition exists that could reasonably be expected to result in
the debarment or suspension of any Credit Party from any Government Contract.
 
(d) No Credit Party has been given notice (i) that any Government Contract may
be or will be terminated for the convenience of a Governmental Authority, (ii)
that a major program or contract of any Credit Party will be eliminated,
substantially reduced or suspended, (iii) requiring or resulting in, loss of use
or substantial impairment or interference of use by any Credit Party of any
facilities owned by a Governmental Authority, or (iv) that any relevant budget
authority or contract authority has been exceeded with respect to any Government
Contract, in each case, that could reasonably be expected to have a Material
Adverse Effect.  No Credit Party anticipates incurring cost overruns on any
Government Contract which could reasonably be expected to have a Material
Adverse Effect.  To each Credit Party’s knowledge, there are no offsets and
there are not currently threatened or pending any claims or offsets against any
Credit Party by any Governmental Authority, in each case, that could reasonably
be expected to have a Material Adverse Effect.  All assignments of claims with
respect to any Government Contract and notices of such assignments forwarded to
or filed with any Person (including any Governmental Authority) pursuant to 48
C.F.R. Sections 32.802(e) and 32.805(b) shall have been fully released in
accordance with 48 C.F.R. Section 32.805(e).  There are no other assignments of
claims with respect to or Liens (other than Permitted Liens) on Government
Contracts, other than in favor of a Governmental Authority in respect of set-off
rights as provided in the Federal Acquisition Regulation (Title 48 of the Code
of Federal Regulations, as amended, modified and supplemented from time to
time).
 
5.26. Indebtedness.  Schedule 5.26 lists (i) the amount of all outstanding
Indebtedness of the Credit Parties and their respective Subsidiaries (other than
Indebtedness under this Agreement) as of the Closing Date, (ii) the Liens that
relate to such Indebtedness and that encumber the assets of the Credit Parties
and their respective Subsidiaries, (iii) the name of each lender thereof, and
(iv) the amount of any unfunded commitments available to the Credit Parties or
any of their respective Subsidiaries in connection with any such Indebtedness.
 
5.27. Material Contracts.  Neither any Credit Party nor any of its Subsidiaries
is or will be a party to any Contractual Obligation, or is subject to any
charge, corporate restriction, judgment, injunction, decree, or Requirement of
Law, that could reasonably be expected to have a Material Adverse
Effect.  Schedule 5.27 lists (i) all Government Contracts and (ii) all other
contracts, agreements, commitments and other Contractual Obligations of the
Credit Parties and their Subsidiaries, whether written or oral, other than (a)
the Transaction Documents, (b) purchase orders in the Ordinary Course of
Business, and (c) any other contracts, agreements, commitments and other
Contractual Obligations of the Credit Parties or any of their Subsidiaries that
do not extend beyond one year and involve the receipt or payment of not more
than $25,000.  The Government Contracts and each of the other contracts,
agreements, commitments and other Contractual Obligations of the Credit Parties
and their Subsidiaries required to be set forth on Schedule 5.27 are referred to
herein as the “Material Contracts.”  Each Material Contract in full force and
effect.  Each Credit Party and each of its Subsidiaries has satisfied in full or
provided for all of its liabilities and obligations under each Material Contract
requiring performance prior to the date hereof in all material respects, and are
not in default under any of them, nor, to the knowledge of any Credit Party,
does any condition exist that with notice or lapse of time or both would
constitute such a default.  To the knowledge of any Credit Party, no other party
to any such Material Contract is in default thereunder, nor does any condition
exist that with notice or lapse of time or both would constitute such a
default.  Except as set forth on Schedule 5.27, no approval or consent of any
Person is needed for all of the Material Contracts to continue to be in full
force and effect.
 
 
40

--------------------------------------------------------------------------------

 
 
5.28. Insurance.  Schedule 5.28 accurately summarizes the Life Insurance Policy
and all of the insurance policies or programs of the Credit Parties and their
Subsidiaries in effect as of the date hereof, and indicates the insurer’s name,
policy number, expiration date, amount of coverage, type of coverage and annual
premiums, and also indicates any self insurance program that is in effect.  All
such policies are in full force and effect, are underwritten by financially
sound and reputable insurers, are sufficient for all applicable Requirements of
Law and otherwise are in compliance with the criteria set forth in Section 8.09
hereof.  All such policies will remain in full force and effect and will not in
any way be affected by, or terminate or lapse by reason of any of the
transactions contemplated hereby.
 
5.29. Assignment of Payments.
 
Except with respect to contracts for which the government has determined that a
prohibition on assignment of claims is in the government’s interest, each of the
Credit Parties and their Subsidiaries has the right to assign to the Purchaser
all payments due or to become due under each of such Person’s Government
Contracts, and there exists no uncancelled prior assignment of payments under
any of such Credit Party’s Government Contracts.
 
5.30. Compliance with the FCPA.
 
Each of the Credit Parties and their Subsidiaries is in compliance with the
Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq., and any foreign
counterpart thereto.  None of the Credit Parties or their Subsidiaries has made
a payment, offering, or promise to pay, or authorized the payment of, money or
anything of value (a) in order to assist in obtaining or retaining business for
or with, or directing business to, any foreign official, foreign political
party, party official or candidate for foreign political office, (b) to a
foreign official, foreign political party or party official or any candidate for
foreign political office, and (c) with the intent to induce the recipient to
misuse his or her official position to direct business wrongfully to such Credit
Party or its Subsidiary or to any other Person, in violation of the Foreign
Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq.
 
5.31. Products Liability.  Except as set forth on Schedule 5.31, there is no
action, suit, proceeding, inquiry or investigation pending, or, to the knowledge
of any Credit Party, threatened, by or before any Governmental Authority against
any Credit Party or any of its Subsidiaries relating to any product alleged to
have been sold by any Credit Party or any of its Subsidiaries and alleged to
have been defective, or improperly designed or manufactured, nor to the
knowledge of any Credit Party is there any valid basis for any such action,
proceeding or investigation.
 
 
41

--------------------------------------------------------------------------------

 
 
5.32. Solvency.  The Credit Parties and their Subsidiaries, taken as a whole,
are Solvent.
 
5.33. Questionnaire.  All statements made by the Credit Parties in the
Questionnaire are true and correct and do not, as of the date of this Agreement,
contain any untrue statement of material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading in any material respect.
 
5.34. Location of Assets.  The chief executive offices of each Credit Party and
each of its Subsidiaries and the books and records of each Credit Party and each
of its Subsidiaries concerning their respective accounts are located only at the
address set forth on Schedule 5.34 identified as such, and the only other places
of business and locations of assets of each Credit Party and each of its
Subsidiaries, if any, are the addresses set forth on Schedule 5.34.
 
5.35. Certain Payments.  Except as set forth on Schedule 5.35, neither the
execution, delivery and performance by any Credit Party of this Agreement, nor
the execution, delivery and performance by any Credit Party or any of its
Subsidiaries of any of the other Transaction Documents, nor the consummation of
the transactions contemplated hereby or thereby shall require any payment by any
Credit Party or any of its Subsidiaries, in cash or kind, under any other
agreement, plan, policy, commitment or other arrangement.  There are no
agreements, plans, policies, commitments or other arrangements with respect to
any compensation, benefits or consideration which will be materially increased,
or the vesting of benefits of which will be materially accelerated, as a result
of this Agreement, the other Transaction Documents or the occurrence of any of
the transactions contemplated hereby or thereby.  Except as set forth on
Schedule 5.35, there are no payments or other benefits payable by any Credit
Party or any of its Subsidiaries, the value of which will be calculated on the
basis of any of the transactions contemplated by this Agreement or the other
Transaction Documents.
 
5.36. Margin Requirements.  No part of the proceeds from the sale of the
Securities hereunder will be used to purchase or carry any Margin Stock or to
extend credit for the purpose of purchasing or carrying any Margin
Stock.  Neither the sale of the Securities nor the use of the proceeds thereof
will violate or be inconsistent with the provisions of Regulation T, U or X of
the Board of Governors of the Federal Reserve System.
 
5.37. Anti-Terrorism Laws
 
(a) General.  Neither any Credit Party nor any Subsidiary or Affiliate of any
Credit Party is in violation of any Anti-Terrorism Law or engages in or
conspires to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in any Anti-Terrorism Law.
 
(b) Executive Order No. 13224.  Neither any Credit Party nor any Subsidiary or
Affiliate of any Credit Party or their respective agents acting or benefiting in
any capacity in connection with the Note or other transactions hereunder is a
Blocked Person.
 
 
42

--------------------------------------------------------------------------------

 
 
(c) Blocked Person or Transactions.  Neither any Credit Party nor to any Credit
Party’s knowledge any of its Subsidiaries, Affiliates or agents acting in any
capacity in connection with the Note or other transactions hereunder (i)
conducts any business or engages in making or receiving any contribution of
funds, goods or services to or for the benefit of any Blocked Person, or (ii)
deals in, or otherwise engages in any transaction relating to, any property or
interests in property blocked pursuant to Executive Order No. 13224.
 
5.38. Trading with the Enemy.  Neither any Credit Party nor any of its
Subsidiaries has engaged, nor does any Credit Party or any of its Subsidiaries
intend to engage, in any business or activity prohibited by the Trading with the
Enemy Act.
 
5.39. Interest Rate Hedges and Other Hedging Agreements.  As of the Closing
Date, neither any Credit Party nor any of their Subsidiaries are a party to any
Interest Rate Hedges or any Other Hedging Agreements.
 
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
 
Purchaser hereby represents and warrants to the Issuer as follows:
 
6.01. Authorization; No Contravention.  The execution, delivery and performance
by it of this Agreement and the other Transaction Documents to which it is
party:  (a) is within its power and authority and has been duly authorized by
all necessary action; (b) does not contravene the terms of its organizational
documents or any amendment thereof; and (c) will not violate, conflict with or
result in any breach or contravention of any of its Contractual Obligations, or
any order or decree directly relating to it.
 
6.02. Binding Effect.  This Agreement and the other Transaction Documents to
which it is party have been duly executed and delivered by it, and this
Agreement and each other Transaction Document constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors’ rights generally or by
equitable principles relating to enforceability.
 
6.03. No Legal Bar.  The execution, delivery and performance of this Agreement
and the other Transaction Documents by it will not violate any Requirement of
Law applicable to it.
 
6.04. Purchase for Own Account.  The Securities to be acquired by it pursuant to
this Agreement are being or will be acquired for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the Purchaser’s
right at all times to sell or otherwise dispose of all or any part of the
Securities, in the case of the Purchaser under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of its property being at all times within its control.  If the
Purchaser should in the future decide to dispose of any of the Securities, the
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect.
 
 
43

--------------------------------------------------------------------------------

 
 
6.05. Broker’s, Finder’s or Similar Fees.  Except as set forth in Section 2.03
hereof, there are no brokerage commissions, finder’s fees or similar fees or
commissions payable in connection with the transactions contemplated hereby
based on any agreement, arrangement or understanding with Purchaser or any
action taken by it.
 
6.06. Governmental Authorization; Third Party Consent.  No approval, consent,
compliance, exemption, authorization, or other action by, or notice to, or
filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, and no lapse of a waiting period under a Requirement of Law,
is necessary or required in connection with the execution, delivery or
performance by it or enforcement against it of this Agreement or the
transactions contemplated hereby, except for the matters described in the SBA
Side Letter.
 
ARTICLE 7
INDEMNIFICATION
 
7.01. Indemnification.  In addition to all other sums due hereunder or provided
for in this Agreement, each Credit Party, jointly and severally, agrees to
indemnify and hold harmless the Purchaser and its Affiliates and each of their
respective officers, directors, agents, employees, Subsidiaries, partners,
members, attorneys, accountants and controlling persons (each, an “Indemnified
Party”) to the fullest extent permitted by law from and against any and all
losses, claims, damages, expenses (including reasonable fees, disbursements and
other charges of counsel and costs of investigation incurred by an Indemnified
Party in any action or proceeding between any Credit Party or any of its
Subsidiaries and such Indemnified Party (or Indemnified Parties) or between an
Indemnified Party (or Indemnified Parties) and any third party or otherwise) or
other liabilities, losses, or diminution in value (collectively, “Liabilities”)
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement of any Credit Party in this Agreement, the Note, the
Warrant, or any of the other Transaction Documents, including the failure to
make payment when due of amounts owing pursuant to this Agreement, the Note, or
any of the other Transaction Documents, on the due date thereof (whether at the
scheduled maturity, by acceleration or otherwise) or any legal, administrative
or other actions (including actions brought by the Purchaser, any Credit Party,
any of its Subsidiaries or any holders of equity or indebtedness of any Credit
Party or any of its Subsidiaries or derivative actions brought by any Person
claiming through or in the name of any Credit Party or any of its Subsidiaries,
proceedings or investigations (whether formal or informal), or written threats
thereof, based upon, relating to or arising out of any of the Transaction
Documents, the transactions contemplated thereby, or any Indemnified Party’s
role therein or in the transactions contemplated thereby; provided, however,
that neither any Credit Party nor any of its Subsidiaries shall be liable under
this Section 7.01 to an Indemnified Party:  (a) for any amount paid by the
Indemnified Party in settlement of claims by the Indemnified Party without such
Credit Party’s consent (which consent shall not be unreasonably withheld or
delayed), (b) to the extent that it is judicially determined in a final
non-appealable judgment that such Liabilities resulted primarily from the
willful misconduct or gross negligence of such Indemnified Party or (c) to the
extent that it is judicially determined in a final non-appealable judgment that
such Liabilities resulted primarily from the breach by such Indemnified Party of
any representation, warranty, covenant or other agreement of such Indemnified
Party contained in this Agreement; provided, further, that if and to the extent
that such indemnification is unenforceable for any reason, the Credit Parties
shall make the maximum contribution to the payment and satisfaction of such
Liabilities which shall be permissible under Applicable Laws.  In connection
with the obligation of the Credit Parties to indemnify for expenses as set forth
above, each Credit Party further agrees, upon presentation of appropriate
invoices containing reasonable detail, to reimburse each Indemnified Party for
all such expenses (including fees, disbursements and other charges of counsel
and costs of investigation incurred by an Indemnified Party in any action or
proceeding between any Credit Party (or any of its Subsidiaries) and such
Indemnified Party (or Indemnified Parties) or between an Indemnified Party (or
Indemnified Parties) and any third party or otherwise) as they are incurred by
such Indemnified Party; provided, however, that if an Indemnified Party is
reimbursed hereunder for any expenses, such reimbursement of expenses shall be
refunded to the extent it is finally judicially determined that the Liabilities
in question resulted primarily from (i) the willful misconduct or gross
negligence of such Indemnified Party or (ii) the breach by such Indemnified
Party of any representation, warranty, covenant or other agreement of such
Indemnified Party contained in this Agreement or any other Transaction Document.
 
 
44

--------------------------------------------------------------------------------

 
 
7.02. Procedure; Notification.  Each Indemnified Party under this Article 7
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Credit Parties under this
Article 7, notify the Credit Parties in writing of the commencement
thereof.  The omission of any Indemnified Party so to notify the Credit Parties
of any such action shall not relieve the Credit Parties from any liability which
they may have to such Indemnified Party unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses of the
Credit Parties.  In case any such action, claim or other proceeding shall be
brought against any Indemnified Party and it shall notify the Credit Parties of
the commencement thereof, the Credit Parties shall be entitled to assume the
defense thereof at their own expense, with counsel satisfactory to such
Indemnified Party in its reasonable judgment; provided, however, that, if the
Credit Parties have assumed the defense of any such action, claim or other
proceeding, any Indemnified Party may, at its own expense, retain separate
counsel to participate in such defense.  Notwithstanding the foregoing, in any
action, claim or proceeding in which the Credit Parties, on the one hand, and an
Indemnified Party, on the other hand, is, or is reasonably likely to become, a
party, such Indemnified Party shall have the right to employ separate counsel at
the expense of the Credit Parties and to control its own defense of such action,
claim or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Credit Parties, on
the one hand, and such Indemnified Party, on the other hand, that would make
such separate representation advisable; provided, however, that in no event
shall the Credit Parties be required to pay fees and expenses under this Article
7 for more than one firm of attorneys in any jurisdiction in any one legal
action or group of related legal actions.  Each Credit Party agrees that it will
not, without the prior written consent of the Purchaser, settle, compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated hereby (if any Indemnified
Party is a party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of the Purchaser and each other Indemnified Party from all liability
arising or that may arise out of such claim, action or proceeding.  Neither any
Credit Party nor any of its Subsidiaries shall be liable for any settlement of
any claim, action or proceeding effected against an Indemnified Party without
their written consent, which consent shall not be unreasonably withheld.  The
rights accorded to Indemnified Parties hereunder shall be in addition to any
rights that any Indemnified Party may have at common law, by separate agreement
or otherwise.
 
 
45

--------------------------------------------------------------------------------

 
 
7.03. Survival.  The obligations of the Credit Parties under this Article 7
shall survive termination of this Agreement and the Transaction Documents and
payment in full of the Note.
 
ARTICLE 8
AFFIRMATIVE COVENANTS
 
Until the payment in full of all principal of and interest on the Note and all
other amounts due to the Purchaser under this Agreement and the other
Transaction Documents, including all fees, expenses and amounts due in respect
of indemnity obligations under Article 7, each Credit Party hereby covenants and
agrees with the Purchaser as set forth in this Article 8, provided, however,
that following payment in full of all such amounts, for so long as the Warrant
is outstanding, each Credit Party hereby covenants and agrees with the Purchaser
only as set forth in Sections 8.01(a) and (b), 8.02, 8.10 and 8.13:
 
8.01. Financial Statements and Other Information.  Each Credit Party shall
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP (it being
understood that monthly financial statements are not required to have footnote
disclosures).  The Credit Parties shall deliver to the Purchaser each of the
financial statements and other reports described below:
 
(a) Annual Financial Statements.  Furnish Purchaser within one hundred twenty
(120) days after the end of each fiscal year of the Credit Parties, audited
financial statements of the Credit Parties, including statements of income and
stockholders’ equity and cash flow from the beginning of such fiscal year to the
end of such fiscal year and the balance sheet as at the end of such fiscal year,
all prepared on a Consolidated Basis and Consolidating Basis in reasonable
detail and fairly reflecting the financial position and the results of the
operations of the Credit Parties as of the end of and for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and reported upon without qualification by BDO Seidman, LLC or
another independent certified public accounting firm selected by the Credit
Parties and satisfactory to Purchaser (collectively, the “Accountants”).
 
(b) Quarterly Financial Statements.  Furnish Purchaser within forty-five (45)
days after the end of each fiscal quarter, an unaudited balance sheet of the
Credit Parties and unaudited statements of income and stockholders’ equity and
cash flow of the Credit Parties fairly reflecting the financial position and the
results of operations of the Credit Parties from the beginning of the fiscal
year (or the Closing Date, in the case of the first such financial statement
delivered after the Closing Date) to the end of such fiscal quarter and for such
fiscal quarter, all prepared on a Consolidated Basis and Consolidating Basis in
reasonable detail and setting forth in each case in comparative form the figures
for the previous fiscal year and a comparison to budgeted amounts, subject to
normal and recurring year-end adjustments that individually and in the aggregate
are not material to the Credit Parties’ business.
 
 
46

--------------------------------------------------------------------------------

 
 
(c) Monthly Financial Statements.  Furnish Purchaser within forty-five (45) days
after the end of each month, an unaudited balance sheet of the Credit Parties
and unaudited statements of income and stockholders’ equity and cash flow of the
Credit Parties fairly reflecting the financial position and the results of
operations of the Credit Parties from the beginning of the fiscal year (or the
Closing Date, in the case of the first such financial statement delivered after
the Closing Date) to the end of such month and for such month, all prepared on a
Consolidated Basis and Consolidating Basis in reasonable detail and setting
forth in each case in comparative form the figures for the previous fiscal year
and a comparison to budgeted amounts, subject to normal and recurring year-end
adjustments that individually and in the aggregate are not material to the
Credit Parties’ business.
 
(d) Compliance Certificate.  Together with each delivery of financial statements
of the Credit Parties and their Subsidiaries pursuant to Sections 8.01(a) and
8.01(b) above, the Credit Parties shall deliver or cause to be delivered a fully
and properly completed compliance certificate (in substantially the form
attached hereto as Exhibit C (or in such other form or substance as shall be
satisfactory to Purchaser) and referred to as a “Compliance Certificate”) signed
by the chief executive officer or chief financial officer of each Credit Party.
 
(e) Accountants’ Reports.  Promptly upon receipt thereof, each Credit Party
shall deliver copies of all significant reports submitted by the Accountant in
connection with each annual, interim or special audit or review of any type of
the financial statements or related internal control systems of the Credit
Parties and their Subsidiaries made by the Accountant, including any comment
letter submitted by the Accountant to management in connection with its
services.
 
(f) Management Reports.  Together with each delivery of financial statements of
the Credit Parties and their Subsidiaries pursuant to Sections 8.01(a) and
8.01(b), the Credit Parties will deliver a management report (i) describing the
operations and financial condition of the Credit Parties and their Subsidiaries
for the month then ended and the portion of the current fiscal year then elapsed
(or for the fiscal year then ended in the case of year end financials), (ii)
setting forth in comparative form the corresponding figures for the
corresponding periods of the previous fiscal year and the corresponding figures
from the most recent projections for the current fiscal year delivered pursuant
to subsection 8.01(g) discussing the reasons for any significant variations and
(iii) a written report summarizing all material variances from budgets submitted
by the Credit Parties pursuant to Section 8.01(g) and a discussion and analysis
by management with respect to such variances, such discussion and analysis to be
in such form and to provide such detail and substance as Purchaser shall
reasonably require.  The information above shall be presented in reasonable
detail and shall be certified by the chief financial officer of each Credit
Party to the effect that such information fairly presents the results of
operations and financial condition of the Credit Parties on a Consolidated Basis
and Consolidating Basis as at the dates and for the periods indicated.
 
(g) Projections.  No earlier than sixty (60) days prior and no later than thirty
(30) days prior to the end of each fiscal year (each, a “Specified Fiscal
Year”), beginning with the fiscal year ending March 31, 2011, the Credit Parties
shall prepare and deliver to Purchaser projections of the Credit Parties and
their Subsidiaries for (i) each of the two fiscal years immediately succeeding
such Specified Fiscal Year, on a quarter to quarter basis, and (ii) each of the
fiscal years ending three years and four years, respectively, after the end of
such Specified Fiscal Year, on a year by year basis, in each case, including a
balance sheet as at the end of each relevant period and income statements and
statements of cash flows for each relevant period and for the period commencing
at the beginning of the fiscal year and ending on the last day of such relevant
period.  Such projections shall be prepared in good faith on the basis of sound
financial planning practice consistent with past budgets and financial
statements and that such Authorized Officer has no reason to question the
reasonableness of any material assumptions on which such projections were
prepared.
 
 
47

--------------------------------------------------------------------------------

 
 
(h) SEC Filings/Press Releases.  Furnish Purchaser with, promptly after the same
are (i) filed, copies of all SEC Reports, (ii) sent, copies of all financial
statements, management reports and reports related thereto which any Credit
Party or Subsidiary sends generally to its shareholders or other equity holders,
and (iii) made available, all press releases to the public concerning material
developments in the business of any of the Credit Parties or any of their
respective Subsidiaries.
 
(i) Material Occurrences.  Promptly notify Purchaser in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event, development or
circumstance due to which any financial statements or other reports furnished to
the Purchaser fail in any material respect to present fairly, in accordance with
GAAP consistently applied, the financial condition or operating results of the
Credit Parties as of the date of such statements; (c) any accumulated retirement
plan funding deficiency which, if such deficiency continued for two plan years
and was not corrected as provided in Section 4971 of the Code, could subject any
Credit Party or Subsidiary to a Tax imposed by Section 4971 of the Code; (d)
each and every default by any Credit Party or Subsidiary which permits the
holders of any Indebtedness of any Credit Party or Subsidiary, the outstanding
principal amount of which exceeds $50,000, to accelerate the maturity of such
Indebtedness, including the names and addresses of the holders of such
Indebtedness and the amount of such Indebtedness; and (e) any other development
in the business or affairs of any Credit Party or Subsidiary which could
reasonably be expected to have a Material Adverse Effect; in each case
describing the nature thereof and the action the Credit Party or such Subsidiary
proposes to take with respect thereto.  In addition, the Credit Parties shall
notify Purchaser in writing promptly of any change in senior management (which,
for purposes hereof, shall include any officer holding the title of vice
president, or the functional equivalent thereof, and any officer holding a more
senior title than vice president, or the functional equivalent thereof), and, in
any event (i) if such change arises from a voluntary termination of employment,
or as the result of death or disability of such officer, such notice shall be
given no later than three (3) Business Days after any Credit Party shall have
obtained knowledge (excluding the knowledge of such officer) of such event and
(ii) if such change arises from an involuntary termination of employment of any
of Harold K. Fletcher, Jeffrey C. O’Hara, Chris Allen, Dr. Ken Filardo, Joseph
Macaluso, Jeff Feinstein or Jeff Johnson such notice shall be given no later
than the date that is three (3) Business Days prior to the occurrence of such
event, unless the Credit Parties determine, in the good faith exercise of their
commercially reasonable judgment, that the delay in effectuating such
termination due to the aforedescribed notice obligation would be reasonably
likely to have a Material Adverse Effect, in which case the Credit Parties shall
notify Purchaser in writing within one (1) Business Day after the occurrence of
such involuntary termination.
 
 
48

--------------------------------------------------------------------------------

 
 
(j) Litigation.  Promptly upon any officer of any Credit Party obtaining
knowledge of (i) the institution of any action, suit, proceeding, governmental
investigation or arbitration against or affecting any Credit Party or any
Subsidiary or any property of any Credit Party or Subsidiary not previously
disclosed by the Credit Parties to the Purchaser or (ii) any material
development in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting any Credit Party or
Subsidiary or any property or former property of any Credit Party or Subsidiary
which, in each case, could reasonably be expected to have a Material Adverse
Effect, the Credit Parties will promptly give notice thereof to the Purchaser
and provide such other information as may be reasonably available to it to
enable the Purchaser and its counsel to evaluate such matter.
 
(k) Subsidiaries.  Not less than fifteen (15) days prior to creating a
Subsidiary or acquiring the Equity Interests in a Person, such that such Person
will become a Subsidiary, the applicable Credit Party shall notify the Purchaser
of such Credit Party’s or of such Credit Party’s Subsidiary’s intention to
create such Subsidiary or acquire such Equity Interests, and following such
notice such Subsidiary will not be created or acquired until such Credit Party
has caused each Subsidiary to execute a joinder to this Agreement, and the other
Transaction Documents and a Guaranty in form and substance satisfactory to the
Purchaser.
 
(l) Notice of Corporate Changes.  The Credit Parties shall provide prompt
written notice to the Purchaser of (i) all jurisdictions in which any Credit
Party or any Subsidiary becomes qualified after the Closing Date to transact
business, and (ii) any material change after the Closing Date in the authorized
and issued Equity Interests of any Credit Party or any Subsidiary or any other
material amendment to their applicable charter, by laws or other organizational
documents, such notice, in each case, to identify the applicable jurisdictions,
capital structures or amendments, as applicable.
 
(m) Notice of Adverse Events.  Furnish Purchaser with prompt written notice of
(i) any lapse or other termination of any Consent issued to any Credit Party or
any Subsidiary by any Governmental Authority or any other Person that is
material to the operation of any Credit Party’s or Subsidiary’s business, (ii)
any refusal by any Governmental Authority or any other Person to renew or extend
any such Consent, (iii) copies of any periodic or special reports filed by any
Credit Party or Subsidiary with any Governmental Authority or Person, if such
reports indicate any material change, (iv) copies of any material notices and
other material communications from any Governmental Authority or Person which
specifically relate to any Credit Party or Subsidiary or the industry in which
they operate, and (v) the occurrence of any development or event which is
reasonably likely to cause any Credit Party or Subsidiary not to be in
compliance with all federal, state and local laws relating to environmental
protection and control and occupational safety and health.
 
 
49

--------------------------------------------------------------------------------

 
 
(n) ERISA Notices and Requests.  Furnish Purchaser with immediate written notice
in the event that (i) any Credit Party or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together with
a written statement describing such Termination Event and the action, if any,
which such Credit Party or member of the Controlled Group has taken, is taking,
or proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Credit Party or any member of the Controlled Group
knows or has reason to know that a material non-exempt prohibited transaction
(as defined in Sections 406 of ERISA and 4975 of the Code) has occurred together
with a written statement describing such transaction and the action which such
Credit Party or member of the Controlled Group has taken, is taking or proposes
to take with respect thereto, (iii) a funding waiver request has been filed with
respect to any Plan together with all communications received by any Credit
Party or any member of the Controlled Group with respect to such request, (iv)
any increase in the benefits of any existing Plan or the establishment of any
new Plan or the commencement of contributions to any Plan to which any Credit
Party or any member of the Controlled Group was not previously contributing
shall occur, (v) any Credit Party or any member of the Controlled Group shall
receive from the PBGC a notice of intention to terminate a Plan or to have a
trustee appointed to administer a Plan, together with copies of each such
notice, (vi) any Credit Party or any member of the Controlled Group shall
receive an unfavorable determination letter from the Internal Revenue Service
regarding the qualification of a Plan under Section 401(a) of the Code, together
with copies of each such letter; (vii) any Credit Party or any member of the
Controlled Group shall receive a notice regarding the imposition of withdrawal
liability, together with copies of each such notice; (viii) any Credit Party or
any member of the Controlled Group shall fail to make a required installment or
any other required payment under Section 412 of the Code on or before the due
date for such installment or payment; (ix) any Credit Party or any member of the
Controlled Group knows that (a) a Multiemployer Plan has been terminated, (b)
the administrator or plan sponsor of a Multiemployer Plan intends to terminate a
Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings
under Section 4042 of ERISA to terminate a Multiemployer Plan.  Without limiting
any of the foregoing, each Credit Party shall provide the Purchaser with copies
of all of the final documentation related to any transactions whereby any Plan
that is a deferred benefit plan is converted into a Plan that is a defined
contribution plan at least ten (10) days prior to the effectiveness of such
documents and/or the consummation of such transactions.
 
(o) Environmental Reports.  Furnish Purchaser, concurrently with the delivery of
the financial statements referred to in Sections 8.01(a) and 8.01(b) with a
certificate signed by an Authorized Officer of each Credit Party stating that,
to the best of such Authorized Officer’s knowledge, each Credit Party and
Subsidiary is in compliance in all material respects with all Environmental
Laws.  To the extent any Credit Party or Subsidiary is not in compliance with
the foregoing laws, the certificate shall set forth with reasonable specificity
all areas of non-compliance and the proposed action such Credit Party or
Subsidiary will implement in order to achieve full compliance.
 
(p) Other Information.  With reasonable promptness, each Credit Party shall
deliver such other information and data with respect to such Credit Party or any
of its Subsidiaries as from time to time may be reasonably required by the
Purchaser, including, without limitation and without the necessity of any
request by the Purchaser, (a) copies of all environmental audits and reviews,
(b) at least thirty (30) days prior thereto, notice of any Credit Party’s or
such Subsidiary’s opening of any new office or place of business or any Credit
Party’s or such Subsidiary’s closing of any existing office or place of
business, and (c) promptly upon any Credit Party’s learning thereof, notice of
any labor dispute to which any Credit Party or such Subsidiary may become a
party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which any Credit Party
or such Subsidiary is a party or by which any Credit Party or such Subsidiary is
bound.  Promptly upon request therefor by the Purchaser, the Credit Parties
shall deliver such other business or financial data, reports, appraisals and
projections as the Purchaser may reasonably request.
 
 
50

--------------------------------------------------------------------------------

 
 
(q) Government Contract Audits.  Furnish Purchaser, promptly after any Credit
Party’s receipt thereof, with (i) notice of any final decision of a contracting
officer disallowing costs aggregating more than $250,000, which disallowed costs
arise out of any audit of Government Contacts of any Credit Party, and (ii)
copies of any material reports from auditors of Government Contracts.
 
(r) Government Contracts.  Furnish Purchaser, promptly after any Credit Party’s
receipt thereof, with (i) a copy of any default, termination or other material
notice with respect to any Government Contract, (ii) a copy of any notice of
debarment or suspension from contracting with any Governmental Authority or
(iii) a copy of any Government Contract entered into after the Closing Date.
 
(s) Additional Documents.  Execute and deliver to Purchaser, upon request, such
documents and agreements as Purchaser may, from time to time, reasonably request
to carry out the purposes, terms or conditions of this Agreement.
 
8.02. Preservation of Existence.  Each Credit Party shall, and shall cause each
of its Subsidiaries to:
 
(a) conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in each case in accordance with the terms of
this Agreement), including all licenses, patents, copyrights, design rights,
tradenames, trade secrets and trademarks, in each case that are material to its
business, and take all actions necessary to enforce and protect the validity of
any intellectual property right;
 
(b) keep in full force and effect its existence and comply in all material
respects with Applicable Laws governing the conduct of its business; and
 
(c) except as otherwise permitted herein, make all such reports and pay all such
franchise and other taxes and license fees and do all such other acts and things
as may be lawfully required to maintain its rights, licenses, leases, powers and
franchises under the laws of the United States or any political subdivision
thereof.
 
8.03. Payment of Obligations.  Each Credit Party shall, and shall cause each of
its Subsidiaries to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including:
 
(a) all Tax liabilities, assessments and governmental charges or levies upon it
or its properties or assets, unless same are being Properly Contested;
 
 
51

--------------------------------------------------------------------------------

 
 
(b) all lawful claims which any Credit Party or any of its Subsidiaries is
obligated to pay, which are due and which, if unpaid, might by law become a Lien
upon its property, unless the same are being Properly Contested; and
 
(c) pay, discharge or otherwise satisfy at or before maturity (subject, where
applicable, to specified grace periods and, in the case of the trade payables,
to normal payment practices) all its obligations and liabilities of whatever
nature, except when the failure to do so could not reasonably be expected to
have a Material Adverse Effect or when the amount or validity thereof is
currently being Properly Contested.
 
8.04. Compliance with Laws.  Each Credit Party shall comply, and shall cause
each of its Subsidiaries to comply, in all material respects with all
Requirements of Law and with the directions of each Governmental Authority
having jurisdiction over them or their respective business or property
(including all applicable Environmental Laws), including any requirements to
clean up, remove, or remediate Hazardous Materials at any location where
necessary to protect human health or the environment.
 
8.05. Violations.  Each Credit Party shall promptly notify Purchaser in writing
of any material violation of Applicable Law of any Governmental Authority,
applicable to such Credit Party or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
 
8.06. Board Observer.  Each Credit Party shall give Purchaser notice of (in the
same manner as notice is given to directors), and permit one person designated
by Purchaser to attend as an observer, all meetings of its Board of Directors
and all executive and other committee meetings of its Board of Directors (other
than the audit committee) and shall provide to Purchaser the same information
concerning the Credit Parties and their Subsidiaries, and access thereto,
provided to members of the Credit Parties’ respective Board of Directors and
such committees, as applicable.  The reasonable travel expenses incurred by any
such designee of Purchaser in attending any board or committee meetings shall be
reimbursed by the Credit Parties, to the extent consistent with the Credit
Parties’ then existing policy of reimbursing directors generally for such
expenses; provided, that the Credit Parties will not be required to permit such
observer to (x) attend any portion of any meeting of its Board of Directors or
any committee thereof, or (y) receive information provided to the members of its
Board of Directors or any committee thereof, in each case, to the extent
necessary to protect attorney-client privilege or in the event the Board of
Directors of the Credit Parties reasonably determines that a conflict of
interest may exist between Purchaser and the Credit Parties.
 
8.07. Inspection.  Each Credit Party will permit, and will cause each of its
Subsidiaries to permit, representatives of the Purchaser to visit and inspect
any of their respective properties, to examine their respective corporate,
financial and operating records and make copies thereof or abstracts therefrom,
and to discuss their respective affairs, finances and accounts with their
respective directors, officers and, subject to the presence or participation of
a representative of the Issuer in any such discussion, Accountants, all at such
reasonable times during normal business hours and as often as may be reasonably
requested, upon reasonable advance notice; provided, however, that no such
inspection, examination or inquiry, the failure to conduct same, nor any
knowledge of the Purchaser, including any knowledge obtained by the Purchaser in
connection with any such inspection, investigation or inquiry, shall constitute
a waiver of any rights the Purchaser may have under any representation,
warranty, covenant, term or agreement under any of the Transaction Documents.
 
 
52

--------------------------------------------------------------------------------

 
 
8.08. Payment of the Note.  The Issuer shall pay the principal of, interest on
and other amounts due in respect of, the Note on the dates and in the manner
provided in the Note and this Agreement.
 
8.09. Insurance.  Each Credit Party shall maintain or cause to be maintained,
and shall cause its Subsidiaries to maintain or cause to be maintained, in good
repair, working order and condition all material properties used in their
respective businesses and will make or cause to be made, and shall cause its
Subsidiaries to make or cause to be made, all appropriate repairs, renewals and
replacements thereof.  Each Credit Party and its Subsidiaries will maintain or
cause to be maintained with financially sound and reputable insurers that have a
rating of “A” or better as established by Best’s Rating Guide (or an equivalent
rating with such other publication of a similar nature as shall be in current
use), the Life Insurance Policy and public liability and property damage
insurance with respect to their respective businesses and properties against
loss or damage of the kinds customarily carried or maintained by a company of
established reputation engaged in similar businesses and in amounts acceptable
to Purchaser and will deliver evidence thereof to Purchaser.  Without limiting
the foregoing, each Credit Party and its Subsidiaries will establish on the
Closing Date and maintain at all times thereafter (a) business interruption
insurance in an amount satisfactory to the Purchaser, (b) products liability
insurance coverage for the Credit Parties in amounts satisfactory to the
Purchaser, and (c) subject to Section 8.17, the Life Insurance Policy.  All such
insurance policies shall provide that they may not be canceled unless the
insurance carrier gives at least 30 days prior written notice of such
cancellation to Purchaser.
 
8.10. Books and Records.  Each Credit Party shall keep, and shall cause each of
its Subsidiaries to keep, proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of such Credit Party and each of its Subsidiaries in accordance with
GAAP consistently applied to the Credit Parties and their Subsidiaries taken as
a whole.
 
8.11. Use of Proceeds.
 
(a) The Credit Parties shall use the proceeds of the sale of the Securities
hereunder only as follows:  (i) for the payment of fees and expenses in
connection with the transactions contemplated hereunder and in the other
Transaction Documents, (ii) for the repayment in full of the Prior Debt and
(iii) for general corporate purposes.
 
(b) No proceeds of the Note will be used to purchase or carry any Margin Stock
or to extend credit for the purpose of purchasing or carrying any Margin
Stock.  Neither the sale of any Securities or nor the use of the proceeds
thereof will violate or be inconsistent with the provisions of Regulation T, U,
or X of the Board of Governors of the Federal Reserve System.
 
 
53

--------------------------------------------------------------------------------

 
 
8.12. Standards of Financial Statements.  The Credit Parties shall cause all
financial statements referred to in Sections 8.01(a), (b), (c) and (h), as to
which GAAP is applicable, to fairly present the information presented (subject,
in the case of interim financial statements, to normal year-end audit
adjustments and the absence of footnotes) and to be prepared in reasonable
detail and in accordance with GAAP applied consistently throughout the periods
reflected therein (except as concurred in by such reporting accountants or
officer, as the case may be, and disclosed therein).
 
8.13. Reservation of Equity Interests.  The Issuer shall at all times reserve
and keep available out of its authorized Equity Interests, solely for the
purpose of issuance and delivery upon exercise of the Warrant and the Employee
Options, the number of Equity Interests issuable in accordance with the terms of
the Warrant and the Employee Options (the “Exercisable Interests”).  The
Exercisable Interests, when issued or delivered in accordance with the Warrant
or the Employee Options, as the case may be, shall be duly and validly issued
and fully paid and non-assessable.  The Issuer shall issue such Equity Interests
in accordance with the provisions of the Warrants or the Employee Options, as
the case may be, and shall otherwise comply, in each case, with the terms
thereof.
 
8.14. Additional Real Property.  If any Credit Party acquires at any time or
times hereafter any fee simple interest in real property, then within ninety
(90) days of the acquisition thereof such Credit Party shall execute and deliver
to Purchaser, as additional security and Collateral for the obligations, deeds
of trust, security deeds, mortgages or other collateral assignments reasonably
satisfactory in form and substance to Purchaser and its counsel (herein
collectively referred to as “New Mortgages”) covering such real property.  The
New Mortgages shall be duly recorded (at the Credit Parties’ expense) in each
office where such recording is required to constitute a valid lien on the real
property covered thereby.  In respect of any New Mortgage, Credit Parties shall
deliver to Purchaser, at Credit Parties’ expense, mortgagee title insurance
policies issued by a title insurance company reasonably satisfactory to
Purchaser, which policies shall be in form and substance reasonably satisfactory
to Purchaser and shall insure a valid lien in favor of Purchaser on the property
covered thereby, subject only to Permitted Liens and those other exceptions
reasonably acceptable to Purchaser and its counsel.  Credit Parties shall also
deliver to Purchaser such other usual and customary documents, including ALTA
surveys of the real property described in the New Mortgages, as Purchaser and
its counsel may reasonably request relating to the real property subject to the
New Mortgages.
 
8.15. Cash Management Systems. 
 
(a) Each Credit Party shall, concurrently with the opening of any new deposit,
securities, commodity or similar account after the Closing Date, as applicable,
enter into, and cause each depository, securities intermediary or commodities
intermediary to enter into, Control Agreements with respect to each deposit,
securities, commodity or similar account maintained by such Person after the
Closing Date.  Without limiting the foregoing, Issuer shall, within sixty (60)
days following the Closing Date (i) permanently close all of its and its
Subsidiaries existing deposit, securities, commodity and similar accounts
(including, without limitation, such accounts set forth in Schedule 3.10 to the
Security Agreement), (ii) open one or more new deposit account(s) at a financial
institution reasonably acceptable to Purchaser and (iii) enter into, and cause
such financial institution to enter into, Control Agreement(s) with respect to
such new deposit account(s).  Only after the occurrence and during the
continuation of an Event of Default, the Purchaser shall be entitled to deliver
a notice to any financial institution that is party to a Control Agreement of
its exercise of control over any deposit, securities, commodity or other account
subject to such Control Agreement.  Each Credit Party shall provide the
Purchaser with electronic access at all times to each of its and its
Subsidiaries’ depositary, securities intermediary or commodities intermediary
accounts so that the Purchaser may monitor the activity in such accounts.
 
 
54

--------------------------------------------------------------------------------

 
 
(b) Section 8.15(a) shall not apply to (i) any payroll account so long as such
payroll account is a zero balance account, or (ii) withholding Tax, employee
benefits and similar fiduciary accounts.
 
8.16. Landlord Waivers.  Each Credit Party shall use commercially reasonable
efforts to promptly obtain a collateral lease assignment, landlord agreement or
bailee or mortgagee waivers, as applicable, from the lessor of each leased
property, bailee in possession of any Collateral or, mortgagee of any owned
property with respect to each location where Collateral is stored or located,
which agreement shall be reasonably satisfactory in form and substance to the
Purchaser.  Without limiting the foregoing, Issuer shall, within twenty (20)
days following the Closing Date, obtain a duly notarized copy of the Landlord
Consent and Waiver executed and delivered by 210 Garibaldi Avenue Group at the
Closing.
 
8.17. Life Insurance Policy.
 
(a) Issuer shall, within sixty (60) days following the Closing Date, obtain the
O’Hara Life Insurance Policy, in accordance with the terms, conditions and
requirements of Section 8.09 hereof, and deliver to Purchaser evidence thereof.
 
(b) Issuer shall, within sixty (60) days following the Closing Date, obtain and
deliver to Purchaser evidence of the Fletcher Life Insurance Policy.
 
ARTICLE 9
NEGATIVE COVENANTS
 
Until the payment in full of all principal of and interest on the Note and all
other amounts due to the Purchaser under this Agreement and the other
Transaction Documents, including all fees, expenses and amounts due at such time
in respect of indemnity obligations under Article 7, each Credit Party covenants
and agrees with the Purchaser as set forth in this Article 9, provided, however,
that following payment in full of all such amounts, for so long as the Warrant
is outstanding, each Credit Party hereby covenants and agrees with the Purchaser
only as set forth in Section 9.09:
 
9.01. Fundamental Changes; Consolidations, Mergers and Acquisitions
 
(a) .  No Credit Party shall, and no Credit Party shall permit any of its
Subsidiaries to, directly or indirectly: (a) enter into any merger,
consolidation or other reorganization with or into any other Person or acquire
all or a substantial portion of the assets or Equity Interests of any Person or
permit any other Person to consolidate with or merge with it except for
Permitted Acquisitions, and (b) sell, lease, transfer or otherwise dispose of
any of its properties or other assets, except (i) dispositions of inventory in
the Ordinary Course of Business Permitted Dispositions and (ii) sales of assets
provided the following conditions are met: (x) the market value of the assets
with respect to all such sales does not exceed $250,000 in the aggregate; (b)
the Net Proceeds received is at least equal to the fair market value of such
assets;  and (c) no Default or Event of Default then exists or shall result from
any such sale.
 
 
55

--------------------------------------------------------------------------------

 
 
9.02. Creation of Liens.  No Credit Party shall, and no Credit Party shall
permit any of its Subsidiaries to, directly or indirectly, create or suffer to
exist any Lien or transfer upon or against any of its property or assets now
owned or hereafter acquired, except Permitted Liens.
 
9.03. Guarantees.  No Credit Party shall, and no Credit Party shall permit any
of its Subsidiaries to, directly or indirectly become liable upon the
obligations or liabilities of any Person by assumption, endorsement or guaranty
thereof or otherwise (other than to Purchaser) except (a) guarantees made in the
Ordinary Course of Business up to an aggregate amount of $50,000, and (b) the
endorsement of checks in the Ordinary Course of Business.
 
9.04. Investments.  No Credit Party shall, and no Credit Party shall permit any
of its Subsidiaries to, directly or indirectly make any Investments, except:
 
(a) investments in Cash and Cash Equivalents;
 
(b) investments existing on the Closing Date as set forth on Schedule 9.04
hereto;
 
(c) investments in wholly-owned Subsidiaries of such Credit Party created or
acquired after the Closing Date, to the extent permitted hereunder;
 
(d) loans permitted by Section 9.05;
 
(e) investments by the Credit Parties and their respective Subsidiaries in
Capital Expenditures permitted to be made pursuant to Section 9.15(c).
 
9.05. Loans.  No Credit Party shall, and no Credit Party shall permit any of its
Subsidiaries to, directly or indirectly make or have outstanding advances, loans
or extensions of credit to any Person, including any Subsidiary or Affiliate,
except for (a) the extension of commercial trade credit in connection with the
sale of inventory in the Ordinary Course of Business and (b) loans to its
employees or subcontractors in the Ordinary Course of Business not to exceed, in
the aggregate, $100,000 at any time outstanding.
 
9.06. Restricted Payments.  No Credit Party shall, and no Credit Party shall
permit any of its Subsidiaries to, directly or indirectly declare, pay or make
any Restricted Payments, except (i) as set forth on Schedule 9.06 and (ii) that
at any time following the end of the second Loan Year, Issuer (x) may purchase
shares of Common Stock for cash (“Permitted Share Repurchase”) and (y) so long
as no Default or Event of Default has occurred and is then continuing, may
prepay all or any portion of the Subordinated Debt in cash (“Permitted Debt
Prepayment”); provided, however, that no such Permitted Payment shall be made
unless (A) Issuer shall prepay the principal amount of the Note in accordance
with the terms of Section 10.02 hereof in an amount equal to the amount of such
Permitted Payment, (B) Cash on Hand shall exceed $1,000,000, determined on a pro
forma Consolidated Basis after giving effect to such Permitted Payment and such
prepayment of the principal amount of the Note, (C) Net Operating Cash Flow,
determined for the most recent month for which financial statements have been
delivered on a pro forma Consolidated Basis after giving effect to such
Permitted Payment and such prepayment of the principal amount of the Note shall
be greater than zero, and (D) the Credit Parties shall (x) be in compliance with
the covenants set forth in Section 9.15 on a pro forma Consolidated Basis after
giving effect to such Permitted Payment and prepayment of the principal amount
of the Note, recomputed for the most recent month for which financial statements
have been delivered, and (y) believe in good faith that they shall thereafter
continue to be in compliance with Section 9.15.
 
 
56

--------------------------------------------------------------------------------

 
 
9.07. Indebtedness.  No Credit Party shall, and no Credit Party shall permit any
of its Subsidiaries to, directly or indirectly create, incur, assume or suffer
to exist any Indebtedness except:
 
(a) trade debt incurred in the Ordinary Course of Business,
 
(b) the Indebtedness created under this Agreement;
 
(c) Indebtedness for Capital Expenditures permitted under Section 9.15(d),
including Purchase Money Indebtedness and indebtedness incurred under Capital
Lease Obligations, in each case incurred in connection with such Capital
Expenditures, in an aggregate amount not to exceed $250,000 at any one time
outstanding for all Credit Parties and their respective Subsidiaries;
 
(d) Indebtedness disclosed on Schedule 9.07;
 
(e) Indebtedness under any Interest Rate Hedge or any Other Hedging Agreement
reasonably acceptable to Purchaser; and
 
(f) guaranty obligations permitted pursuant to Section 9.03 hereof.
 
9.08. Nature of Business.  No Credit Party shall, and no Credit Party shall
permit any of its Subsidiaries to, substantially change the nature of the
business in which it is presently engaged, or except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the Ordinary Course of Business and where such assets or property
are useful in, necessary for and are to be used in its business as presently
conducted.
 
9.09. Transactions with Affiliates; ITI and Tel Holdings.
 
(a)           No Credit Party shall, and no Credit Party shall permit any of its
Subsidiaries to, directly or indirectly, purchase, acquire or lease any property
from, or sell, transfer or lease any property to, or otherwise enter into any
transaction or deal with, any Affiliate, except (i) for transactions in the
Ordinary Course of Business, entered into on an arm’s-length basis on fair and
reasonable terms no less favorable than terms which would have been obtainable
from a Person other than an Affiliate; (ii) for the payment of customary and
reasonable directors’ fees to directors who are not employees of the Credit
Parties or any Affiliate of the Credit Parties as well as the payment of their
reasonable out-of-pocket expenses incurred in performing their directorial or
committee duties and the payment of indemnities owing to them as directors; and
(iii) as set forth on Schedule 9.09.
 
 
57

--------------------------------------------------------------------------------

 
 
(b)           Notwithstanding any provision in this Agreement or any other
Transaction Document to the contrary, no Credit Party shall, and no Credit Party
shall permit or cause any of its Subsidiaries, Affiliates, officers, directors
or employees to, directly or indirectly, purchase, acquire or lease any property
from, or sell, transfer or lease any property to, or otherwise enter into any
transaction or deal or conduct any business with, ITI or Tel Holdings except as
may be reasonably necessary to effect the dissolution and liquidation of ITI or
Tel Holdings, provided that no Credit Party nor any of its Subsidiaries,
Affiliates, officers, directors or employees makes any Investment or otherwise
expends any funds in connection therewith (other than ordinary and reasonable
out-of-pocket expenses that may be incurred in connection with the dissolution
of ITI and Tel Holdings).  Neither ITI nor Tel Holdings shall engage in any
business or otherwise conduct any activities.
 
9.10. Leases.  No Credit Party shall, and no Credit Party shall permit any of
its Subsidiaries to,  directly or indirectly enter as lessee into any lease
arrangement for real or personal property (unless capitalized and permitted
under Section 9.07(c) hereof) if after giving effect thereto, aggregate annual
rental payments for all leased property, whether real or personal, would exceed
$300,000 in any one fiscal year in the aggregate for all Credit Parties and
their respective Subsidiaries.
 
9.11. Subsidiaries; Partnerships; Joint Ventures.  No Credit Party shall, and no
Credit Party shall permit any of its Subsidiaries to, form any Subsidiary (other
than a Subsidiary, the formation of which shall have been consented to in
advance in writing by the Purchaser), or enter into any partnership, joint
venture or similar arrangement.
 
9.12. Fiscal Year and Accounting Changes.  No Credit Party shall, and no Credit
Party shall permit any of its Subsidiaries to, directly or indirectly maintain a
fiscal year other than a year ending on March 31, or make any change (i) in
accounting treatment and reporting practices except as required by GAAP or (ii)
in Tax reporting treatment except as required or permitted by Applicable Law.
 
9.13. Amendment of Organizational Documents.  No Credit Party shall, and no
Credit Party shall permit any of its Subsidiaries to, amend, modify or waive any
material term or material provision of its Organizational Documents unless
required by Applicable Law.
 
9.14. Limitation on Modifications of Indebtedness; Modifications of Certain
Other Agreements; Etc.  No Credit Party shall, and no Credit Party shall permit
any of its Subsidiaries to, (i) amend or modify, or permit the amendment or
modification of, any provision of the Indebtedness described in Section 9.07
hereto or of any agreement (including any purchase agreement, indenture, loan
agreement or security agreement) relating thereto other than any amendments or
modifications to such Indebtedness which do not in any way adversely affect the
interests of the Purchaser and are otherwise permitted under Section 9.07, (ii)
make (or give any notice in respect thereof) any voluntary or optional payment
or prepayment on or redemption or acquisition for value of, or any prepayment or
redemption as a result of any asset sale, change of control or similar event of,
any Indebtedness which is contractually subordinated to the Note, or (iii) amend
or modify, or permit the amendment or modification of any Equity Document,
except for amendments or modifications which are not in any way adverse in any
material respect to the interests of the Purchaser.
 
 
58

--------------------------------------------------------------------------------

 
 
9.15. Financial Covenants.
 
(a) Total Leverage Ratio.  The Credit Parties shall maintain, and shall cause
their respective Subsidiaries to maintain, a Total Leverage Ratio, as of and for
(i) the four consecutive fiscal quarters ending September 30, 2011, of not
greater than 1.50:1.00, (ii) the four consecutive fiscal quarters ending
December 31, 2011, of not greater than 1.25:1.00, and (iii) each period of four
consecutive fiscal quarters ending after December 31, 2011, of not greater than
1.00:1.00.
 
(b) Debt Service Coverage Ratio.  The Credit Parties shall maintain, and shall
cause their respective Subsidiaries to maintain, a Debt Service Coverage Ratio,
as of and for (i) the fiscal quarter ending December 31, 2010, of not less than
1.10:1.00, (ii) the two consecutive fiscal quarters ending March 31, 2011, of
not less than 1.40:1.00, (iii) the three consecutive fiscal quarters ending June
30, 2011, of not less than 1.65:1.00, (iv) the four consecutive fiscal quarters
ending September 30, 2011, of not less than 2.00:1.00, and (v) each period of
four consecutive fiscal quarters ending after September 30, 2011, of not less
than 2.50:1.00.
 
(c) Fixed Charge Coverage.  The Credit Parties shall maintain, and shall cause
each of their respective Subsidiaries to maintain, a Fixed Charge Coverage
Ratio, as of and for (i) the fiscal quarter ending December 31, 2010, of not
less than 1.00:1.00, (ii) the two consecutive fiscal quarters ending March 31,
2011, of not less than 1.25:1.00, (iii) the three consecutive fiscal quarters
ending June 30, 2011, of not less than 1.50:1.00, (iv) the four consecutive
fiscal quarters ending September 30, 2011, of not less than 1.75:1.00, and (v)
each period of four consecutive fiscal quarters ending after September 30, 2011,
of not less than 2.25:1.00.
 
(d) Capital Expenditures.  The Credit Parties shall not, and shall cause their
respective Subsidiaries not to, contract for, purchase or make any expenditure
or commitments for Capital Expenditures in any fiscal year in an aggregate
amount in excess of $250,000 unless the Credit Parties are in compliance on a
pro forma basis, after giving effect to such Capital Expenditures, with the
other covenants set forth in this Section 9.15, recomputed for the most recent
month for which financial statements have been delivered.
 
(e) Minimum EBITDA.  The Credit Parties shall not permit EBITDA, measured as of
the last day of (i) the fiscal quarter ending December 31, 2010, to be less than
$200,000 for such fiscal quarter, (ii) the two consecutive fiscal quarters
ending March 31, 2011, to be less than $500,000 for such two consecutive fiscal
quarters, (iii) the three consecutive fiscal quarters ending June 30, 2011, to
be less than $900,000 for such three consecutive fiscal quarters, and (iv) each
period of four consecutive fiscal quarters ending after June 30, 2011, to be
less than $1,250,000 for each such period.
 
Compliance with the covenants in this Section 9.15 shall be determined on a
Consolidated Basis in accordance with GAAP consistently applied, unless
explicitly stated otherwise.
 
 
59

--------------------------------------------------------------------------------

 
 
9.16. Compliance with ERISA.  No Credit Party shall, nor shall any Credit Party
permit any of its Subsidiaries, to (x) maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.22, (ii) engage, or permit
any member of the Controlled Group to engage, in any non-exempt “prohibited
transaction”, as that term is defined in section 406 of ERISA and Section 4975
of the Code; (iii) incur, or permit any member of the Controlled Group to incur,
any “accumulated funding deficiency”, as that term is defined in Section 302 of
ERISA or Section 412 of the Code, (iv) terminate, or permit any member of the
Controlled Group to terminate, any Plan where such event could result in any
liability of any Credit Party or any member of the Controlled Group or the
imposition of a lien on the property of any Credit Party or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.22, (vi) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Purchaser of the occurrence of
any Termination Event, (viii) fail to comply, or permit a member of the
Controlled Group to fail to comply, with the requirements of ERISA or the Code
or other Applicable Laws in respect of any Plan , (ix) fail to meet, or permit
any member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA or the Code or postpone or delay or allow any member of
the Controlled Group to postpone or delay any funding requirement with respect
of any Plan.
 
9.17. Prepayment of Indebtedness.  No Credit Party shall, nor shall any Credit
Party permit any of its Subsidiaries to, at any time, directly or indirectly,
prepay any Indebtedness (other than to Purchaser), or repurchase, redeem, retire
or otherwise acquire any Indebtedness (other than to Purchaser), except as
expressly permitted by and in accordance with Section 9.06.
 
9.18. Anti-Terrorism Laws.  No Credit Party shall, nor shall any Credit Party
permit any Affiliate or agent to: (a) conduct any business or engage in any
transaction or dealing with any Blocked Person, including the making or
receiving any contribution of funds, goods or services to or for the benefit of
any Blocked Person, (b) deal in, or otherwise engage in any transaction relating
to, any property or interests in property blocked pursuant to the Executive
Order No. 13224 and (c) engage in or conspire to engage in any transaction that
evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in the Executive Order No. 13224, the
USA Patriot Act or any other Anti-Terrorism Law.  Each Credit Party shall
deliver to Purchaser any certification or other evidence reasonably requested
from time to time by Purchaser, in its sole discretion, confirming such Credit
Party’s compliance with this Section.
 
9.19. Trading with the Enemy Act.  No Credit Party shall nor shall any Credit
Party permit any of its Subsidiaries to engage in any business or activity in
violation of the Trading with the Enemy Act.
 
 
60

--------------------------------------------------------------------------------

 
 
9.20. Additional Negative Pledges.  No Credit Party shall, nor shall any Credit
Party permit any of its Subsidiaries, to create or otherwise cause or suffer to
exist or become effective, directly or indirectly, (i) any prohibition or
restriction (including any agreement to provide equal and ratable security to
any other Person) on the creation or existence of any Lien upon the assets of
any Credit Party or any of its Subsidiaries, other than Permitted Liens or (ii)
any contractual obligation which may restrict or inhibit Purchaser’s rights or
ability to sell or otherwise dispose of the Collateral or any part thereof after
the occurrence of an Event of Default.
 
ARTICLE 10
PREPAYMENT
 
10.01. Optional Prepayment.  The Issuer may prepay the outstanding principal
amount (together with accrued Interest) on the Note as follows:
 
(a)  The Issuer may, at its option, at any time upon notice given to Purchaser
as provided in Section 10.01(b), prepay, by wire transfer of immediately
available funds, all or any portion of the principal amount of the Note,
together with Interest accrued and unpaid on the principal amount of the Note so
prepaid through the date fixed for such prepayment, provided that (i) any such
prepayment shall be applied in the inverse order of the maturity of the
principal amount of the Note, (ii) Issuer shall pay to Purchaser an additional
amount equal to (A) 3% of the outstanding principal amount being prepaid if such
prepayment is made during the first Loan Year, and (B) 2% of the outstanding
principal amount then being prepaid if such prepayment is being made during the
second Loan Year, and (iii) Issuer shall pay Purchaser all (A) Interest,
including default interest, if any, (B) reasonable out-of-pocket costs and
expenses (including reasonable fees, charges and disbursements of counsel), if
any, associated with such prepayment, and (C) all other costs, expenses and
indemnities then payable under this Agreement; provided, however, that each
payment of less than the full outstanding balance of the principal amount of the
Note shall be in an aggregate amount of not less than $25,000 or integral
multiples of $25,000 in excess thereof.  Any optional prepayment under this
Section 10.01 shall be applied first to all costs, expenses and indemnities
payable under this Agreement, then to payment of default interest, if any, then
to accrued but unpaid Interest, if any, and thereafter to the premium and
principal amount.
 
(a) The Issuer shall give written notice of prepayment of the Note pursuant to
this Section 10.01 not less than 5 nor more than 30 Business Days prior to the
date fixed for such prepayment.  Such notice of prepayment pursuant to this
Section 10.01 shall be given in the manner specified in Section 12.02 of this
Agreement and shall specify the principal amount of the Note to be
prepaid.  Upon notice of prepayment pursuant to this Section 10.01 being given
by the Issuer, the Issuer covenants and agrees that it will prepay, on the date
therein fixed for prepayment, the principal amount so called for prepayment,
together will all other amounts required under Section 10.01(a), all in the
manner provided under Section 10.01(a).
 
10.02. Scheduled Payments; Mandatory Prepayments.
 
(a) The principal amount of the Note together with accrued and unpaid Interest
shall be paid by wire transfer of immediately available funds in installments on
the dates and in the respective amounts shown on Schedule 10.02, or, if any such
date shall not be a Business Day, on the immediately preceding Business Day
occurring prior to such date.
 
 
61

--------------------------------------------------------------------------------

 
 
(b) Change of Control; O’Hara Life Insurance Realization Event.  Upon the
occurrence of a Change of Control or within five (5) Business Days of an O’Hara
Life Insurance Realization Event, the Issuer shall, in each case at the election
of the Purchaser, prepay by wire transfer of immediately available funds the
entire outstanding principal amount of the Note in accordance with the
redemption prices (the “Mandatory Redemption Prices”) set forth below (expressed
as a percentage of the outstanding principal amount being prepaid), together
with (x) Interest, including default interest, if any, accrued and unpaid on the
outstanding principal amount of the Note so prepaid through the date of such
prepayment, (y) all reasonable out-of-pocket costs and expenses (including
reasonable fees, charges and disbursements of counsel), if any, associated with
such prepayment, and (z) all other costs, expenses and indemnities then payable
under this Agreement (such amounts, collectively the “Mandatory Redemption
Payment”).  If a Change of Control or O’Hara Life Insurance Realization Event
shall occur during any Loan Year set forth below, the Mandatory Redemption Price
shall be determined based upon the percentage indicated below for such Loan Year
multiplied by the principal amount which is being prepaid.  At the election of
the Purchaser, all or any portion of the Mandatory Redemption Payment may be
paid in the form of Marketable Securities in lieu of cash, subject to Section
6.04 hereof and to the extent available and to the extent not restricted by any
SBIC Regulations.  In the event Purchaser makes the election contemplated by the
immediately preceding sentence, the Issuer shall issue to Purchaser that number
of shares having an aggregate Current Market Price as of such issuance date
equal to that portion of the Mandatory Redemption Payment subject to such
election.
 
Loan Year
Mandatory Redemption Price
1
103%
2
102%
Thereafter
100%

(c) Fletcher Life Insurance Realization Event. Within five (5) Business Days of
a Fletcher Life Insurance Realization Event, the Issuer shall, at the election
of the Purchaser, apply 100% of the proceeds received by each Credit Party in
respect of the Fletcher Life Insurance Realization Event to prepay the Note and
any other obligations then owing hereunder.  Any such prepayment shall be
applied in the same order as set forth in Section 11.03 below.
 
(d) Recovery Event.  Within five (5) Business Days of any Credit Party’s receipt
of proceeds in excess of $325,000 from any Recovery Event, unless a Reinvestment
Notice shall have been timely delivered to Purchaser in respect thereof, the
Issuer shall, at the election of the Purchaser, apply 100% of the proceeds
received by the Credit Parties in respect of such Recovery Event to prepay the
Note and any other obligations then owing hereunder; provided that,
notwithstanding the foregoing, (x) the aggregate proceeds in respect of Recovery
Events that may be excluded from the foregoing prepayment requirements pursuant
to a Reinvestment Notice shall not exceed $500,000 in any fiscal year of the
Issuer, and (y) on each Reinvestment Prepayment Date, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event
shall be applied towards the prepayment of the Note.  Any prepayment under this
Section 10.02(d) shall be applied in the same order as set forth in Section
11.03 below.
 
 
62

--------------------------------------------------------------------------------

 
 
(e) Notice.  The Issuer shall give written notice to the Purchaser of any
mandatory prepayment pursuant to Section 10.02(b) by reason of a Change of
Control at least ten (10) Business Days prior to the date of such
prepayment.  Such notice shall be given in the manner specified in Section 12.02
of this Agreement.
 
ARTICLE 11
EVENTS OF DEFAULT; REMEDIES
 
11.01. Events of Default.  An “Event of Default” shall occur if:
 
(a) any Credit Party shall default in the payment of the principal amount of the
Note or any installment thereof, when and as the same shall become due and
payable, whether at maturity or at a date fixed for payment or prepayment or by
acceleration or otherwise, and such default shall continue for a period of two
(2) days after the due date for the payment thereof; or
 
(b) any Credit Party shall default in the payment of any installment of Interest
or any other amount due under this Agreement or the Note (other than as set
forth in clause (a) of this Section 11.01) according to its terms, when and as
the same shall become due and payable and such default shall continue for a
period of two (2) days after the due date for the payment thereof; or
 
(c) any Credit Party or any of its Subsidiaries shall default in the due
observance or performance of any covenant to be observed or performed pursuant
to Sections 8.01, 8.02, 8.03, 8.08 (subject to clause (b) of this Section
11.01), or Article 9 of this Agreement; or
 
(d) any Credit Party or any of its Subsidiaries shall default in the due
observance or performance of any other covenant, condition or agreement on the
part of such Credit Party or such Subsidiary to be observed or performed
pursuant to the terms hereof or any of the Transaction Documents (other than
those referred to in clauses (a), (b) or (c) of this Section 11.01), and such
default shall continue for fifteen (15) days after the earliest of (A) if any
Credit Party has knowledge of such default, the date such Credit Party is
required pursuant to the Transaction Documents or otherwise to give notice
thereof to the Purchaser (whether or not such notice is actually given) or (B)
the date of written notice thereof, specifying such default, shall have been
given to the Credit Parties by the Purchaser; or
 
(e) any representation, warranty or certification made by or on behalf of any
Credit Party or any of its Subsidiaries in this Agreement, the Note, the
Transaction Documents or in any certificate or other document delivered pursuant
hereto or thereto shall have been incorrect in any material respect (without
duplication of any materiality qualification therein) when made; or
 
 
63

--------------------------------------------------------------------------------

 
 
(f) (x) any event or condition shall occur that results in (A) the acceleration
of the maturity of any Indebtedness of any Credit Party or of any of their
Subsidiaries, or (B) a default of any Indebtedness of any Credit Party or any of
its Subsidiaries that continues beyond any applicable period of cure, in either
case in an amount in excess of $100,000 for any Credit Party or its Subsidiaries
or $200,000 for all Credit Parties and their respective Subsidiaries; or
 
(g) any uninsured damage to or loss, theft or destruction of any assets of any
Credit Party or any of its Subsidiaries shall occur that is in excess of
$325,000 in the aggregate for all Credit Parties and Subsidiaries; or
 
(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (A) relief in
respect of any Credit Party or any of its Subsidiaries, or of a substantial part
of any of their respective property or assets, under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (B) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for any Credit Party or any of its Subsidiaries, or for a substantial part of
any of their respective property or assets, or (C) the winding up or liquidation
of any Credit Party or any of its Subsidiaries; and such proceeding or petition
shall continue undismissed for sixty (60) days, or an order or decree approving
or ordering any of the foregoing shall be entered; or
 
(i) any Credit Party or any of its Subsidiaries shall (A) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar Applicable Law, (B)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in paragraph (h)
of this Section 11.01, (C) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official, for
a substantial part of its property or assets, (D) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (E)
make a general assignment for the benefit of creditors, (F) become unable, admit
in writing its inability or fail generally to pay its debts as they become due,
or (G) take any action for the purpose of effecting any of the foregoing; or
 
(j) one or more judgments for the payment of money in an aggregate amount in
excess of $200,000 shall be rendered against one or more of the Credit Parties
or their respective Subsidiaries (in either case, except to the extent covered
by insurance as to which the insurance company has acknowledged coverage) and
the same shall remain undischarged for a period of thirty (30) days during which
execution shall not be effectively stayed, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of any Credit Party or
any of its Subsidiaries to enforce any such judgment; or
 
(k) any Credit Party or any of its Subsidiaries shall commence legal action
challenging the validity and binding effect of any provision of any of the
Transaction Documents or any of the Transaction Documents shall for any reason
(except to the extent permitted by its express terms) cease to be effective or,
if in the case of the Transaction Documents intended to provide a Lien in favor
of the Purchaser, fail to create a valid and perfected first priority Lien
(except for Permitted Liens that by operation of law would take priority) on, or
security interest in, any of the Collateral purported to be covered; or
 
 
64

--------------------------------------------------------------------------------

 
 
(l) unless otherwise waived or consented to by the Purchaser in writing, the
subordination provisions relating to the Subordinated Debt or any other
Indebtedness subordinated to the Indebtedness pursuant to the Note and the
Agreement in excess of $100,000 in the aggregate for all subordinated debt
(collectively, the “Subordination Provisions”) shall fail to be enforceable by
the Purchaser in accordance with the terms thereof, or the monetary obligations
pursuant to the Note and this Agreement shall fail to constitute “Senior Debt”
(or similar term) referring to such obligations; or any Credit Party shall,
directly or indirectly, disavow or contest in any manner (i) the effectiveness,
validity or enforceability of any of the Subordination Provisions, (ii) that the
Subordination Provisions exist for the benefit of the Purchaser or (iii) that
all payments of principal of or premium and interest on the such subordinated
Indebtedness, or realized from the liquidation of any property of any Credit
Party or Subsidiary, shall be subject to any of such Subordination Provisions;
or
 
(m)  Harold K. Fletcher or Jeffrey C. O’Hara (or any replacement appointed in
accordance with this Section 11.01(m)) shall cease to have the title and perform
the functions of Chairman and Chief Executive Officer, and President and Chief
Operating Officer, respectively, of Issuer at any time and Issuer shall fail to
appoint a replacement for such office and functions reasonably acceptable to
Purchaser, within ninety (90) days after such vacancy; or
 
(n) (i) with respect to any Government Contract, receipt of a written
termination for default issued by the applicable Governmental Authority and such
default is not waived or cured within the applicable grace period; or (ii) any
Credit Party or any Subsidiary shall have (A) received a written notice of
debarment or suspension from contracting with any Governmental Authority or (B)
been debarred or suspended from contracting with any Governmental Authority; or
(iii)  receipt of a written termination for default of a Government Contract
issued by the applicable Governmental Authority based on a finding of fraud,
criminal activity, deception or willful misconduct; or
 
(o) (i) any Credit Party shall be debarred or suspended from any contracting
with a Governmental Authority; (ii) any notice of debarment or notice of
suspension shall have been issued to any Credit Party; or (iii) any notice of
termination for default or the actual termination for default of any Material
Contract shall have been issued to or received by any Credit Party; or
 
(p) a Litigation set forth on Schedule 5.05 shall be resolved adversely to any
Credit Party and such adverse resolution could reasonably be expected to have a
Material Adverse Effect.
 
11.02. Acceleration and Remedies.  If an Event of Default occurs under Section
11.01(h) or (i), then the outstanding principal of and all accrued Interest on
the Note shall automatically become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived.  If any other Event of Default occurs and is continuing,
Purchaser may, by written notice to the Credit Parties, declare the principal of
and accrued Interest on the Note to be immediately due and payable.  Upon any
such declaration, such principal and Interest shall become immediately due and
payable.  The Purchaser may rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived, except nonpayment of
principal or Interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree.  Any
notice or rescission shall be given in the manner specified in Section 12.02
hereof.  Upon the occurrence of an Event of Default, Purchaser shall have the
right to exercise any and all rights and remedies provided for herein, under the
Security Documents, under the Uniform Commercial Code and at law or equity
generally, including the right to foreclose the security interests granted under
the Security Documents and to realize upon any collateral by any available
judicial procedure and/or to take possession of and sell any or all of the
collateral with or without judicial process.
 
 
65

--------------------------------------------------------------------------------

 
 
11.03. Application of Proceeds.  Notwithstanding any other provisions of this
Agreement to the contrary, after the occurrence and during the continuance of an
Event of Default, all amounts collected or received by the Purchaser on account
of the Note or any other amounts outstanding under any of the Transaction
Documents or in respect of the Collateral may, at Purchaser’s discretion be paid
over or delivered as follows:
 
(a) FIRST, to the payment of all reasonable out-of-pocket costs and expenses
(including reasonable attorneys’ fees) of the Purchaser in connection with
enforcing its rights and the rights of the Purchaser under this Agreement and
the other Transaction Documents;
 
(b) SECOND, to the payment of any fees owed to the Purchaser;
 
(c) THIRD, to the payment of all accrued fees and Interest which has not been
included in the principal amount, in respect of the Note, this Agreement or the
other Transaction Documents;
 
(d) FOURTH, to the payment of the principal amount of the Note;
 
(e) FIFTH, to all other obligations which shall have become due and payable
under the Transaction Documents or otherwise and not repaid pursuant to clauses
“FIRST” through “FOURTH” above; and
 
(f) SIXTH, the balance, if any, to whoever may be lawfully entitled to receive
such surplus.
 
In carrying out the foregoing, amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category.
 
ARTICLE 12
MISCELLANEOUS
 
12.01. Survival of Representations and Warranties.  All of the representations
and warranties made herein shall survive the execution and delivery of this
Agreement and any investigation by or on behalf of the Purchaser, acceptance of
the Securities and payment therefor.
 
 
66

--------------------------------------------------------------------------------

 
 
12.02. Notices.  All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first class mail, return receipt requested, facsimile (with receipt
confirmed), electronic transmission (i.e., e-mail), courier service or personal
delivery:
 
if to the Purchaser:
 
BCA Mezzanine Fund, L.P.
One Turks Head Place, Suite 1492
Providence, RI 02903
Facsimile:                      (401) 228-3835
Attention:                      Franz Pool

with a copy to:
 
Morrison Cohen LLP
909 Third Avenue
New York, NY 10022
Facsimile:                      (212) 735-8708
Attention:                      David A. Scherl, Esq.
        Andrew M. Arsiotis, Esq.

if to any Credit Party:
 
Tel-Instrument Electronics Corp.
728 Garden Street
Carlstadt, New Jersey 07072
Facsimile:                      (201) 933-7340
Attention:                      Joseph P. Macaluso

with a copy to:
 
Lebow & Sokolow LLP
770 Lexington Avenue, 6th Floor
New York, New York 10065
Facsimile:                      (212) 935-4865
Attention:                      Donald Stuart Bab, Esq.

All such notices and communications shall be deemed to be effective: (i) in the
case of hand-delivery, when delivered; (ii) in the case of a facsimile
transmission, when sent to the applicable party’s facsimile machine’s telephone
number, if the party sending such notice or communication receives confirmation
of the delivery thereof from its own facsimile machine; (iii) in the case of
electronic transmission, when actually received; (iv) in the case of mail, five
(5) Business Days after being deposited in the mail, postage prepaid; or (v) if
given by any other means (including by overnight courier), when actually
received.
 
 
67

--------------------------------------------------------------------------------

 
 
12.03. Successors and Assigns. 
 
(a) This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto.  Subject to applicable
securities laws, and subject to the prior written consent of the Issuer (such
consent not to be unreasonably withheld, conditioned or delayed), the Purchaser
may assign any of its rights under any of the Transaction Documents, in whole or
in part, to any Person, and any such purported assignment without such consent
shall be void and of no effect; provided, however, that no such consent will be
required (i) with respect to any transfer or assignment to any partner, member
or Affiliate of the Purchaser, or (ii) upon or following the occurrence of any
Default or Event of Default.  No Credit Party may assign any of their respective
rights, or delegate any of its obligations, under this Agreement or any of the
other Transaction Documents without the prior written consent of the Purchaser,
and any such purported assignment by any Credit Party without the written
consent of the Purchaser shall be void and of no effect.  Except as provided in
Article 7, no Person other than the parties hereto and to the other Transaction
Documents and their successors and permitted assigns is intended to be a
beneficiary of any of such Transaction Documents.
 
(b) Notwithstanding any other provision of this Agreement or any other
Transaction Document to the contrary, the Purchaser may at any time create a
security interest in all or any portion of its rights under this Agreement, the
Note or any other Transaction Document, and the Collateral.
 
12.04. Amendment and Waiver. 
 
(a) No failure or delay on the part of any of the parties hereto in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy.  The remedies provided for in this Agreement are cumulative and are
not exclusive of any remedies that may be available to the parties hereto at
law, in equity or otherwise.
 
(b) Any Modification of this Agreement, the Note or the Security Documents,
shall be effective as to the parties hereto (i) only if it is made or given in
writing and signed by each Credit Party and the Purchaser, and (ii) only in the
specific instance and for the specific purpose for which made or given.  No
amendment, supplement or modification of or to any provision of this Agreement
or any of the other Transaction Documents, or any waiver of any such provision
or consent to any departure by any party from the terms of any such provision
may be made orally.  Except where notice is specifically required by this
Agreement, no notice to or demand on any party hereto in any case shall entitle
such party to any other or further notice or demand in similar or other
circumstances.
 
(c) Any Modification of the Warrant shall be effective as to Issuer and
Purchaser (i) only if it is made or given in writing and signed by Issuer and
Purchaser and the, and (ii) only in the specific instance and for the specific
purpose for which made or given.
 
 
68

--------------------------------------------------------------------------------

 
 
12.05. Confidentiality.
 
(a) Purchaser agrees to maintain the confidentiality of the Information (as
defined below) in accordance with its customary procedures for handling
confidential information, except that Information may be disclosed by Purchaser:
(i) to its Affiliates and to its and its Affiliates’ respective partners, equity
holders, directors, officers, employees, agents, advisors and other
representatives (it being understood that the Persons to whom such disclosure is
made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential in the same manner as provided
herein); (ii) to the extent requested by any regulatory authority or
self-regulatory authority purporting to have jurisdiction over it (including,
without limitation, pursuant to the Small Business Investment Act of 1958, as
amended, any other SBIC Regulations, or the Securities and Exchange Act of 1934,
as amended, and rules and regulations promulgated thereunder); (iii) to the
extent required by Applicable Law or by any subpoena or similar legal process
(provided that (A) if Information is to be disclosed pursuant to this clause
(iii), Purchaser will, to the extent practicable, promptly notify Issuer thereof
and cooperate with Issuer, to the extent legally permissible, if Issuer should
seek to obtain an order or other reliable assurance that confidential treatment
will be accorded to designated portions of the Information, and (B) Purchaser
shall be entitled to reimbursement from Issuer for all expenses incurred by it
or any of its Affiliates, including the fees and expenses of counsel, in
connection with any action taken pursuant to the proviso to this clause (iii));
(iv) to any other party hereto; (v) in connection with the exercise of any
remedies hereunder or under any other Transaction Document or any action or
proceeding relating to this Agreement or any other Transaction Document or the
enforcement of rights hereunder or thereunder; (vi) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee or transferee of, or any prospective assignee or transferee of, any of
its rights or obligations under this Agreement; (vii) with the consent of the
applicable Credit Party; or (viii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this Section or (B) is
disclosed to any Purchaser or any of their respective Affiliates by a third
party not apparently acting at the direction of any Credit Party; provided such
Person does not have knowledge, after reasonable inquiry, that such third party
is prohibited from disclosing such information or has wrongfully obtained it.
 
(b) For purposes of this Section, “Information” means all information received
from the Credit Parties or any of their respective Subsidiaries relating to such
Person or any of their respective Subsidiaries or any of their respective
businesses, other than any such information that is available to any Purchaser
on a nonconfidential basis prior to disclosure by such Person.
 
12.06. Signatures; Counterparts.  Facsimile or electronic transmissions of any
executed original document and/or retransmission of any executed facsimile or
electronic transmission shall be deemed to be the same as the delivery of an
executed original.  At the request of any party hereto, the other parties hereto
shall confirm facsimile or electronic transmissions by executing duplicate
original documents and delivering the same to the requesting party or
parties.  This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
 
12.07. Headings.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
 
 
69

--------------------------------------------------------------------------------

 
 
12.08. GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED IN
ACCORDANCE WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH
STATE.
 
12.09. JURISDICTION; JURY TRIAL WAIVER.
 
(a) EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SECURITIES OR ANY
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE LOCATED IN THE COUNTY OF NEW YORK,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY
EXPRESSLY SUBMITS TO THE PERSONAL JURISDICTION AND VENUE OF SUCH COURTS FOR THE
PURPOSES THEREOF AND EXPRESSLY WAIVES ANY CLAIM OF IMPROPER VENUE AND ANY CLAIM
THAT SUCH COURTS ARE AN INCONVENIENT FORUM.  EACH PARTY HERETO HEREBY
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 12.02, SUCH SERVICE TO
BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF ANY PARTY HERETO OR THE HOLDER OF THE NOTE TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW, OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANY OTHER PARTY HERETO IN ANY OTHER JURISDICTION IN THE EVENT
THAT A STATE OR FEDERAL COURT LOCATED IN THE COUNTY OF NEW YORK DECLINES
JURISDICTION.
 
(b) EACH PARTY HERETO AND EACH OF ITS SUBSIDIARIES, HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE SECURITIES OR ANY OF THE OTHER TRANSACTION
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE
OF SUCH RIGHTS AND OBLIGATIONS.  EACH PARTY HERETO AND EACH OF ITS SUBSIDIARIES
(I) CERTIFIES THAT NEITHER THE OTHER PARTY HERETO NOR ITS REPRESENTATIVES OR
ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II)
ACKNOWLEDGES THAT EACH PARTY HERETO HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, AND THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS PARTY BY, AMONG
OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
 
12.10. Severability.  If any one or more of the provisions contained in this
Agreement, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions of this Agreement.  The parties hereto
further agree to replace such invalid, illegal or unenforceable provisions of
this Agreement with valid, legal and enforceable provisions that will achieve,
to the extent possible, the economic, business and other purposes of such
invalid, illegal or unenforceable provisions.
 
 
70

--------------------------------------------------------------------------------

 
 
12.11. Entire Agreement.  This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein.  There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein.  This Agreement, together with the exhibits
and schedules hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
 
12.12. Certain Expenses.  The Credit Parties will pay all reasonable expenses of
the Purchaser (including fees, charges and disbursements of counsel) in
connection with (i) any amendment, supplement, modification or waiver of or to
any provision of this Agreement or any of the other Transaction Documents or any
documents relating thereto (including a response to a request by any Credit
Party for the Purchaser’s consent to any action otherwise prohibited hereunder
or thereunder), or consent to any departure from, the terms of any provision of
this Agreement or such other documents, (ii) all efforts made to enforce payment
of the Note, (iii) instituting, maintaining, preserving, enforcing and
foreclosing on Purchaser’s security interest in or Lien on any of the
Collateral, or maintaining, preserving or enforcing any of Purchaser’s or the
Purchaser’s rights hereunder and under all related agreements, documents and
instruments, whether through judicial proceedings or otherwise, (iv) defending
or prosecuting any actions or proceedings arising out of or relating to the
Purchaser’s transactions with any Credit Party (provided, however, that any
expenses paid under this clause (iv) shall be refunded to the Credit Parties to
the extent that it is finally judicially determined that the subject matter in
question under such action or proceeding resulted primarily from (A) the willful
misconduct or gross negligence of Purchaser or (B) the breach by Purchaser of
any representation, warranty, covenant or other agreement contained in this
Agreement or any other Transaction Document), or (v) any advice given to the
Purchaser with respect to its rights and obligations under this Agreement and
all related agreements, documents and instruments.  Such payment will be made by
the Credit Parties against receipt of reasonably detailed invoices therefor.
 
12.13. Publicity.  Except as may be required by Applicable Law, none of the
parties hereto shall issue a publicity release or announcement or otherwise make
any public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto.  If any announcement
is required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment
thereon.  Notwithstanding the foregoing, the Purchaser or any Affiliate of the
Purchaser may (i) disclose a general description of transactions arising under
the Transaction Documents for advertising, marketing or other similar purposes,
and (ii) use any Credit Party’s name, logo or other indicia germane to such
party in connection with such advertising, marketing or other similar purposes,
and, in each case, may post such information on its website but, in each case,
only after the Credit Parties have publicly disclosed the matter as may be
required under Applicable Law.
 
 
71

--------------------------------------------------------------------------------

 
 
12.14. Further Assurances.  Each of the parties shall execute such documents and
perform such further acts (including obtaining any consents, exemptions,
authorizations, or other actions by, or giving any notices to, or making any
filings with, any Governmental Authority or any other Person) as may be
reasonably required or desirable to carry out or to perform the provisions of
this Agreement, including, subject to Section 12.03(a) hereof, any post-closing
assignment(s) by the Purchaser of a portion of the Securities to a Person not
currently a party hereto.
 
12.15. No Strict Construction.  The parties hereto have participated jointly in
the negotiation and drafting of this Agreement and the other Transaction
Documents.  In the event an ambiguity or question of intent or interpretation
arises under any provision of this Agreement or any Transaction Document, this
Agreement or such other Transaction Document shall be construed as if drafted
jointly by the parties thereto, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement or any other Transaction Document.  No
knowledge of, or investigation, including due diligence investigation, conducted
by, or on behalf of, the Purchaser shall limit, modify or affect the
representations set forth in Article 5 of this Agreement or the right of the
Purchaser to rely thereon.
 
12.16. Joint and Several Liability.  All amounts funded by the Purchaser
hereunder shall be deemed to be jointly funded to, or at the direction of, and
received by, or at the direction of, the Credit Parties.  Each Credit Party
jointly and severally agrees to pay, and shall be jointly and severally liable
under this Agreement for, all obligations to the Purchaser regardless of the
manner or amount in which proceeds are used, allocated, shared, or disbursed by
or among the Credit Parties themselves.  Each Credit Party shall be liable for
all amounts due to the Purchaser under this Agreement and the Note, regardless
of which Credit Party actually receives such funds.
 
12.17. Transfer of the Note. 
 
(a) The term “Purchaser” as used herein shall include any transferee of the Note
whose name has been recorded by the Issuer in the Note Register.  Each
transferee of the Note acknowledges that the Note has not been registered under
the Securities Act, and may be transferred only pursuant to an effective
registration under the Securities Act or pursuant to an applicable exemption
from the registration requirements of the Securities Act, and otherwise in
accordance with Section 12.03(a) hereof.
 
(b) The Issuer shall maintain a register (the “Note Register”) in its principal
offices for the purpose of registering the Note has and any transfer or partial
transfer thereof, which register shall reflect and identify, at all times, the
ownership of record of any interest in the Note has or any interest
therein.  Upon the issuance of the Note, the Issuer shall record the name and
address of the initial purchaser of the Note in the Note Register as the first
Purchaser.  Upon surrender for registration of transfer or exchange of the Note
at the principal offices of the Issuer, the Issuer shall, at its expense,
execute and deliver one or more new Notes of like tenor and of denominations of
at least $500,000 (except as may be necessary to reflect any principal amount
not evenly divisible by $500,000) of a like aggregate principal amount,
registered in the name of the Purchaser or a transferee or transferees.  Every
Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by written instrument of transfer duly executed by
the Purchaser of such Note or the Purchaser’s attorney duly authorized in
writing.
 
 
72

--------------------------------------------------------------------------------

 
 
(c) On receipt by the Issuer of an affidavit of an authorized representative of
the Purchaser stating the circumstances of the loss, theft, destruction or
mutilation of the Note (and in the case of any such mutilation, on surrender and
cancellation of such Note), the Issuer, at its expense, will promptly execute
and deliver, in lieu thereof, a new Note of like tenor.  If required by the
Issuer, the Purchaser must provide indemnity sufficient in the reasonable
judgment of the Issuer to protect the Issuer from any loss which they may suffer
if a lost, stolen or destroyed Note is replaced.
 
ARTICLE 13
TAXES, YIELD PROTECTION AND ILLEGALITY
 
13.01. Taxes.
 
(a) Any and all payments by or on account of any obligation of each Credit Party
hereunder or under any other Transaction Document shall be made free and clear
of and without reduction or withholding for any Indemnified Taxes or Other
Taxes, provided that if any Credit Party shall be required by Applicable Law to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions for Indemnified Taxes or Other Taxes (including deductions applicable
to additional sums payable under this Section) Purchaser receives an amount
equal to the sum it would have received had no such deductions for Indemnified
Taxes or Other Taxes been made, (ii) such Credit Party shall make such
deductions and (iii) such Credit Party shall timely pay the full amount deducted
to the relevant Governmental Authority in accordance with Applicable Law.
 
(b) Without limiting the provisions of paragraph (a) above, each Credit Party
shall timely pay any (i) Other Taxes to the relevant Governmental Authority in
accordance with Applicable Law and (ii) costs relating to the preparation and
filing of any Tax Returns relating thereto.
 
(c) Each Credit Party shall jointly and severally indemnify the Purchaser,
within thirty (30) days after written demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
paid by the Purchaser and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified Taxes
or Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority.  A certificate as to the amount of such payment or
liability delivered to such Credit Party, signed by an authorized person on
behalf of Purchaser, shall be presumptive evidence of the matters set forth
therein, absent manifest error.
 
 
73

--------------------------------------------------------------------------------

 
 
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes
by a Credit Party to a Governmental Authority, such Credit Party shall deliver
to Purchaser the original or a certified copy of a receipt issued by such
Governmental Authority evidencing such payment, a copy of the return reporting
such payment or other evidence of such payment reasonably satisfactory to the
Purchaser.
 
(e) A Foreign Purchaser that is entitled to an exemption from or reduction of
withholding Tax under the law of the United States, or any treaty to which such
jurisdiction is a party, with respect to payments by a Credit Party under this
Agreement or under any other Transaction Document shall deliver to such Credit
Party, at the time or times reasonably requested by Issuer two original Internal
Revenue Service Form W-8 (e.g., W-8 BEN, W-8 ECI), as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, and related
documentation certifying that such Foreign Purchaser is exempt from or entitled
to a reduced rate of United States federal withholding tax on payments pursuant
to this Agreement or any other Transaction Document.  In addition, the
Purchaser, if requested by Issuer or the Purchaser, shall deliver such other
documentation prescribed by Applicable Law or reasonably requested by Issuer or
the Purchaser as will enable Issuer to determine whether or not the Purchaser is
subject to backup withholding or information reporting requirements; provided,
that the Issuer or the Purchaser, as applicable, agrees to maintain the
confidentiality of any non-public information provided by the Purchaser in
accordance with its customary procedures for handling confidential information
and to not disclose such information except as required by Applicable Law, and
provided, further, that should the Purchaser become subject to Indemnified Taxes
because of its failure to deliver a form required hereunder, the Credit Parties
shall take such steps as the Purchaser shall reasonably request to reasonably
assist (consistent with its preexisting internal policies applied on a
nondiscriminatory basis and legal and regulatory restrictions) the Purchaser to
recover such Indemnified Taxes.
 
(f) The agreements in this Section shall survive the termination of this
Agreement and payment of the Note and all other amounts payable hereunder, under
the Note or under any other Transaction Document.
 
(g) No Purchaser shall be obligated to contest a Tax indemnified by a Credit
Party under the Transaction Documents that is asserted in the name of the
Purchaser nor will the Credit Parties be permitted to contest such a Tax, unless
(i) in the judgment of the Purchaser, there is a reasonable basis for such
contest and the contest and its resolution does not materially disadvantage the
Purchaser, and (ii) the Credit Parties bear the expense of such contest.
 
(h) In the event that a Purchaser is entitled, on the effective date of any
assignment and acceptance under this Agreement, to the benefits of a payment
pursuant to subsection (a), (b) or (c) of this Section 13.01, the assignee of
the Purchaser shall be entitled, without duplication, to the benefits of such
payments (in addition to any future benefits of payment that may arise with
respect to such assignee) that would have been available to the Purchaser had
the Purchaser not entered into such assignment and acceptance with such
assignee.
 
13.02. Certificates of Purchaser.  To the extent Purchaser claims reimbursement
or compensation pursuant to this Article 13, Purchaser shall deliver to Issuer a
certificate, signed by an authorized person on behalf of Purchaser, setting
forth in reasonable detail the amount payable to the Purchaser hereunder and
such certificate shall be presumptive evidence of the matters set forth therein,
absent manifest error.
 
 
74

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their respective officers hereunto duly authorized as of the
date first above written.
 
TEL-INSTRUMENT ELECTRONICS CORP.

By:________________________________
Name:
Title:

BCA MEZZANINE FUND, L.P.
 
By:  BCA Mezzanine Partners, LLC,
           its General Partner
 
 
By:________________________________
Name: 
Title:
 

 

 
 
75

--------------------------------------------------------------------------------

 

Schedule 10.02
 
See attached.
 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT A
 
FORM OF NOTE
 
 
 

--------------------------------------------------------------------------------

 

 
EXHIBIT B
 
FORM OF WARRANT

 
 

--------------------------------------------------------------------------------

 

EXHIBIT C
 
COMPLIANCE CERTIFICATE
 
___________________
 
Date:   _________, 20__
 
This certificate is given by [___________], a [_________ ____________] and
[insert name of other Credit Parties if any] (the “Credit Parties”), pursuant to
Section 8.01(d) of that certain Securities Purchase Agreement dated as of
[_________ ___], 20[__] by and among the Credit Parties and BCA Mezzanine Fund,
LP as such agreement may have been amended, restated, supplemented or otherwise
modified from time to time (the “Agreement”).  Capitalized terms used herein
without definition shall have the meanings set forth in the Agreement.
 
The undersigned is executing this certificate is the Chief Financial Officer of
each Credit Party and as such is duly authorized to execute and deliver this
certificate on behalf of such Credit Party.  By executing this certificate the
undersigned hereby certifies that:
 
(a)           the financial statements delivered with this certificate in
accordance with Section 8.01[a][b][c] of the Agreement fairly present in all
material respects the results of operations and financial condition of the
Credit Parties on a Consolidated Basis as of the dates of such financial
statements;
 
(b)           he has reviewed the terms of the Agreement and the Note and has
made, or caused to be made under his supervision, a review in reasonable detail
of the transactions and conditions of the Credit Parties and their respective
Subsidiaries during the accounting period covered by such financial statements;
 
(c)           such review has not disclosed the existence during or at the end
of such accounting period, and he has no knowledge of the existence as of the
date hereof, of any condition or event that constitutes an Event of Default,
except as set forth in Exhibit A hereto which includes a description of the
nature and period of existence of such Event of Default and what action the
Credit Parties have taken, are undertaking and propose to take with respect
thereto;
 
(d)           the Credit Parties and their Subsidiaries are in compliance with
the covenants contained in Articles 8 and 9 of the Agreement, as demonstrated on
the attached worksheets, except as set forth or described in Exhibit A; and
 
(e)           (i)           Total Leverage Ratio is   _____:1.00.
 
(ii)           Debt Service Coverage Ratio is _____:1.00.
 
(iii)           Fixed Charge Coverage is   _____:1.00.
 
(iv)           Capital Expenditures are $__________.
 
(v)           Minimum EBITDA is $__________.
 
 
 

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, each Credit Party has caused this Certificate to be executed
by its Chief Financial Officer this [__] day of [___________], 201[__].
 

[__________________________________]

By:_________________________________
Chief Financial Officer

[__________________________________]

By:_________________________________
Chief Financial Officer

 
 

--------------------------------------------------------------------------------

 
 
 
EXHIBIT D
 
FORM OF SECURITY AGREEMENT
 
 
 
 

--------------------------------------------------------------------------------

 

 
EXHIBIT E
 
FORM OF INVESTOR RIGHTS AGREEMENT
 

 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT F
 
FORM OF SOLVENCY CERTIFICATE

 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT G
 
PROJECTIONS
 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT H
 
FORM OF SBA SIDE LETTER
 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT I
 
 
FORM OF SUBORDINATION AGREEMENT
 
 
 
 

--------------------------------------------------------------------------------

 
 
AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT
 
This AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT (this “Amendment”) is made
November 30, 2010 by and among TEL-INSTRUMENT ELECTRONICS CORP., a New Jersey
corporation (the “Issuer”), and BCA MEZZANINE FUND, L.P., a Delaware limited
partnership (the “Purchaser”), to the Securities Purchase Agreement, dated as of
September 10, 2010, by and between the Issuer and the Purchaser (the “Original
Agreement”).  The Original Agreement, as amended by this Amendment, is
hereinafter referred to as the “Purchase Agreement.”
 
WHEREAS, the Issuer has requested that the Purchaser agree to amend the Original
Agreement with regard to certain covenants set forth in Section 8.15 of the
Original Agreement as set forth herein.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and for other good and valuable consideration, the value,
receipt and sufficiency of which are acknowledged, the parties hereby agree as
follows:

ARTICLE I.
DEFINITIONS
 
All capitalized terms used in this Amendment but not defined shall have the
meanings given to them in the Original Agreement.  In the event of a conflict
between the definitions contained in this Amendment and those contained in the
Original Agreement, the definitions contained herein shall prevail.
 
ARTICLE II.
AMENDMENT TO ORIGINAL AGREEMENT
 
In reliance upon the representations and warranties of the Issuer set forth in
Article III below and subject to the satisfaction of the conditions to
effectiveness set forth in Article IV below:
 
2.1 Section 8.15(a) – Cash Management Systems.  Section 8.15(a) of the Original
Agreement is hereby amended and restated in its entirety as follows:
 
“(a)    Each Credit Party shall, upon request by the Purchaser, enter into, and
cause each financial institution, depository intermediary, securities
intermediary or commodities intermediary to enter into, Control Agreements with
respect to each deposit, securities, commodity or similar account maintained by
such Person from time to time.  The Issuer shall not establish any new deposit,
securities, commodity or similar account with any financial institution,
depository intermediary, securities intermediary or commodities intermediary
unless prior thereto the Issuer and the Purchaser shall have entered into a
Control Agreement with such Person, or unless the Purchaser shall have waived
such requirement.  Only after the occurrence and during the continuation of an
Event of Default, the Purchaser shall be entitled to deliver a notice to any
financial institution that is party to a Control Agreement of its exercise of
control over any deposit, securities, commodity or other account subject to such
Control Agreement.  Each Credit Party shall provide the Purchaser with
electronic access at all times to each of its and its Subsidiaries’ depositary,
securities intermediary or commodities intermediary accounts so that the
Purchaser may monitor the activity in such accounts.”
 
 
 

--------------------------------------------------------------------------------

 
 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
The Issuer hereby represents and warrants to the Purchaser that:
 
(a)           The execution, delivery and performance of this Amendment have
been duly authorized by all requisite corporate action on the part of Issuer;
 
(b)           No Default or Event of Default has occurred and is continuing; and
 
(c)           The representations and warranties of the Issuer set forth in the
Original Agreement, as amended hereby, and in the other Transaction Documents
are true and correct in all material respects as of the date hereof, both prior
to and after giving effect to this Amendment, with the same effect as though
made on the date hereof except to the extent such representations and warranties
expressly refer to an earlier date, in which case they are true and correct in
all material respects as of such earlier date (provided that any representation
and warranty that is qualified by “materiality,” “Material Adverse Effect” or
similar language shall be true and correct in all respects).
 
ARTICLE IV.
CONDITIONS TO EFFECTIVENESS
 
The effectiveness of this Amendment is subject to the prior or concurrent
consummation of each of the following conditions:
 
(a)           The Purchaser shall have received (i) a fully-executed copy of
this Amendment executed by the Issuer and the Purchaser, and (ii) such other
documents, agreements and instruments as the Purchaser may require or reasonably
request;
 
(b)           All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be reasonably satisfactory to the Purchaser and
its legal counsel;
 
(c)           No Default or Event of Default shall have occurred and be
continuing or shall be caused by the transactions contemplated by this
Amendment;
 
(d)           The representations, warranties and certifications of the Issuer
set forth in this Amendment shall be true and correct in all respects; and
 
(e)           Payment in full of the amounts specified in Section 5.10 hereof.
 
 
2

--------------------------------------------------------------------------------

 
 
ARTICLE V.
MISCELLANEOUS
 
5.1 Continued Effectiveness.  Notwithstanding anything contained herein, the
terms of this Amendment are not intended to and do not serve to effect a
novation as to the Original Agreement.  The parties hereto expressly do not
intend to extinguish the Original Agreement. Instead, it is the express
intention of the parties hereto to reaffirm the indebtedness created under the
Original Agreement (including, without limitation, the Note) and the other
documents contemplated thereby and to reaffirm the rights and obligations
contained therein. The Original Agreement as amended hereby and each of the
other documents contemplated thereby shall remain in full force and effect.
Except as herein amended, the Original Agreement shall remain unchanged and in
full force and effect, and is hereby ratified in all respects.  All of the
representations, warranties and covenants contained in the Original Agreement
and this Amendment shall survive the execution and delivery of this Amendment.
 
5.2 Notices.  All notices, demands and other communications provided for or
permitted hereunder shall be made in the manner set forth in Section 12.02 of
the Purchase Agreement.
 
5.3 References.  Each reference in the Purchase Agreement to “this Agreement,”
“hereunder,” “hereof,” “herein” or words of like import, and each reference in
the Purchase Agreement or in any other Transaction Document, or other
agreements, documents or other instruments executed and delivered pursuant to
the Purchase Agreement, shall mean and be a reference to the Purchase Agreement
as amended by this Amendment.
 
5.4 Successors and Assigns.  This Amendment shall inure to the benefit of and be
binding upon the successors and permitted assigns of the parties hereto.
 
5.5 Signatures; Counterparts.  Facsimile or other electronic transmissions of
any executed original document and/or retransmission of any executed facsimile
or other electronic transmission shall be deemed to be the same as the delivery
of an executed original.  At the request of any party hereto, the other parties
hereto shall confirm facsimile or other electronic transmissions by executing
duplicate original documents and delivering the same to the requesting party or
parties.  This Amendment may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
 
5.6 Headings.  The headings in this Amendment are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
 
5.7 GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE
WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.
 
 
3

--------------------------------------------------------------------------------

 
 
5.8 Severability.  If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
 
5.9 Entire Agreement.  The Original Agreement, as amended by this Amendment, and
the other Transaction Documents, together with the exhibits and schedules
thereto, are intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.  There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein.
 
5.10 Certain Expenses.  In accordance with Section 12.12 of the Purchase
Agreement, the Issuer shall pay all reasonable expenses of the Purchaser
(including fees, charges and disbursements of counsel) in connection with this
Amendment.
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
 
 
 
 
 
 
4

--------------------------------------------------------------------------------

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

 
 
TEL-INSTRUMENT ELECTRONICS CORP.
 
 
By:________________________________
Name:
Title:
 
 
BCA MEZZANINE FUND, L.P.
 
By:  BCA Mezzanine Partners, LLC, its General Partner
 
By:________________________________
Name:
Title:
 

 
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO SECURITIES PURCHASE AGREEMENT]
 
 
 

--------------------------------------------------------------------------------

 
 
AMENDMENT NO. 2 TO SECURITIES PURCHASE AGREEMENT
 
This AMENDMENT NO. 2 TO SECURITIES PURCHASE AGREEMENT (this “Amendment”) is made
February 10, 2011 by and among TEL-INSTRUMENT ELECTRONICS CORP., a New Jersey
corporation (the “Issuer”), and BCA MEZZANINE FUND, L.P., a Delaware limited
partnership (the “Purchaser”), to the Securities Purchase Agreement, dated as of
September 10, 2010, by and between the Issuer and the Purchaser, as amended by
Amendment No. 1 thereto dated as of November 30, 2010 (the “Original
Agreement”).  The Original Agreement, as amended by this Amendment, is
hereinafter referred to as the “Purchase Agreement.”
 
WHEREAS, the Issuer has requested that the Purchaser agree to amend the Original
Agreement to permit, subject to certain terms and conditions, the Issuer’s
receipt of progress payments under certain Government Contracts.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and for other good and valuable consideration, the value,
receipt and sufficiency of which are acknowledged, the parties hereby agree as
follows:

ARTICLE I.
DEFINITIONS
 
All capitalized terms used in this Amendment but not defined shall have the
meanings given to them in the Original Agreement.  In the event of a conflict
between the definitions contained in this Amendment and those contained in the
Original Agreement, the definitions contained herein shall prevail.
 
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
 
In reliance upon the representations and warranties of the Issuer set forth in
Article III below and subject to the satisfaction of the conditions to
effectiveness set forth in Article IV below:

2.1 Section 1.01 – Definitions.  Section 1.01 of the Original Amendment is
hereby amended by adding the following definitions in the appropriate
alphabetical order:
 
 
 

--------------------------------------------------------------------------------

 
 
“‘ITATS Contract’ shall mean Contract No. N68335-06-D-0020 awarded July 19, 2006
by the United States Navy to Issuer.”
 
“‘Net Progress Payments’ shall mean, with respect to each Government Contract
pursuant to which Progress Payments have been made, the aggregate amount of such
Progress Payments less the aggregate price of the goods relating to such
Progress Payments delivered by any Credit Party or any of its Subsidiaries in
accordance with the terms of such Government Contract.”
 
“‘Progress Payment Liquidation’ shall mean, with respect to any Progress
Payment, the delivery by any Credit Party or any of its Subsidiaries of any
goods relating to such Progress Payment.”
 
“‘Progress Payments’ shall mean progress payments or other advances made by the
applicable Governmental Authority to any Credit Party pursuant to the Government
Contracts set forth on Schedule 2.1 attached to Amendment No. 2, dated as of
February [__], 2011, to this Agreement.”
 
2.2 Section 8.01 – Financial Statements and Other Information.
 
2.2.1 Section 8.01 of the Original Agreement is hereby amended by adding the
following paragraph at the end thereof:

“(t)           Progress Payments.  Furnish Purchaser (i) at least five (5)
Business Days prior to requesting any Progress Payment from the applicable
Governmental Authority, (A) a draft notice of the request, notice or other
communication to be submitted to the applicable Governmental Authority in
respect of such Progress Payment, (B) the methodology used by the Credit Parties
in calculating the amount of such Progress Payment (as provided to the
applicable Governmental Authority), including a description of the goods to be
delivered pursuant to the applicable Government Contract, the price of such
goods and the anticipated revenues to be generated by the sale of such goods
under such Government Contract, and the “cost” or basis for calculating the
amount of the Progress Payment per the applicable percentage permitted under the
Government Contract for such Progress Payments, and (C) a complete accounting in
reasonable detail of all then outstanding Progress Payments, (ii) promptly
following any Progress Payment Liquidation, an accounting in reasonable detail
of such Progress Payment Liquidation and of all then outstanding Progress
Payments, (iii) within forty five (45) days after the end of each month, an
accounting in reasonable detail of all Progress Payments made or billed in such
month, along with a schedule detailing the Progress Payment Liquidation
occurring during such month and (iv) promptly following any Credit Party’s
receipt thereof, copies of all delivery orders and other material notices or
communications received by any Credit Party from any Person (including the
applicable Governmental Authority) relating to any Progress Payments and/or the
goods to be delivered in connection therewith.”
 
 
2

--------------------------------------------------------------------------------

 

2.3 Section 9.02 – Creation of Liens.  Section 9.02 of the Original Agreement is
hereby amended and restated in its entirety as follows:
 
“No Credit Party shall, and no Credit Party shall permit any of its Subsidiaries
to, directly or indirectly, create or suffer to exist any Lien or transfer upon
or against any of its property or assets now owned or hereafter acquired, except
Permitted Liens and Liens in favor of the applicable Governmental Authority in
respect of the goods relating to the Progress Payments expressly permitted by
Section 9.07(g) hereof.”

2.4 Section 9.07 – Indebtedness.  Section 9.07 of the Original Agreement is
hereby amended by deleting the word “and” at the end of paragraph (e) thereof,
inserting “; and” at the end of paragraph (f) thereof in lieu of “.”, and adding
the following paragraph at the end thereof:
 
“(g)    Progress Payments provided that (A) prior to requesting any Progress
Payment from the applicable Governmental Authority, the Credit Parties shall
have provided the Purchaser with the information required in Section 8.01(t),
(B) such Progress Payment complies with all Contractual Obligations of the
Credit Parties and their respective Subsidiaries and Applicable Law, (C) the
Credit Parties and their respective Subsidiaries shall be in compliance with the
financial covenants set forth in Section 9.15, calculated for the most recent
ended fiscal quarter immediately preceding such Progress Payment and reflecting
such payment on a pro forma basis, (D) the aggregate Net Progress Payments at
any one time outstanding with respect to (1) all Government Contracts (other
than the ITATS Contract) for all Credit Parties and their respective
Subsidiaries shall not exceed $1,000,000 and (2) the ITATS Contract for all
Credit Parties and their respective Subsidiaries shall not exceed $[1,400,225],
and (E) the Company shall cease to request or accept any Progress Payments upon
the written request of the Purchaser and shall repay all, or any portion of all,
outstanding Progress Payments within sixty (60) days following Purchaser’s
written request.”

2.5 Section 9.20 – Additional Negative Pledges.  Section 9.20 of the Original
Agreement is hereby amended and restated in its entirety as follows:
 
“No Credit Party shall, nor shall any Credit Party permit any of its
Subsidiaries, to create or otherwise cause or suffer to exist or become
effective, directly or indirectly, (i) any prohibition or restriction (including
any agreement to provide equal and ratable security to any other Person) on the
creation or existence of any Lien upon the assets of any Credit Party or any of
its Subsidiaries, other than Permitted Liens and Liens in favor of the
applicable Governmental Authority in respect of the goods relating to the
Progress Payments expressly permitted by Section 9.07(g) hereof, or (ii) any
contractual obligation which may restrict or inhibit Purchaser’s rights or
ability to sell or otherwise dispose of the Collateral or any part thereof after
the occurrence of an Event of Default.”
 
 
3

--------------------------------------------------------------------------------

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

The Issuer hereby represents and warrants to the Purchaser that:
 
(a)           The execution, delivery and performance of this Amendment have
been duly authorized by all requisite corporate action on the part of Issuer;
 
(b)           No Default or Event of Default has occurred and is continuing; and
 
(c)           The representations and warranties of the Issuer set forth in the
Original Agreement, as amended hereby, and in the other Transaction Documents
are true and correct in all material respects as of the date hereof, both prior
to and after giving effect to this Amendment, with the same effect as though
made on the date hereof except to the extent such representations and warranties
expressly refer to an earlier date, in which case they are true and correct in
all material respects as of such earlier date (provided that any representation
and warranty that is qualified by “materiality,” “Material Adverse Effect” or
similar language shall be true and correct in all respects).
 
ARTICLE IV.
CONDITIONS TO EFFECTIVENESS
 
The effectiveness of this Amendment is subject to the prior or concurrent
consummation of each of the following conditions:
 
(a)           The Purchaser shall have received (i) a fully-executed copy of
this Amendment executed by the Issuer and the Purchaser, (ii) fully-executed
copies of the Government Contracts set forth on Schedule 2.1 attached to this
Amendment, and (iii) such other documents, agreements and instruments as the
Purchaser may require or reasonably request;
 
(b)           All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be reasonably satisfactory to the Purchaser and
its legal counsel;
 
(c)           No Default or Event of Default shall have occurred and be
continuing or shall be caused by the transactions contemplated by this
Amendment;
 
(d)           The representations, warranties and certifications of the Issuer
set forth in this Amendment shall be true and correct in all respects; and
 
(e)           Payment in full of the amounts specified in Section 5.10 hereof.
 
 
4

--------------------------------------------------------------------------------

 
 
ARTICLE V.
MISCELLANEOUS
 
5.1 Continued Effectiveness.  Notwithstanding anything contained herein, the
terms of this Amendment are not intended to and do not serve to effect a
novation as to the Original Agreement.  The parties hereto expressly do not
intend to extinguish the Original Agreement. Instead, it is the express
intention of the parties hereto to reaffirm the indebtedness created under the
Original Agreement (including, without limitation, the Note) and the other
documents contemplated thereby and to reaffirm the rights and obligations
contained therein.  The Original Agreement as amended hereby and each of the
other documents contemplated thereby shall remain in full force and effect.
Except as herein amended, the Original Agreement shall remain unchanged and in
full force and effect, and is hereby ratified in all respects.  All of the
representations, warranties and covenants contained in the Original Agreement
and this Amendment shall survive the execution and delivery of this Amendment.
 
5.2 Notices.  All notices, demands and other communications provided for or
permitted hereunder shall be made in the manner set forth in Section 12.02 of
the Purchase Agreement.
 
5.3 References.  Each reference in the Purchase Agreement to “this Agreement,”
“hereunder,” “hereof,” “herein” or words of like import, and each reference in
the Purchase Agreement or in any other Transaction Document, or other
agreements, documents or other instruments executed and delivered pursuant to
the Purchase Agreement, shall mean and be a reference to the Purchase Agreement
as amended by this Amendment.
 
5.4 Successors and Assigns.  This Amendment shall inure to the benefit of and be
binding upon the successors and permitted assigns of the parties hereto.
 
5.5 Signatures; Counterparts.  Facsimile or other electronic transmissions of
any executed original document and/or retransmission of any executed facsimile
or other electronic transmission shall be deemed to be the same as the delivery
of an executed original.  At the request of any party hereto, the other parties
hereto shall confirm facsimile or other electronic transmissions by executing
duplicate original documents and delivering the same to the requesting party or
parties.  This Amendment may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
 
5.6 Headings.  The headings in this Amendment are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
 
5.7 GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE
WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.
 
 
5

--------------------------------------------------------------------------------

 
 
5.8 Severability.  If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
 
5.9 Entire Agreement.  The Original Agreement, as amended by this Amendment, and
the other Transaction Documents, together with the exhibits and schedules
thereto, are intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.  There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein.
 
5.10 Certain Expenses.  In accordance with Section 12.12 of the Purchase
Agreement, the Issuer shall pay all reasonable expenses of the Purchaser
(including fees, charges and disbursements of counsel) in connection with this
Amendment.
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
 
 
 
 
 
 
 
6

--------------------------------------------------------------------------------

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

 
 
TEL-INSTRUMENT ELECTRONICS CORP.
 
 
By:________________________________
Name:
Title:
 
 
BCA MEZZANINE FUND, L.P.
 
By:  BCA Mezzanine Partners, LLC, its General Partner
 
By:________________________________
Name:
Title:
 

 
 
 
 
 
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO SECURITIES PURCHASE AGREEMENT]
 
 
 

--------------------------------------------------------------------------------

 
 
Schedule 2.1
 
Government Contracts
 
1.
Contract No. W31P4Q-09-D-0006 awarded February 9, 2009 by the United States Army
to Issuer

 
2.
Contract No. N68335-06-D-0020 awarded July 19, 2006 by the United States Navy to
Issuer

 
3.
Contract No. N68335-06-D-0014 awarded March 25, 2005 by the United States Navy
to Issuer

 
 
 
 
 
 
 
 

--------------------------------------------------------------------------------

 
 
Execution Copy
 
AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT
 
This AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT (this “Amendment”) is made
April 14, 2011 by and among TEL-INSTRUMENT ELECTRONICS CORP., a New Jersey
corporation (the “Issuer”), and BCA MEZZANINE FUND, L.P., a Delaware limited
partnership (the “Purchaser”), to the Securities Purchase Agreement, dated as of
September 10, 2010, by and between the Issuer and the Purchaser.
 
WHEREAS, the Issuer has requested that the Purchaser agree to amend the Original
Agreement as well as Amendments number 1 and 2 to clarify the definition of
specified holders.
 
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and for other good and valuable consideration, the value,
receipt and sufficiency of which are acknowledged, the parties hereby agree as
follows:

ARTICLE I.
DEFINITIONS
 
All capitalized terms used in this Amendment but not defined shall have the
meanings given to them in the Original Agreement and any subsequent
Amendments.  In the event of a conflict between the definitions contained in
this Amendment and those contained in the Original Agreement, the definitions
contained herein shall prevail.
 
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
 
In reliance upon the representations and warranties of the Issuer set forth in
Article III below and subject to the satisfaction of the conditions to
effectiveness set forth in Article IV below:

Section 1.01 – Definitions.  In view of Harold K. Fletcher’s death, and for good
and sufficient reason and consideration, Section 1.01 of the Original Agreement
is hereby amended by deleting the definition on page 19 of the Original
Agreement of “Specified Holders” and by adding the following definition in the
appropriate alphabetical order:

“Specified Holders shall mean Harold K. Fletcher, his estate or surviving
spouse, George J. Leon, George J. Leon Family Trust and Jeffrey C. O’Hara.”
 
 
 

--------------------------------------------------------------------------------

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

The Issuer hereby represents and warrants to the Purchaser that:
 
(a)           The execution, delivery and performance of this Amendment have
been duly authorized by all requisite corporate action on the part of Issuer;
 
(b)           No Default or Event of Default has occurred and is continuing; and
 
(c)           The representations and warranties of the Issuer set forth in the
Original Agreement, as amended hereby, and in the other Transaction Documents
are true and correct in all material respects (without duplication of any
materiality qualification therein) as of the date hereof, both prior to and
after giving effect to this Amendment, with the same effect as though made on
the date hereof except to the extent such representations and warranties
expressly refer to an earlier date, in which case they are true and correct in
all material respects (without duplication of any materiality qualification
therein) as of such earlier date.
 
ARTICLE IV.
CONDITIONS TO EFFECTIVENESS
 
The effectiveness of this Amendment is subject to the prior or concurrent
consummation of each of the following conditions:
 
(a)           The Purchaser shall have received a fully-executed copy of this
Amendment executed by the Issuer and the Purchaser;
 
(b)           All proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other legal
matters incident thereto shall be reasonably satisfactory to the Purchaser and
its legal counsel;
 
(c)           No Default or Event of Default shall have occurred and be
continuing or shall be caused by the transactions contemplated by this
Amendment;
 
(d)           The representations, warranties and certifications of the Issuer
set forth in this Amendment shall be true and correct in all respects.
 
 
 

--------------------------------------------------------------------------------

 
 
ARTICLE V.
MISCELLANEOUS
 
5.1 Continued Effectiveness.  Notwithstanding anything contained herein, the
terms of this Amendment are not intended to and do not serve to effect a
novation as to the Original Agreement.  The parties hereto expressly do not
intend to extinguish the Original Agreement or Amendments number 1 and 2.
Instead, it is the express intention of the parties hereto to reaffirm the
indebtedness created under the Original Agreement and Amendments (including,
without limitation, the Note) and the other documents contemplated thereby and
to reaffirm the rights and obligations contained therein.  The Original
Agreement and subsequent Amendments as amended hereby and each of the other
documents contemplated thereby shall remain in full force and effect. Except as
herein amended, the Original Agreement and subsequent Amendments shall remain
unchanged and in full force and effect, and is hereby ratified in all
respects.  All of the representations, warranties and covenants contained in the
Original Agreement and this Amendment shall survive the execution and delivery
of this Amendment.
 
5.2 Notices.  All notices, demands and other communications provided for or
permitted hereunder shall be made in the manner set forth in Section 12.02 of
the Purchase Agreement.
 
5.3 References.  Each reference in the Purchase Agreement to “this Agreement,”
“hereunder,” “hereof,” “herein” or words of like import, and each reference in
the Purchase Agreement or in any other Transaction Document, or other
agreements, documents or other instruments executed and delivered pursuant to
the Purchase Agreement, shall mean and be a reference to the Purchase Agreement
as amended by this Amendment.
 
5.4 Successors and Assigns.  This Amendment shall inure to the benefit of and be
binding upon the successors and permitted assigns of the parties hereto.
 
5.5 Signatures; Counterparts.  Facsimile or other electronic transmissions of
any executed original document and/or retransmission of any executed facsimile
or other electronic transmission shall be deemed to be the same as the delivery
of an executed original.  At the request of any party hereto, the other parties
hereto shall confirm facsimile or other electronic transmissions by executing
duplicate original documents and delivering the same to the requesting party or
parties.  This Amendment may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
 
5.6 Headings.  The headings in this Amendment are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
 
5.7 GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED IN ACCORDANCE
WITH, AND ENFORCED UNDER, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS OR INSTRUMENTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN SUCH STATE.
 
5.8 Severability.  If any one or more of the provisions contained herein, or the
application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
 
 
 

--------------------------------------------------------------------------------

 
 
5.9 Entire Agreement.  The Original Agreement and subsequent Amendments, as
amended by this Amendment, and the other Transaction Documents, together with
the exhibits and schedules thereto, are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein.
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
 
 
 
 
 
 
 
 
 
 

--------------------------------------------------------------------------------

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

 
 
TEL-INSTRUMENT ELECTRONICS CORP.
 
 
By:________________________________
Name:           Jeffrey C. O’Hara
Title:           President and Chief Executive Officer
 
 
BCA MEZZANINE FUND, L.P.
 
By:  BCA Mezzanine Partners, LLC, its General Partner
 
By:________________________________
Name:           Franz L. Pool
Title:           Managing Member
 
   

 

 
 
 
 
[SIGNATURE PAGE TO AMENDMENT NO. 3 TO SECURITIES PURCHASE AGREEMENT]
 
 
 

--------------------------------------------------------------------------------