ex4_5.htm


    
      

    

    Exhibit 4.5

     

    
      Execution
Copy

      


      


      10%
SENIOR SUBORDINATED CONVERTIBLE NOTE

      


      NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED,  ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. THE OBLIGATIONS OF THE
COMPANY UNDER THIS NOTE ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE
SUBORDINATION AGREEMENT REFERRED TO IN SECTION 21 OF THIS NOTE.

      


      DEI
SERVICES CORPORATION

      


      10%
Senior Subordinated Convertible Note

       

       

      
        	
                Issuance
      Date:  August 14, 2008

              	
                Original
      Principal Amount: U.S.$2,500,000

              


      

      


      FOR VALUE RECEIVED, DEI
SERVICES CORPORATION, a Florida corporation with its principal place of business
located at 7213 Sandscove Court, Suite One, Winter Park, Florida 32792 (the
“Company”), hereby
promises to pay to AROTECH CORPORATION, a Delaware corporation with its
principal place of business located at 1229 Oak Valley Drive, Ann Arbor,
Michigan 48108, or its registered assigns (“Holder”), TWO MILLION FIVE
HUNDRED THOUSAND U.S. DOLLARS (U.S.$2,500,000) (the “Original Principal Amount”, as
reduced pursuant to the terms hereof pursuant to redemption or otherwise, the
“Principal”) when due,
whether upon the Maturity Date (as defined below), acceleration or otherwise (in
each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding
Principal at the rate of ten percent (10%) per annum (the “Interest Rate”), from the date
set out above as the Issuance Date (the “Issuance Date”) until the same becomes
due and payable, whether upon an Interest Date (as defined below) or the
Maturity Date, acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof), in lawful money of the United
States.  This 10% Senior Subordinated Convertible Note (including all
Senior Subordinated Convertible Notes issued in exchange, transfer or
replacement hereof, this “Note”) has been issued to the
Holder concurrently with the execution and delivery of the Guarantees (as
defined below).  Certain capitalized terms used herein are defined in
Section 22.

      


      1.           
 PAYMENTS OF
PRINCIPAL.  On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest, and accrued and unpaid Late Charges, if any, on such Principal
and Interest.  The “Maturity Date” shall be December 31,
2009, as may be extended at the option of the Holder.  Other than as
specifically permitted by this Note, the Company may not prepay any portion of
the outstanding Principal, accrued and unpaid Interest or accrued and unpaid
Late Charges, if any, on Principal and Interest.


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      2.          
  INTEREST;
DEFAULT RATE.  Interest on the outstanding Principal amount of
this Note shall commence accruing on the Issuance Date and shall be computed on
the basis of a 360-day year comprised of twelve (12) thirty (30) day months and
shall accrue and be payable quarterly, in arrears, on November 15, February 15,
May 15 and August 15 of each year (each, an “Interest Date”), with the
first Interest Date being November 15, 2008.  Interest shall be
payable on each Interest Date to the record holder of this Note on November 1,
February 1, May 1 and August 1 immediately preceding the applicable Interest
Date, in cash.  Prior to the payment of Interest on an Interest Date,
Interest on this Note shall accrue at the Interest Rate.  From and
after the occurrence and during the continuance of an Event of Default (as
defined below), the Interest Rate shall be increased to the lower of (i) fifteen
percent (15%) per annum or (ii) the highest interest rate permitted by
applicable law (the “Default
Rate”).  In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through but not including the date
of cure of such Event of Default.

      


      3.         
   CONVERSION OF
NOTES.  This Note shall be convertible into such number of
shares of the Company’s common stock, no par value per share (the “Common Stock”), as shall be
equal at the time of conversion to twelve percent (12%) of the Company’s
outstanding Common Stock, on a fully diluted basis and after giving effect to
such conversion, upon the terms and conditions set forth in this Section
3.

      


      (a)           Conversion
Right.  On the Maturity Date, the Holder shall be entitled to
convert all but not less than all of the outstanding and unpaid Principal of
this Note into fully paid and nonassessable shares of Common Stock in accordance
with Section 3(c) at the Conversion Rate (as defined below); provided, however,
that the Holder shall be entitled to covert this Note prior to the Maturity Date
during the continuance of an Event of Default; provided, further, however, that
with respect to a Curable Event of Default (as defined below),  the
Holder shall not have the right to convert until the expiration of any
Applicable Cure Period (as defined below) relating to such Curable Event of
Default.  The Company shall not issue any fraction of a share of
Common Stock upon any conversion.  If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole
share.  The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount; provided that the Company shall not be required to pay any
tax that may be payable in respect of any issuance of Common Stock to any Person
other than the converting Holder or with respect to any income tax due by the
Holder with respect to such Common Stock.


      
        
           


        

        
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      (b)           Conversion
Rate.  The number of shares of Common Stock issuable upon
conversion of this Note pursuant to Section 3(a) shall be equal to the product
of (x) the difference of (A) the quotient of (I) the number of shares of Common
Stock then outstanding on a fully diluted basis (not including the number of
shares of Common Stock issuable upon conversion of this Note) (the “Diluted Share Amount”) divided by (II) 0.88,
minus (B) the
Diluted Share Amount, multiplied by (y) the
quotient of (A) the amount of Principal then outstanding under this Note divided by (B) the
Original Principal Amount of this Note (the “Conversion
Rate”).

      


      (c)           Mechanics of
Conversion.  To convert this Note into shares of Common Stock
on any date (the “Conversion
Date”), the Holder shall transmit by facsimile (or otherwise deliver),
for receipt on or prior to 3:00 p.m., New York time, on such date, a copy of an
executed notice of conversion in the form attached hereto as Annex I (the “Conversion Notice”) to the
Company setting forth (i) the Principal amount of this Note, (ii) the effective
date of such conversion, and (iii) the name and address of each Person in whose
name certificates representing shares of Common Stock shall be issued (and if
more than one certificate is requested, then the denominations for each such
certificate expressed as a percentage of the Principal amount being so
converted).  On or before the third (3rd)
Business Day following the date of receipt of the Conversion Notice, the Company
shall execute and deliver certificate(s) representing the shares of Common Stock
issued upon conversion of the Principal amount indicated in the Conversion
Notice.  The Person or Persons entitled to receive the shares of
Common Stock issuable upon conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date.  Notwithstanding anything to the contrary set forth
herein, the Holder shall not be required to physically surrender this Note to
the Company until all accrued and unpaid Interest and Late Charges, if any, and
any other amounts due hereunder have been indefeasibly paid in
full.  For the avoidance of doubt, the Holder shall not be required to
physically surrender this Note prior to, or as condition precedent to, the
Company’s obligation to deliver shares of Common Stock and pay all accrued and
unpaid Interest and Late Charges, if any, and any other amounts due hereunder to
the Holder or its designees as provided in this Section 3(c).

      


      4.          
  RIGHTS
UPON EVENT OF DEFAULT.

      


      (a)           Event of
Default.  Each of the following events shall constitute an
“Event of
Default”:

      


      (i)       
    the Company’s (A) failure to deliver the required number
of shares of Common Stock within ten (10) Business Days after the Conversion
Date or (B) notice, written or oral, to the Holder, including by way of public
announcement or through any of its agents, at any time, of its intention not to
comply with a request for conversion of all or any portion of the Principal of
this Note into shares of Common Stock in accordance with the terms of this
Note;

      


      (ii)           the
Company’s failure to pay to the Holder any amount of Principal (including,
without limitation, any redemption payments), Interest, Late Charges or other
amounts when and as due under this Note, except, in the case of a failure to pay
Interest and Late Charges when and as due, in which case only if such failure
continues for a period of at least five (5) Business Days;


      
        
           


        

        
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      (iii)           the
Company or the Guarantor shall either (i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any Indebtedness in excess
of $50,000, individually or in the aggregate, due to any third party, other
than, with respect to unsecured Indebtedness only, payments contested by the
Company in good faith by proper proceedings and with respect to which adequate
reserves have been set aside for the payment thereof in accordance with GAAP, or
otherwise be in breach or violation of any agreement for monies owed or owing in
an amount in excess of $50,000, individually or in the aggregate, which breach
or violation permits the other party thereto to declare a default or otherwise
accelerate amounts due thereunder, or (ii) suffer to exist any other
circumstance or event that would, with or without the passage of time or the
giving of notice, result in a default or event of default under any agreement
binding the Company which default or event of default would or is likely to have
a Material Adverse Effect;

      


      (iv)           the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, “Bankruptcy Law”), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due;

      


      (v)           a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its
Subsidiaries  in an involuntary case, (B) appoints a Custodian of the
Company or any of its Subsidiaries or (C) orders the liquidation of the Company
or any of its Subsidiaries;

      


      (vi)           a
final judgment or judgments for the payment of money aggregating in excess of
$50,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $50,000 amount set forth above;

      


      (vii)          the
occurrence of a Change of Control;

      


      (viii)         the
Company or any Guarantor breaches any material covenant or agreement or any
material representation or warranty under this Note or such Guarantor’s
Guaranty, except, in the case of a breach of a covenant or agreement which is
curable, only if such breach continues for a period of at least ten (10)
consecutive Business Days, including, without limitation, the failure of the
Company to cure an Authorized Share Failure (as defined below);


      
        
           


        

        
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      (ix)           the
Holder shall not have the right to designate two members to the board of
directors of the Company, which members shall have the same rights, powers and
privileges provided to the other members of the Company’s board of
directors;

      


      (x)          
 any Guaranty shall fail to be in full force or effect;

      


      (xi)           any
Person other than a Guarantor, a Permitted Transferee of a Guarantor or the
Holder shall hold any shares of capital stock of any class or series of the
Company, or securities convertible into or exchangeable or exercisable for any
shares of such capital stock, or any options, warrants or other rights of any
kind to acquire any shares of such capital stock;

      


      (xii)        
  the Company shall fail at any time to wholly own all of its
Subsidiaries; or

      


      (xiii)          the
Company or any Guarantor breaches any covenant or agreement under the Letter
Agreement.

      


      (b)           Remedies upon an Event of
Default.  Upon the occurrence of an Event of Default of the
type specified in Section 4(a)(iv) or 4(a)(v) above (each, a “Bankruptcy Event of Default”),
this Note shall immediately become due and payable without notice, and the
Company shall as promptly as practicable, but in any event within one (1)
Business Day after the Company has written notice or actual knowledge of the
occurrence of such Event of Default, deliver written notice thereof via
facsimile or e-mail and overnight courier (an “Event of Default Notice”) to
the Holder.  In connection with a Bankruptcy Event of Default, the
Company shall pay to the Holder in cash the sum of (i) all outstanding Principal
of this Note, plus (ii) accrued and
unpaid interest thereon, plus (iii) accrued
and unpaid Late Charges, if any.  Upon the occurrence of an Event of
Default of the type specified in Section 4(a)(vii) above (each, a “Change of Control Event of
Default”), this Note shall immediately become due and payable without
notice, and the Company shall as promptly as practicable, but in any event
within one (1) Business Day after the Company has written notice or actual
knowledge of the occurrence of such Event of Default, deliver an Event of
Default Notice via facsimile or e-mail and overnight courier to the
Holder.  In connection with a Change of Control Event of Default, the
Company shall pay to the Holder in cash the sum of (i) the product of all
outstanding Principal multiplied by the
lower of (A) 115% or (B) the sum of 100% plus the highest
interest rate permitted by applicable law (the “Default Premium”), plus (ii) accrued and
unpaid interest thereon, plus (iii) accrued
and unpaid Late Charges, if any.  Upon the occurrence of any Event of
Default other than a Bankruptcy Event of Default or a Change of Control Event of
Default, the Company shall within two (2) Business Days deliver an Event of
Default Notice via facsimile or e-mail and overnight courier to the
Holder.  At any time after the earlier of the Holder’s receipt of an
Event of Default Notice and the Holder gives written notice to the Company of an
Event of Default, the Holder, in its sole discretion, may by written notice to
the Company declare this Note to be immediately due and payable (the “Acceleration Notice”), subject
to the Company’s right to cure Events of Default of the type specified in clause
(i), (ii) (other than with respect to the payment of Principal), (iii), (viii),
(ix) or (xiii) of Section 4(a) (each a “Curable Event of Default”)
within ten (10) days the receipt by the Company of an Acceleration Notice (such
cure period with respect to the foregoing clauses of Section 4(a), the “Applicable Cure Periods”) to
cure all Curable Events of Default which gave rise to such Acceleration
Notice.  Immediately following receipt an Acceleration Notice, after
giving effect to any Applicable Cure Periods, to the extent any Event of Default
to which an Acceleration Notice relates is then continuing, the Company shall
pay to the Holder in cash the sum of (i) the product of all outstanding
Principal multiplied by the
lower of (A) 115% or (B) the sum of 100% plus the Default
Premium, plus
(ii) accrued and unpaid interest thereon, plus (iii) accrued
and unpaid Late Charges, if any.  The parties hereto agree that in the
event of the Company’s acceleration of the Principal of this Note under this
Section 4(b), the Holder’s damages would be uncertain and difficult to estimate
because of the parties’ inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment opportunity
for the Holder.  Accordingly, any Default Premium due under this
Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment opportunity and not as a
penalty.  From and after January 1, 2009, a Change of Control Event of
Default cannot be waived by the Holder without the written consent of the
Company.


      
        
           


        

        
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      5.           
 NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Organizational Documents or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note.

      


      6.        
    RESERVATION OF AUTHORIZED
SHARES.

      


      (a)           Reservation.  The
Company shall initially reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock equal to the Conversion Rate with respect to
the Original Principal Amount of this Note.  So long as this Note is
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of this Note and any other Notes then
outstanding, such number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of all of the Notes then outstanding (the
“Required Reserve
Amount”).

      


      (b)           Insufficient Authorized
Shares.  If at any time the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon conversion of this Notes at least a
number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”),
then the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then
outstanding.

      


      7.        
    COVENANTS.

      


      (a)           Rank.       This
Note is an unsubordinated obligation of the Company and all payments due under
this Note (A) shall rank junior to all indebtedness and other obligations under
the Senior Credit Facility and all unsubordinated indebtedness permitted to be
incurred under the Senior Credit Facility (collectively, “Permitted Senior Debt”), (B)
shall rank senior to all Subordinated Obligations of the Company, and (C) shall
not be subordinated to any Indebtedness of the Company other than Permitted
Senior Debt.


      
        
           


        

        
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      (b)           Liens.  The
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any Liens other than Permitted
Liens.

      


      (c)           Use of
Proceeds.  All of the net proceeds received by the Company from
the original issuance of this Note on the Issuance Date shall be used (i) to
repay principal and accrued and unpaid interest on its outstanding loans under
the Senior Credit Facility or (ii) for working capital purposes.

      


      (d)           Ordinary Course
Operations.  Except as contemplated by this Note or to the
extent that the Holder otherwise consents in writing, which consent will not be
unreasonably conditioned, delayed or withheld, the Company will conduct its
operations in its ordinary course of business, consistent with historical
practice (including with respect to quantity and frequency), and the Company
will use commercially reasonable efforts to preserve intact in all material
respects its business organizations, to maintain in all material respects its
present business and to maintain in all material respects satisfactory
relationships with customers, suppliers and others having business relationships
with it. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in, permitted by or contemplated by this Note or
the Letter Agreement, the Company will not, without the prior written consent of
the Holder, which consent will not be unreasonably conditioned, delayed or
withheld:

      


      (i)           
 amend or otherwise change its Organizational Documents;

      


      (ii)        
   sell, transfer, license or dispose of, or authorize the sale,
transfer or disposition of, (x) any equipment or other capital assets or (y) any
other assets of the Company, except for sales under this clause (ii) in the
Company’s ordinary course of business consistent with historical practice
(including with respect to quantity and frequency);

      


      (iii)           acquire
(including without limitation by merger, consolidation or acquisition of stock
or assets) any corporation, partnership, limited liability company, other
business organization or any division thereof, or all or a material portion of
the assets of any corporation, partnership, limited liability company, other
business organization or any division thereof;

      


      (iv)           increase
(except in the ordinary course of business consistent with historical practice
(including with respect to quantity and frequency) in respect of officers or
employees who are not stockholders of the Company) the compensation payable or
to become payable to its officers or employees or grant (except in the ordinary
course of business consistent with historical practice (including with respect
to quantity and frequency) in respect of officers or employees who are not
stockholders of the Company) any bonus, severance or termination pay to, or
enter into any employment or severance agreement with any director, officer or
other employee of the Company, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or
employee;


      
        
           


        

        
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      (v)         
  make any change with respect to the Company’s accounting policies,
principles, methods or procedures, including, without limitation, revenue
recognition policies;

      


      (vi)           make
any loan to any officer, director, employee, consultant, agent or shareholder of
the Company other than advances to such Persons in the ordinary course of
business consistent with historical practice (including with respect to quantity
and frequency in connection with bona fide business expenses in respect of
officers or employees who are not stockholders of the Company);

      


      (vii)          pay,
discharge or satisfy any claims, liabilities or obligations in excess of $25,000
(whether absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction of claims, liabilities or
obligations in the ordinary course of business consistent with historical
practice (including with respect to quantity and frequency);

      


      (viii)         issue,
deliver, sell, pledge, dispose of, grant or transfer, or authorize the issuance,
delivery, sale, pledge, disposition, grant or transfer of, any shares of capital
stock of any class or series of the Company, or securities convertible into or
exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock;

      


      (ix)           make
any capital expenditures other than those which are made in the ordinary course
of business consistent with historical practice (including with respect to
quantity and frequency) or are necessary to maintain existing assets in good
repair;

      


      (x)        
   create, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any contract disclosed in Schedule 7(d)
attached to this Note, other than actions in the Company’s ordinary course of
business consistent with historical practice (including with respect to quantity
and frequency);

      


      (xi)           solicit
any offers for, respond to any unsolicited offers for, or enter into or conduct
any negotiations in respect of any of the foregoing;

      


      (xii)           in
any way assist or encourage any person in connection with any proposed
acquisition of any Company Common Stock or any assets of the Company (other than
sales of its products in the ordinary course of business), or authorize, or
enter into any formal or informal agreement or otherwise make any commitment to
do, any of the foregoing; or

      


      (xiii)          take
any action which would make any of the representations or warranties of the
Company contained in this Note untrue, incomplete or incorrect, other than any
such action which would not have a Material Adverse Effect;

      


      provided,
however, that in the event that the Company would be prohibited from taking any
action by reason of this Section 7(c) without the prior written consent of the
Holder, such action may nevertheless be taken without such consent if the
Company is required to do so by applicable law and the Company prior to taking
such action informs the Holder in writing of such requirement.


      
        
           


        

        
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      (e)           Disclosure of Operating
Results.  Commencing with the Fiscal Quarter ending June 30,
2008, the Company shall use furnish to the Holder its operating results (the
“Operating Results”) (x)
for each of the first three Fiscal Quarters of each fiscal year no later than
the forty-fifth (45th) day
after the end of such Fiscal Quarter and (y) for the fourth Fiscal Quarter of
each fiscal year, no later than the ninetieth (90th) day
after the end of such Fiscal Quarter.

      


      (f)           Exclusivity.  From
the Issuance Date until the earlier of (i) the Maturity Date, provided that all
obligations under this Note have been indefeasibly paid and satisfied in full,
and (ii) January 1, 2009, neither the Company nor any of its directors,
officers, employees or agents will solicit, or participate in negotiations or
discussions with respect to, any other investment in, or acquisition of, the
Company, other than with FAAC Incorporated or its Affiliates (or any or their
respective successors and assigns).

      


      8.        
    REPRESENTATIONS AND
WARRANTIES.  Each of the representations and warranties set
forth in this Section 8 is true and correct as of the date of the Issuance Date,
except for such representations and warranties which refer to an earlier
specified date, which representations and warranties are true and correct as of
such specified date. The Company hereby represents and warrants to the
Holder that:

      


      (a)           Organization.  The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as presently
conducted and to carry out the transactions contemplated hereby. The Company is
not, by the manner in which it conducts its business or owns or leases its
property, required to be qualified to do business in any jurisdictions other
than the State of Florida. Schedule 8(a)
contains a true, complete and accurate copy of each of the Organizational
Documents of the Company, and a good standing certificate of a recent date
issued by the Secretary of State of the State of Florida certifying that the
Company is in good standing.

      


      (b)           Organizational Documents;
Corporate Records. The Company has heretofore made available to the
initial Holder a complete and correct copy of its Organizational Documents, each
as amended to date. Such Organizational Documents are in full force and effect.
The Company is not in violation of any provision of its Organizational
Documents. The minute books of the Company, which have heretofore been made
available in their entirety to the initial Holder, contain in all material
respects true and correct records of all meetings held or true and complete
records of all other corporate actions taken at any time by written consent or
otherwise by its stockholders or Board of Directors or by any committee of the
Board of Directors.

      


      (c)           Authorization; Enforcement;
Validity.  The Company has the requisite corporate power and
authority to enter into, deliver and perform its obligations under this
Note.  The execution and delivery of this Note and the consummation by
the Company of the transactions contemplated hereby, have been duly authorized
by the Company’s board of directors, and no further filing, consent, or
authorization is required by the Company, its board of directors or its
stockholders.  This Note has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except (i) as may
be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights generally,
(ii) as limited by laws relating to specific performance, injunctive relief of
other equitable remedies, and (iii) to the  extent the indemnification
provisions contained in this Note may be limited by applicable
laws.  On the Issuance Date, the Company delivered to the initial
Holder of this Note, a certificate of its Secretary attaching certified true,
accurate and complete copies of the Organizational Documents of the Company,
containing an incumbency certificate with respect to its officer who executed
and delivered this Note, and attaching a certified copy of the resolution
adopted by the board of directors of the Company authorizing the execution,
delivery and performance of this Note and the transactions contemplated hereby,
which resolutions have not been amended, rescinded or otherwise modified and
remain in full force and effect as of the Issuance Date.


      
        
           


        

        
          -9-

          
            

          

        

        
           


        

      


      (d)           No
Conflicts.  Except as set forth on Schedule 8(d), the
execution, delivery and performance of this Note and the consummation by the
Company of the transactions contemplated hereby will not (i) result in a
violation of any Organizational Document of the Company or any of its
Subsidiaries, or any capital stock of the Company or any of its Subsidiaries or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) in any respect under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii)
above, to the extent that such violation conflict, default or right would not
reasonably be expected to have a material adverse effect on the business (as
presently conducted or as proposed to be conducted by the Company or any of its
Subsidiaries as of the Issuance Date), assets, financial condition, liabilities,
operations or prospects of the Company and its Subsidiaries, taken as a
whole.

      


      (e)           Capitalization.

      


      (i)        
    The authorized capital stock of the Company consists of
twenty thousand (20,000) shares of Common Stock, no par value per share, all of
which are issued and outstanding to the Guarantors in the amounts indicated
after such Guarantor’s name in Schedule 8(e)(i), and
are duly authorized, validly issued in compliance with all applicable laws, and
are fully paid and nonassessable and free of preemptive or similar rights
created by statute, the Organizational Documents of the Company, or any other
agreement to which the Company or any Guarantor is a party or by which it or he
is bound.

      


      (ii)       
    Except as set forth on Schedule 8(e)(ii),
pursuant to this Note, the Guarantees or the Letter Agreement, (x) there are no
outstanding subscriptions, options, warrants, calls, preemptive or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company,
(y) there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of capital stock of, or other
equity interests in, the Company or to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any other entity,
and (z) there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock or the direction
of the business operation or conduct of the Company.


      
        
           


        

        
          -10-

          
            

          

        

        
           


        

      


      (f)           Ownership of Capital
Stock.  Each Guarantor owns, beneficially and of record, the
shares of Common Stock set forth opposite such Guarantor’s name on Schedule 8(f), free
and clear of all Liens of any nature whatsoever other than pursuant to such
Guarantor’s Guaranty or as set forth on Schedule
8(f).  No Person other than a Guarantor holds any Common Stock
or shares of any other class or series of capital stock of the Company or any
securities convertible into or exchangeable or exercisable for any shares of
such capital stock, or any options, warrants or other rights of any kind to
acquire any shares of such capital stock.

      


      (g)           Consents and
Approvals.  Except as set forth on Schedule 8(g), the
execution, delivery and performance of this Note by the Company does not require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority or with any third
party.

      


      (h)           Absence of Certain
Payments. Neither the Company, nor any director, officer, or, to the
Knowledge of the Company, agent, employee or other person acting on behalf of
the Company, has used any funds of the Company for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity,
or made any direct or indirect unlawful payments to government officials or
employees from corporate funds, or established or maintained any unlawful or
unrecorded funds, or violated any provisions of the Foreign Corrupt Practices
Act of 1977 or any rules or regulations promulgated thereunder.

      


      (i)           Compliance.  The
Company has secured and maintained for at least the past seven years all
material licenses, franchises, permits or authorizations for the lawful conduct
of its business.  Schedule 8(i) sets
forth all such licenses, franchises, permits or authorizations issued or granted
to the Company. All such licenses, franchises, permits and authorizations are
validly held by the Company, and the Company has complied in all respects with
all terms and conditions thereof. Except as set forth in Schedule 8(i), the
Company has for the past seven years complied in all respects with, and is not
in conflict with, or in default or violation of, (i) any Law applicable to the
Company or by which any property or asset of the Company is bound or affected or
(ii) any note, bond, mortgage, indenture, deed of trust, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or any property or asset of the
Company is bound or affected, except for such failures as would not individually
or in the aggregate have a Material Adverse Effect.


      
        
           


        

        
          -11-

          
            

          

        

        
           


        

      


      (j)           Taxes and Tax
Matters.

      


      (i)         
   The Company has filed all Tax Returns that it has been
required to file under applicable tax laws and regulations. All such Tax Returns
were correct and complete in all respects. All such Tax Returns were filed on
the basis that the Company was an electing corporation under Subchapter S of the
Code. All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. Except for Taxes payable with respect to the Company’s
operations in 2007 and 2008 that are not yet due and payable, all Taxes owed by
the Guarantors, in their capacities as the sole stockholders of the Company,
with respect to the income of the Company (whether or not shown on any Tax
Return) have been paid. Other than the extension filed with the IRS on March 15,
2008 with respect to the filing of the Company’s tax return for the fiscal year
ended December 31, 2007, the Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. The Company is not
required to file Tax Returns in any jurisdiction where the Company does not file
Tax Returns. No claim has ever been made by a Governmental Authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction. There are no Liens on any of
the assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.

      


      (ii)       
    The Company has withheld and paid all Taxes required to
be withheld or paid by the Company in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other third
party.

      


      (iii)           There
is no dispute or claim concerning any Tax liability of the Company (i) claimed
or raised by any Governmental Authority in writing or (ii) as to which any of
the Company and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any agent
of such authority. Except as provided in Schedule 8(j)(iii),
no foreign, federal, state or local Tax audits or administrative or judicial Tax
proceedings are pending or being conducted with respect to the Company. The
Company has delivered to the initial Holder correct and complete copies of all
federal, state and local income Tax Returns filed by the Company since January
1, 2000, none of which has been the subject of any examination reports, or
statements of deficiencies.

      


      (iv)           The
Company has not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or
deficiency.

      


      (v)        
   The Company (and any predecessor) has been a validly electing
“S corporation” within the meaning of Sections 1361 and 1362 of the Code at all
times during its existence.  The Company shall not be liable for any
Tax under Section 1374 of the Code in connection with the deemed sale of assets
caused by an election under Section 338(h)(10) of the Code.  The
Company has not, in the past ten years, acquired assets from another corporation
in a transaction in which the Company’s basis for the acquired assets was
determined, in whole or in part, by reference to the Tax basis of the acquired
assets in the hands of the transferor.

      


      (vi)           The
Company is not a party to any agreement, contract, arrangement, or plan that has
resulted or could result, separately or in the aggregate, in the payment of (i)
any “excess parachute payment” within the meaning of Section 280G of the Code
(or any corresponding provision of state, local, or foreign Tax law) and (ii)
any amount that will not be fully deductible as a result of Section 162(m) of
the Code (or any corresponding provision of state, local, or foreign Tax law).
The Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. The Company is not a party to
or bound by any Tax allocation or sharing agreement. The Company (A) has not
been a member of an “affiliated group” within the meaning of Section 1504(a) of
the Code filing a consolidated federal income Tax Return or (B) does not have
any liability for the Taxes of any Person (other than the Company) under Treas.
Reg. Section 1.1502-6 (or any similar provision of state, local or foreign law),
as a transferee or a successor, by contract, or otherwise. The Company has not
been a party to any distribution in which the parties to such distribution
treated such distribution as one to which Section 355 of the Code applied. The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Section 6662 of the Code. The Company has not
participated in a “reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b). The Company does not have a “qualified
subchapter S subsidiary” within the meaning of Section 1361(b)(3)(B) of the
Code.


      
        
           


        

        
          -12-

          
            

          

        

        
           


        

      


      (vii)          The
Company will not be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Issuance Date as a result of any: (A) change in
accounting method; (B) “closing agreement” as described in Section 7121 of the
Code (or any corresponding provision of state, local or foreign law) executed on
or prior to the Issuance Date; (C) installment sale or open transaction
disposition made on or prior to the Issuance Date; or (D) prepaid amount
received on or prior to the Issuance Date.

      


      (viii)         The
Guarantors have paid all tax liabilities under Subchapter S of the Code for the
taxable income realized by the Company in respect of all periods through and
including the year ended December 31, 2007.

      


      (k)           Assets.  The
Company has good and marketable title to all of the assets it purports to own,
and owns all of such assets free and clear of any Liens, other than Permitted
Liens.  The Company
has good and marketable title to, or in the case of leased assets valid
leasehold interests in, all of its tangible assets, real, personal
and mixed, used or held for use in its business, including all such assets
reflected in the Company’s
balance sheet dated as of December 31,
2007, other
than those used, consumed or disposed of in the ordinary course of business
after such date, free of all Liens, other than Permitted
Liens.  The assets that the Company owns are all of the assets
necessary for the continued conduct of the Company’s business in the manner in
which it has heretofore been conducted.  The Company does not have any
leased property (real or personal) except as disclosed in Schedule
8(k).

      


      (l)      
     Condition of
Assets.  All assets of the Company, including all assets leased
or licensed to the Company, are in good operating condition, regularly and
properly maintained, and fit for the operation in the ordinary course of the
Company’s business (subject to normal wear and tear) with no material defects
that could interfere with the conduct of normal operations of the Company, and
are suitable for the purposes of which they are currently being
used.


      
        
           


        

        
          -13-

          
            

          

        

        
           


        

      


      (m)           Equity
Investments.  Except as set forth in Schedule 8(m), the
Company does not currently own any capital stock or other proprietary interest,
directly or indirectly, in any corporation, limited liability company,
association, trust, partnership, joint venture or other Person.

      


      (n)           Financial
Statements.  The balance sheets and related statements of
operations and cash flows of the Company prepared and audited by the Company’s
Accountant as of and for the fiscal years ended December 31, 2007 and 2006 (the
“Audited Financial
Statements”) that are included as Schedule 8(n) fairly
present in all material respects the financial position of the Company as at
such dates and the results of its operations for the periods then ended in
accordance with GAAP.  Since the date of the Audited Financial
Statements for the fiscal year ended December 31, 2007, there has been no
Material Adverse Change.  The Company has made available to the
initial Holder certain financial forecasts with respect to the Company’s
business which forecasts were prepared based upon the assumptions reflected
therein.  The Company makes no representation or warranty regarding
the accuracy of such forecasts or as to whether such forecasts will be achieved
or otherwise, except that the Company represents and warrants that such
forecasts were prepared in good faith and are based on assumptions believed by
the Company to be reasonable and accurate when made.  Since December
31, 2007, the Company has made no distributions to any of its stockholders,
except for the amounts reflected in Schedule
8(p)(ii).

      


      (o)           Absence of Undisclosed
Liabilities.  Except as set forth in the balance sheets and
related statements of operations and cash flows of the Company for the quarter
ended March 31, 2008 (the “Interim Financial
Statements”), the Company has no liabilities of any nature (matured or
unmatured, accrued, fixed or contingent, including, without limitation, any
liabilities for unpaid taxes), except as have accrued in the ordinary course of
business from the date of the Interim Financial Statements to the Issuance
Date.

      


      (p)           Events Subsequent to Last
Fiscal
Year.

      


      (i)        
    To the Knowledge of the Company, since December 31,
2007, there has been no event or condition that has had or reasonably could be
expected to have a Material Adverse Effect, and there has been no impairment,
damage, destruction, loss or claim, whether or not covered by insurance, or
condemnation or other taking adversely affecting in any respect any of the
material assets of the Company.


      
        
           


        

        
          -14-

          
            

          

        

        
           


        

      


      (ii)       
    Except as disclosed in Schedule 8(p)(ii),
since December 31, 2007, the Company has conducted its business only in the
ordinary course.  Without limiting the generality of the foregoing,
since December 31, 2007, and except as set forth in Schedule 8(p)(ii),
the Company has not:  (A) issued, delivered or agreed (conditionally
or unconditionally) to issue or deliver, or granted any option, warrant or other
right to purchase, any shares of common stock or other equity interest or any
security convertible into shares of common stock or other equity interest; (B)
other than in the ordinary course of business, issued, delivered or agreed
(conditionally or unconditionally) to issue or deliver any bonds, notes or other
debt securities, or borrowed or agreed to borrow any funds or entered into any
lease the obligations of which, in accordance with GAAP, would be capitalized;
(C) paid any obligation or liability (absolute or contingent) other than current
liabilities reflected in the Audited Financial Statements and current
liabilities incurred since December 31, 2007 in the ordinary course of business;
(D) declared or made, or agreed to declare or make, any payment of dividends or
distributions to its stockholders or purchased or redeemed, or agreed to
purchase or redeem, any capital stock or any equity interest; (E) except in the
ordinary course of business, made or permitted any material amendment or
termination of any agreement to which the Company is a party; (F) except in the
ordinary course of business, undertaken or committed to undertake capital
expenditures exceeding $25,000 for any single project or related series of
projects; (G) sold, leased (as lessor), transferred or otherwise disposed of,
mortgaged or pledged, or imposed or suffered to be imposed any Lien on, any of
the assets reflected on the Audited Financial Statements or any assets acquired
by the Company after December 31, 2007, except for inventory and personal
property sold or otherwise disposed of for fair value in the ordinary course of
business; (H) canceled any debts owed to it or claims held by it (including the
settlement of any claims or litigation) other than in the ordinary course of
business; (I) accelerated or delayed collection of accounts receivable in
advance of or beyond their regular due dates or the dates when the same would
have been collected except in the ordinary course of business; (J) delayed or
accelerated payment of any account payable or other liability beyond or in
advance of its due date or the date when such liability would have been paid
except in the ordinary course of business; (K) entered into or become committed
to enter into any other transaction requiring payments in excess of $25,000 or
having a term longer than one year, except in the ordinary course of business;
(L) allowed the levels of supplies or other materials included in the inventory
of the Company to vary materially from the levels customarily maintained in
accordance with past practice; (M) except for increases in the ordinary course
of business, instituted any increase in any compensation payable to any employee
of the Company, amended any pension, profit sharing, retirement, deferred
compensation, welfare, insurance, disability, bonus, vacation pay, severance pay
or other similar plans, programs or agreements, or any personnel policy, whether
reduced to writing or not, relating to any persons employed by the Company, or
modified any other benefits made available to any such employees; or (N) made
any change in the accounting principles or made any material change in the
accounting practices used by the Company from those applied in the preparation
of the Audited Financial Statements.

      


      (q)           No Bonuses or Other Payments
to Employees or Stockholders.  There are no accrued and unpaid
dividends or distributions with respect to the Common Stock. Since December 31,
2007, except in the ordinary course of business or as set forth in Schedule 8(q), the
Company has not (x) paid or agreed to pay any bonus or any other increase in the
compensation payable or to become payable or (ii) granted or agreed to grant any
bonus, severance or termination pay, or entered into any contract or arrangement
to grant any bonus, severance or termination pay, to any stockholder, officer,
director or employee of the Company.

      


      (r)           Absence of
Litigation.  Except as set forth in Schedule 8(r),
neither the Company nor any of  its Subsidiaries is a party to any,
nor are there any pending, or to the Knowledge of the Company, threatened,
legal, administrative, arbitral or other claims, actions, proceedings or
investigations of any nature, against the Company or any property or asset of
the Company, before any Governmental Authority and no facts or circumstances
have come to the Company’s attention which have caused it to believe that a
material claim, action, proceeding or investigation against or affecting the
Company could reasonably be expected to occur.  Neither the Company,
nor any property or asset of the Company, is subject to any order, writ,
judgment, injunction, decree, determination or award which restricts its ability
to conduct business in any area in which it presently does business or has or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.


      
        
           


        

        
          -15-

          
            

          

        

        
           


        

      


      (s)       
    Employee
Benefits.

      


      (i)       
    Except as disclosed on Schedule 8(s)(i), (x)
neither the Company nor any of its ERISA Affiliates maintains or sponsors, or
has any liability, contingent or otherwise, with respect to, any Benefit
Arrangement, (y) no Benefit Arrangement provides or has ever provided
post-retirement medical or health benefits or severance benefits, except to the
extent required by Part 6 of Title I of ERISA or similar state laws, and (z) no
Benefit Arrangement is or has ever been a “welfare benefit fund,” as defined in
Section 419(e) of the Code, or an organization described in Sections 501(c)(9)
or 501(c)(20) of the Code.  The Company has delivered to initial
Holder true and complete copies of:  (A) each written Benefit
Arrangement document and a description of each unwritten Benefit Arrangement,
(B) the most recent summary plan description relating to any Benefit
Arrangement, (C) each trust, insurance or other funding contract or agreement
relating to any Benefit Arrangement, (D) each administrative services contract
or agreement relating to any Benefit Arrangement, and (E) the most recent IRS
determination letter, opinion, notification or advisory letter (as the case may
be) for each Benefit Arrangement which is intended to constitute a qualified
plan under Section 401 of the Code.  Neither the Company nor any ERISA
Affiliate has any obligation or commitment to establish, maintain, operate or
administer any new Benefit Arrangement or to amend any Benefit Arrangement so as
to increase benefits thereunder or otherwise.

      


      (ii)         
  Neither the Company nor any ERISA Affiliate has or has ever had any
liability with respect to any Benefit Arrangement that is subject to Title IV of
ERISA, including a “multiemployer plan,” as defined in Section 3(37) of ERISA or
a “single employer plan” within the meaning of Section 4001(a)(15) of ERISA.
Neither the Company nor any ERISA Affiliate has terminated a Benefit Arrangement
with respect to which any liability remains outstanding..

      


      (iii)           Each
Benefit Arrangement conforms to, and has been operated and administered in
material compliance with, its terms and all applicable laws, including ERISA and
the Code, and including, but not limited to the requirements of ERISA Sections
601 et seq. and 701 et seq. and Sections 4980B, 9801 and 9802 of the
Code.  Each Benefit Arrangement intended to be qualified under Section
401(a) of the Code is so qualified and is the subject of a currently effective
favorable determination letter issued by the IRS with respect to the
qualification of such Benefit Arrangement under the Code. To the Knowledge of
the Company, no event has occurred, and no condition exists, which could
adversely affect the tax-qualified status of any such Benefit
Arrangement.  Neither the Company nor any ERISA Affiliate has incurred
or is subject to a tax under Section 4979 of the Code.  No Benefit
Arrangement has assets that include securities issued by the Company or any
ERISA Affiliate.

      


      (iv)           There
are no pending or, to the Knowledge of the Company, threatened actions, suits,
claims, trials, arbitrations, investigations or other proceedings by any Person
or Governmental Authority, including any present or former participant or
beneficiary under any Benefit Arrangement (or any beneficiary of any such
participant or beneficiary) involving any Benefit Arrangement or any rights or
benefits under any Benefit Arrangement other than ordinary and usual claims for
benefits by participants or beneficiaries thereunder.  No event has
occurred and no condition exists that could subject the Company or the fund of
any Benefit Arrangement to the imposition of any tax or penalty with respect to
any Benefit Arrangement, whether by way of indemnity or otherwise. All
contributions required to have been made or remitted and all expenses required
to have been paid by the Company to or under any Benefit Arrangement under the
terms of any such plan, any agreement or any applicable law have been paid
within the time prescribed by any such plan, agreement or law.  All
contributions to or under any Benefit Arrangement have been currently deductible
under the Code when made. No “prohibited transaction” (as defined in ERISA
Section 406) or breach of fiduciary responsibility has occurred with respect to
any Benefit Arrangement for which a tax, penalty or other liability of whatever
nature could be incurred by the Company, whether by way of indemnity or
otherwise.


      
        
           


        

        
          -16-

          
            

          

        

        
           


        

      


      (v)         
  There is no contract, agreement or benefit arrangement covering any
current or former employee or director of the Company or any ERISA Affiliate
which, individually or in the aggregate, could be expected to give rise to the
payment of any amount which would constitute an “excess parachute payment” (as
defined in Section 280G of the Code) or be nondeductible under Section 162(m) of
the Code.  Neither the execution of this Note nor the consummation of
any of the transactions contemplated hereby will, either alone or in conjunction
with any other event (including the termination of an employee’s employment),
(x) result in any obligation or liability (with respect to accrued benefits or
otherwise) on the part of the Company or any ERISA Affiliate under any Benefit
Arrangement, or to any present or former employee, director, officer,
stockholder, contractor or consultant of the Company or any ERISA Affiliate, (y)
be a trigger event under any Benefit Arrangement that will result in any payment
by the Company (whether of severance pay or otherwise) becoming due to any such
present or former employee, officer, director, stockholder, contractor, or
consultant, or (z) accelerate the time of payment or vesting, or increase the
amount, of any compensation theretofore or thereafter due or granted to any
employee, officer, director, stockholder, contractor, or consultant of the
Company or any ERISA Affiliate.

      


      (vi)           Except
as set forth in Schedule 8(s)(vi),
each Benefit Arrangement may be amended or terminated unilaterally by the
Company at any time without liability or expense to the Company or any ERISA
Affiliate as a result thereof (other than for benefits accrued through the date
of termination or amendment and reasonable administrative expenses related
thereto) and no plan documentation or agreement, summary plan description or
other written communication restricts or prohibits the Company or any ERISA
Affiliate from amending or terminating any such Benefit
Arrangement.

      


      (vii)          No
Benefit Arrangement is required to comply with the provisions of any foreign
law.

      


      (viii)         Based
on the Company’s good faith interpretation of the provisions of Section 409A of
the Code and the guidance issued thereunder, any Benefit Arrangement that is a
“nonqualified deferred compensation plan” within the meaning of Section 409A of
the Code has been operated in accordance with the requirements of Section 409A
of the Code (including the notices issued by the IRS
thereunder).


      
        
           


        

        
          -17-

          
            

          

        

        
           


        

      


      (ix)           All
contributions (including all employer contributions and employee salary
reduction contributions) or premium payments required to have been made under
the terms of any Benefit Arrangement, and in accordance with applicable Law
(including pursuant to 29 C.F.R. Section 2510.3-102), have been timely made or
reflected on the Audited Financial Statements in accordance with
GAAP.

      


      (t)       
    Employee; Employment
Matters.

      


      (i)      
     Schedule 8(t)(i)
lists (A) the names and titles of, and current annual compensation and the two
most recent annual bonuses for, each current employee of the Company, (B) the
names of each director of the Company, (C) the name of each Person who currently
provides, or who has within the prior twelve month period provided, services to
the Company as an independent contractor, and (D) the names of each employee or
independent contractor of the Company who is a party to a non-competition
agreement with the Company. The Company has delivered to the initial Holder a
copy of each employment, consulting or independent contractor agreement,
confidentiality/assignment of inventions agreement and/or non-competition
agreement entered into with an employee or service provider of the Company.
Except as disclosed in Schedule 8(t)(i), all
of the agreements referenced in the preceding sentence will continue to be
legal, valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing.  Except as disclosed in Schedule 8(t)(i), the
Company is not a party to any written or oral agreement with any current or
former employee of the Company providing for any term of employment or
compensation guarantee extending for a period longer than one year from the
Issuance Date or for the payment of compensation in excess of $100,000 per
annum.  To the Knowledge of the Company, no employee of the Company is
in violation of any term of any patent disclosure agreement, non-competition
agreement or any restrictive covenant (x) to the Company, or (y) to a former
employer relating to the right of any such employee to be employed because of
the nature of the business conducted by the Company or the use of trade secrets
or proprietary information of others.  To the Knowledge of the
Company, no person has any plans to terminate employment or service with the
Company.

      


      (ii)        
   There are no personnel policies applicable to the employees of
the Company, other than employee manuals, copies of which have previously been
delivered to the initial Holder and a list of which is attached as Schedule
8(t)(ii).

      


      (iii)           Except
as set forth on Schedule 8(t)(iii),
with respect to current and former employees and service providers of the
Company (each a “Service
Provider”):  (A) the Company is and for the past seven years
has been in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including any laws respecting minimum wage and
overtime payments, employment discrimination, workers’ compensation, family and
medical leave, immigration, and occupational safety and health requirements, and
has not and is not engaged in any unfair labor practice; (B) to the Company’s
Knowledge, there is no basis for any claim by any Service Provider that such
Service Provider was subject to a wrongful discharge or any employment
discrimination by the Company, or their respective management, arising out of or
relating to such Service Provider’s race, sex, age, religion, national origin,
ethnicity, handicap or any other protected characteristic under applicable laws;
(C) there is not now, nor within the past six years has there been, any actions,
suits, claims, labor disputes or grievances pending, or, to the Knowledge of the
Company, threatened or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Service Provider, including charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any liability to
the Company; (D) the Service Providers of the Company are not and have never
been represented by any labor union, no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company, and to the Company’s Knowledge, no union organization campaign is in
progress with respect to any of the Service Providers, and no question
concerning representation exists respecting such Service Providers; (E) the
Company has not entered into any agreement, arrangement or understanding
restricting its ability to terminate the employment of any or all of its Service
Providers at any time, for any lawful or no reason, without penalty or
liability; (F) to the Company’s Knowledge, each Service Provider classified by
the Company as an independent contractor satisfies and has satisfied the
requirements of any applicable law to be so classified, and the Company has
fully and accurately reported such independent contractors’ compensation on IRS
Forms 1099 when required to do so; (G) the Company does not have any liability
for any payment to any trust or other fund governed by or maintained by or on
behalf of any Governmental Authority with respect to unemployment compensation
benefits, social security or other benefits or obligations for Service Providers
(other than routine payments to be made in the normal course of business and
consistent with past practice); and (H) there are no pending or, to the
Company’s Knowledge, threatened or reasonably anticipated claims or actions
against the Company under any worker’s compensation policy or long-term
disability policy.


      
        
           


        

        
          -18-

          
            

          

        

        
           


        

      


      (iv)           No
“mass layoff,” “plant closing” or similar event as defined by the Worker
Adjustment and Retraining Notification Act with respect to the Company has
occurred.

      


      (u)           Intellectual Property
Rights.

      


      (i)          
  Schedule
8(u)(i) contains a complete and accurate list, and indicates the
ownership of (A) all Patents which are used or held for use by Company in its
business, (B) all Marks which are used or held for use by Company in its
business which are unregistered and material to the business or for which
registrations have been obtained or applications therefor have been filed by the
Company, (C) all rights in Internet web sites and Internet domain names which
are presently used or held for use by the Company in its business, and (D) all
proprietary software of the Company that is material to the Company’s
business.

      


      (ii)       
    Except for (A) Persons to whom the Company has granted
licenses pursuant to the agreements listed on Schedule 8(u)(ii)(A)
(the “Outbound
Licenses”) and (B) Persons who have granted licenses to the Company
pursuant to the agreements list on Schedule 8(u)(ii)(B)
(the “Inbound Licenses”)
or pursuant to off-the-shelf shrinkwrap licenses, no Person other than the
Company has the right or license to practice or otherwise use any of the
Intellectual Property.  The Company has all right, title and interest
to all Intellectual Property, to the Knowledge of the Company, without any
conflict with the rights of others, and, except for rights granted to Company
pursuant to the Inbound Licenses, and, except as disclosed in Schedule 8(u)(ii)(C),
there are no intellectual property rights owned or controlled by any third party
necessary to practice or otherwise use the Intellectual Property or otherwise
necessary for Company to operate its business.


      
        
           


        

        
          -19-

          
            

          

        

        
           


        

      


      (iii)           The
Company has complied with its obligation under 37 CFR § 1.56(a) to disclose to
the United States Patent and Trademark Office, during the pendency of any United
States patent application included in the Intellectual Property, any information
known to Company to be material to the patentability of the pending claims in
such application.

      


      (iv)           Documentation
and necessary payments for the continuance of registration and applications for
registration in the United States, Canada and in all other countries outside of
the United States and Canada have been timely filed with the appropriate
authorities for the Marks included in the Intellectual Property.

      


      (v)           All
necessary documentation and payments have been timely filed with and made to the
appropriate authorities in the United States, Canada and any country for which
patent protection has been sought, for the applications for the patent
applications, and maintenance of, all Patents included in the Intellectual
Property.

      


      (vi)           No
products, services, software, technologies, business processes or operations of
the Company infringe, misappropriate, violate or otherwise interfere with, any
patent, copyright, trade secret, trade name, trademark, service mark or other
intellectual property or contractual right of another, and the Company is not
aware that any such right which might be so infringed, misappropriated, violated
or otherwise interfered with has been claimed, asserted or applied for by
another.  None of the Intellectual Property is or has been legally
declared invalid or is the subject of a pending or, to the Company’s Knowledge,
threatened action or proceeding for opposition or cancellation, or any
reexamination, opposition or interference proceeding or any form of proceeding
for a declaration of invalidity, or other proceeding or action to invalidate or
limit any of Company’s rights in the Intellectual Property, and no such
proceeding is being threatened with respect to any of the Intellectual Property.
To the Company’s Knowledge, none of the Intellectual Property has been infringed
by the activities of any third party.

      


      (vii)          Except
for the Inbound Licenses, the Company does not have any licenses to use any
patents, copyrights, trademarks, trade names, service marks and other
intellectual property of others. All Inbound Licenses are in full force and
effect and are valid, binding and enforceable in accordance with their terms and
there are no existing defaults by the Company or events which, with the giving
of notice or the lapse of time or both, would constitute a default thereunder by
the Company, and, except as disclosed in Schedule 8(u)(vii),
the Company has the right and authority to assign Company’s rights in such
licenses to initial Holder.

      


      (viii)         The
Company has, through the Intellectual Property, all patents, copyrights,
trademarks, trade names, service marks, copyrights, software, rights to data,
Internet web sites and Internet domain names and other intellectual property
necessary or appropriate to conduct its business as conducted as of the Issuance
Date, and as it has been conducted for the past five years.

      


      (ix)           Except
as set forth in Schedule 8(u)(ix),
the Company has required all professional and technical employees, independent
contractors and consultants who provided services to the Company in connection
with the business, including, but not limited to, with respect to the creation
or development of any Intellectual Property, to execute agreements under which
such employees, contractors and consultants were required to convey to the
Company ownership of all inventions and developments conceived or created by
them in the course of their employment with or service to the Company, and, to
the Knowledge of the Company, none of the activities of the Company’s
professional and technical employees, independent contractors or consultants who
have provided services to the Company in connection with the Intellectual
Property has violated any agreement between any such persons and any third
party. A list of all of such agreements, copies of which have previously been
delivered to the initial Holder, is appended hereto as Schedule
8(u)(ix).


      
        
           


        

        
          -20-

          
            

          

        

        
           


        

      


      (x)       
    Except as disclosed in Schedule 8(u)(x), all
of the Outbound Licenses are assignable or otherwise transferable by the Company
without the consent of the respective licensee.

      


      (xi)           The
Company has taken all commercially reasonable security measures to protect the
secrecy, confidentiality and value of the Company’s Trade Secrets.

      


      (v)           Proprietary Information of
Third Parties.  To the Knowledge of the Company, no Person
employed by or otherwise providing services to the Company has (i) violated any
of the terms or conditions of his employment, non-competition, non-disclosure or
inventions agreement with the Company, (ii) disclosed or utilized any Trade
Secret of or licensed by the Company or (iii) interfered in the employment
relationship between the Company and any of its present or former
employees.

      


      (w)           Environmental
Liability.  Except as disclosed in Schedule
8(w):

      


      (i)          
  The operations of the Company as they have been conducted in the
past complied with all applicable Environmental Laws then in effect and as they
are presently conducted comply with all applicable Environmental Laws now in
effect.

      


      (ii)        
   The Company has obtained all environmental, health, and safety
Governmental Permits necessary for the conduct of its operations as they have
been in the past and are presently conducted, and all such current Governmental
Permits are in good standing and the Company is in compliance with all terms and
conditions of such permits now in effect, except where failure to do so would
not, individually or in the aggregate, have a Material Adverse
Effect.

      


      (iii)           The
Company is not subject to any ongoing investigation by, order from or agreement
with any Person relating to (x) any Environmental Law, or (y) any remedial
action arising from the release of a Hazardous Substance into the
environment.

      


      (iv)           The
Company has filed all notices required to be filed under any Environmental Law
indicating past or present treatment, storage, or disposal of a Hazardous
Substance or reporting of a spill or release of a Hazardous Substance into the
environment.


      
        
           


        

        
          -21-

          
            

          

        

        
           


        

      


      (v)        
   The Company has not received any written notice or other claim
to the effect that it is or may be liable to any Person as a result of the
release or threatened release of a Hazardous Substance.

      


      (vi)           Neither
the issuance of this Note nor the granting of the security interests in the
Common Stock of the Guarantors under the Guarantees requires any filing or
registration with, notice to, or approval or consent by, any Governmental
Authority under any Environmental Law.

      


      (x)           Competing
Interests.  Except as set forth in Schedule 8(x),
neither the Company, nor any stockholder, officer or director thereof, nor any
Affiliate of any of the foregoing, (i) owns, directly or indirectly, an interest
in any entity that is a competitor, customer or supplier of the Company or that
otherwise has material business dealings with the Company or (ii) is a party to,
or otherwise has any direct or indirect interest opposed to the Company under,
any agreement or other business relationship or arrangement material to the
Company, provided that the foregoing will not apply to any investment in
publicly traded securities constituting less than 2% of the outstanding
securities in such class.

      


      (y)           No Investment
Banker.  Except for GW Equity, LLC, no broker, finder or
investment banker is entitled to any brokerage, finder’s or other fee or
commission in connection with the transactions contemplated by this Note based
upon arrangements made by or on behalf of the Company or any
Guarantor.  The Holder shall not be responsible for paying any amounts
due to GW Equity LLC; the amount of such fees or commission is set forth on
Schedule
8(y).

      


      (z)        
   Real
Property.

      


      (i)       
    Schedule 8(z) sets
forth a complete list of all real property owned in fee by the Company
(individually, an “Owned
Property”) and identifies any material reciprocal easement or operating
agreements relating thereto.  The Company has delivered to the initial
Holder copies of the deeds and other instruments (as recorded) by which the
Company acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the possession of the
Company and relating to such property or interests.  Neither the whole
nor any portion of the Owned Property is subject to any governmental decree or
order to be sold nor have any proceedings for the condemnation, expropriation or
other taking of all or any portion of the Owned Property been instituted or, to
the Knowledge of the Company, threatened by any Governmental Authority, with or
without payment therefor.  All facilities on the Owned Property have
received all approvals of Governmental Authorities (including licenses and
permits) required in connection with the ownership or current operation thereof
and have been operated and maintained in accordance with applicable laws,
ordinances, rules and regulations, except where failure to do so would not,
individually or in the aggregate, have a Material Adverse
Effect.  There are no contracts granting to any party or parties the
right of use or occupancy of any portion of the Owned Property.  There
are no outstanding options or rights of first refusal to purchase the Owned
Property, or any portion thereof or interest therein.

      


      (ii)           Schedule 8(z) sets
forth a complete list of all real property leased by the Company (individually,
a “Leased Property”) and
identifies any material base leases and reciprocal easements or operating
agreements relating thereto.


      
        
           


        

        
          -22-

          
            

          

        

        
           


        

      


      (iii)           Except
as set forth in Schedule 8(z), the
Company has good marketable and insurable fee title to all Owned Property and
good and valid title to the leasehold estates or interests in all Leased
Property, in each case free and clear of all Liens, none of which impairs the
utility, value or marketability of such property.

      


      (aa)          Contracts.  Schedule 8(aa) lists
the following contracts and other agreements to which the Company is a party on
the Issuance Date:

      


      (i)         
   any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;

      


      (ii)       
    any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services (including
maintenance), the performance of which will extend over a period of more than
one year or involve consideration in excess of $50,000 per annum;

      


      (iii)           any
agreement concerning a partnership or joint venture;

      


      (iv)           any
agreement (or group of related agreements) under which the Company has created,
incurred, assumed, or guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, in excess of $25,000 or under which it has imposed
a Lien on any of its assets, tangible or intangible or any agreement under which
it is a guarantor or otherwise is liable for any liability or obligation
(including indebtedness) of any other Person;

      


      (v)           any
agreement concerning non-competition or any other similar agreement or
obligation which purports to limit the manner, industry, line of business or the
localities in which the business of the Company is conducted, or which limits
the customers or prospective customers that the Company may serve;

      


      (vi)           any
profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of its
current or former directors, officers, and employees;

      


      (vii)          any
collective bargaining agreement;

      


      (viii)         any
agreement for the employment of any individual on a full-time, part-time,
consulting, or other basis providing annual compensation in excess of $50,000 or
providing severance or change of control benefits;

      


      (ix)           any
agreement under which it has advanced or loaned any amount to any of its
shareholders, directors, officers, or employees (A) outside the ordinary course
of the Company’s business, or (B) in the ordinary course of the Company’s
business but involving an aggregate amount in excess of
$25,000;


      
        
           


        

        
          -23-

          
            

          

        

        
           


        

      


      (x)         
  any agreement under which the consequences of a default or
termination could have a Material Adverse Effect;

      


      (xi)           each
written distributorship, sales agency, sales representative, reseller or
marketing, value added reseller, original equipment manufacturing, technology
transfer, source code license or other license or other agreement containing the
right to license or sublicense software, technology and/or any other
intellectual property, in each case, to which the Company is a party (whether as
licensee or licensor);

      


      (xii)          each
agreement, option or commitment or right with, or held by, any third party to
acquire any assets or properties, or any interest therein, of the Company,
having a value in excess of $25,000, except for contracts for the sale of
inventory, machinery or equipment in the ordinary course of the Company’s
business; and

      


      (xiii)         any
other agreement (or group of related agreements) the performance of which
involves consideration or creates an obligation on the part of the Company in
excess of $50,000.

      


      The
Company has provided the initial Holder initial with access to a correct and
complete copy of each written agreement listed in Schedule 8(aa) and a
written summary setting forth the terms and conditions of each oral agreement
referred to in Schedule
8(aa).  With respect to any such agreement: (x) as against the
Company, the agreement is legal, valid, binding, enforceable, and in full force
and effect; (y) except as set forth in Schedule 8(aa), the
Company is not in breach or default and, to the Knowledge of the Company, no
other party is in breach or default, and, to the Knowledge of the Company, no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (z) no party has repudiated any provision of the
agreement

      


      (bb)          Government
Contracts.

      


      (i)       
     Except as set forth in Schedule 8(bb)(i), in
regard to any written or oral agreement that the Company has entered into with a
Governmental Authority regarding the supply of goods or services (a “Government Contract”) in the
seven year period ending as of the Issuance Date, the Company has
not:  (A) been terminated for default; (B) been subject to formal cure
notices or show cause notices; been subject to breach of contract or other
claims by its customers, prime contractors or subcontractors or vendors; (C)
been subject to any stop work or suspension of work notices; (D) been subject to
any notices of proposed debarment or suspension actions; or (E) operated under
any administrative compliance or corporate integrity agreement.

      


      (ii)     
      Except as set forth in Schedule 8(bb)(ii),
with respect to any Government Contract:  (x) there are no open audits
or pending notices of disallowance or offsets or withholdings; and (y) there are
no audits or investigations regarding compliance with the Buy American Act and
the Trade Agreements Act, requirements promulgated by the Equal Employment
Opportunity Commission or export control laws.


      
        
           


        

        
          -24-

          
            

          

        

        
           


        

      


      (iii)           Except
as set forth in Schedule 8(bb)(iii),
no Government Contract contains clearance requirements that would implicate the
requirements of the United States Department of Defense 5220.22-M, National
Industrial Security Program Operating Manual.

      


      (iv)           Set
forth on Schedule
8(bb)(iv) are waivers or consents that the Company has received in
connection with this transaction in respect of the Government Contracts set
forth in such schedule (“Waivers”), true and correct
copies of all of which Waivers have previously been delivered to the initial
Holder.  None of such Waivers has been withdrawn or terminated or
otherwise amended.

      


      (cc)          Customers and
Suppliers.  Since January 1, 2008, none of the customers of the
Company that individually accounted for more than 5% of the Company’s
consolidated gross revenues during the twelve-month period ended December 31,
2007 has terminated or notified the Company that it intends to terminate any
agreement with the Company.  Since January 1, 2008, no material
supplier of the Company has notified the Company that it will stop, or decrease
the rate of, supplying materials, products or services to the
Company.  The Company does not purchase any material item from a sole
source which, if such sole source terminated doing business with the Company,
could not be replaced without a Material Adverse Effect.

      


      (dd)         Bank Accounts, Letters of
Credit and Powers of Attorney.  Schedule 8(dd) lists
(x) all bank accounts, lock boxes and safe deposit boxes relating to the
business and operations of the Company (including the name of the bank or other
institution where such account or box is located and the name of each authorized
signatory thereto), (y) all outstanding letters of credit issued by financial
institutions for the account of the Company (setting forth, in each case, the
financial institution issuing such letter of credit, the maximum amount
available under such letter of credit, the terms (including the expiration date)
of such letter of credit and the party or parties in whose favor such letter of
credit was issued), and (z) the name and address of each Person who has a power
of attorney to act on behalf of the Company.  The Company has
heretofore delivered to the initial Holder true, correct and complete copies of
each letter of credit and each power of attorney described in Schedule
8(dd).

      


      (ee)          Accounts Receivable and
Inventory.

      


      (i)    
        Except as disclosed in Schedule 8(ee)(i),
all accounts receivable of the Company as of the date of the Interim Financial
Statements (i) are properly included in the Interim Financial Statements, (ii)
have arisen from bona fide transactions by the Company in the ordinary course of
business and represent and will represent bona fide claims against debtors for
sales and other charges and (iii) are not subject to any counterclaims or
discounts. All such accounts receivable reflected in the Interim Financial
Statements are good and collectible in the ordinary course of business at the
aggregate recorded amounts thereof and within 90 days of the issuance date of
invoices, net of any applicable allowance for doubtful accounts reflected in the
latest balance sheet included therein.

      


      (ii)     
      The inventories (and any reserves
established with respect thereto) of the Company as of December 31, 2007 are
described in Schedule
8(ee)(ii).  All such inventories (net of any such reserves) are
(x) properly included in the Interim Financial Statements, (y) are of such
quality as to be useable and saleable in the ordinary course of business
(subject in the case of work in process inventory to completion in the ordinary
course of business) and (z) are reflected in the books and records of the
Company at the lower of cost or market value.  Such inventories are
located at the locations set forth in Schedule 8(ee)(ii)
and, except as set forth in Schedule 8(ee)(ii),
the Company has good and marketable title to all of such inventory, free and
clear of any Liens.


      
        
           


        

        
          -25-

          
            

          

        

        
           


        

      


      (ff)           Insurance.  Schedule 8(ff) sets
forth a list and brief description (including nature of coverage, limits,
deductibles, premiums and the loss experience for the past five years with
respect to each type of coverage) of all policies of insurance maintained, owned
or held by the Company during the period from January 1, 2003 up to and
including the Issuance Date.  Except as set forth in Schedule 8(ff), the
Company has complied in all material respects with each such insurance policy to
which it is a party and has not failed to give any notice or present any claim
thereunder in a due and timely manner.  The full policy limits
(subject to deductibles provided in such policies) are available and unimpaired
under each such policy and, to the Knowledge of the Company, no insurer under
any of such policies has a basis to void such policy on grounds of
non-disclosure on the part of the Company or any Guarantor
thereunder.  Each such policy is in full force and effect with respect
to the Company, and to the Knowledge of the Company with respect to the insurer
under such policy, and will not in any way be affected by or terminate or lapse
by reason of the transactions contemplated by this Note or the
Guarantees.

      


      (gg)          Export Control
Laws.  The Company has conducted its export transactions in
accordance with applicable provisions of United States export control laws and
regulations, including but not limited to the Export Administration Act and
implementing Export Administration Regulations, except where failure to do so
would not, individually or in the aggregate, have a Material Adverse Effect.
Without limiting the foregoing, the Company represents and warrants
that:

      


      (i)      
      the Company has obtained all export licenses
and other approvals required for its exports of products and technologies from
the United States except where the failure to obtain such export licenses and
other approvals would not subject the Company to penalties other than fines not
to exceed $5,000 in the aggregate;

      


      (ii)       
    the Company is in compliance with the terms of all
applicable export licenses or other approvals;

      


      (iii)           there
are no pending or, to the Company’s Knowledge, threatened claims against the
Company with respect to such export licenses or other approvals;
and

      


      (iv)           to
the Knowledge of the Company, there are no actions, conditions or circumstances
pertaining to the Company’s export transactions that may give rise to any future
claims.


      
        
           


        

        
          -26-

          
            

          

        

        
           


        

      


      (hh)     
    Internal Accounting
Controls.  The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP by the Company’s
Accountant and to maintain asset and liability accountability, (iii) access to
assets or incurrence of liabilities is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any differences.

      


      (ii)         
  Sarbanes-Oxley; Disclosure
Controls. The Company is not required to comply with any of the
provisions of the Sarbanes-Oxley Act of 2002.

      


      (jj)          
 No Warranty or
Product Liability.  Following the Issuance Date, the Company
will have no material liability for and will not be required to incur any
material expense, in excess of the amount accrued for such liability or expense
in the 2007 Audited Financial Statements, to satisfy any claims of any third
parties based on an allegation that any goods or services supplied by the
Company prior to the Issuance Date were defective in any manner or failed to
comply with any express or implied warranty applicable to those goods or
services.

      


      (kk)          Disclosure. No
representation or warranty of the Company contained in this Note, and no
statement contained in any schedule, certificate or other writing furnished to
the initial Holder pursuant to the provisions hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein, in light of the circumstances in
which they are made, not misleading.

      


      (ll)          
 Solvency.  The
Company is and, after giving effect to the transactions and the Indebtedness
contemplated by this Note and the transactions contemplated hereby, will be,
Solvent.

      


      (mm)        No
Default.  As of the Issuance Date, after giving effect to the
execution and delivery of this Note, the Letter Agreement and the Guarantees, no
Event of Default shall have occurred and no event shall have occurred that with
the passage of time or following the passage of any applicable cure period would
constitute an Event of Default.

      


      9.         
    AMENDMENTS, WAIVERS AND
OTHER MODIFICATIONS.  Without the prior written consent of the
Holder, neither this Note nor the terms of the Guarantees may be amended,
restated, supplemented or otherwise modified, or any provision
waived.

      


      10.         
  TRANSFER.  Neither
this Note nor the shares of Common Stock issuable upon conversion hereof may be
offered for sale, sold, assigned or transferred unless such securities are
registered under the Securities Act of 1933, as amended (the “Securities Act”), or pursuant
to an applicable exemption from the registration requirement of the Securities
Act.  This Note may not be transferred, sold or assigned by the Holder
to any Person other than an Affiliate of the Holder unless an Event of Default
has occurred and is continuing.  Notwithstanding anything in this
Section 10 to the contrary, this Note and the shares of Common Stock issuable
upon conversion hereof may be pledged in connection with a bona fide margin
account or other loan or financing arrangement secured by any such securities
and such pledge of such securities shall not be deemed to be a transfer, sale or
assignment of such securities hereunder, and in connection with effecting a
pledge of any such securities, the Holder shall not be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Note or any Guaranty.


      
        
           


        

        
          -27-

          
            

          

        

        
           


        

      


      11.           REISSUANCE OF THIS
NOTE.

      


      (a)         
  Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 11(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 11(d)) to the Holder
representing the outstanding Principal not being transferred.

      


      (b)        
   Lost, Stolen or Mutilated
Note.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 11(d)) representing the outstanding Principal.

      


      (c)        
   Note
Exchangeable for Different Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 11(d))
representing in the aggregate the outstanding Principal of this Note, and each
such new Note will represent such portion of such outstanding Principal as is
designated by the Holder at the time of such surrender.

      


      (d)         
  Issuance
of New Notes.  Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 11(a) or Section 11(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, if any,
from the Issuance Date.

      


      12.       
    INDEMNIFICATION.

      


      (a)     
      Survival of Representations
and Warranties.  The representations and warranties set forth
in Section 8 of this Note shall survive until all Principal, Interest, Late
Charges and other amounts in respect of this Note have been paid in full or, if
this Note is converted in whole or in part, until the statute of limitations
applicable to the matters set forth therein has expired.  For the
avoidance of doubt, the covenants and agreements of the Company under this Note,
except for this Section 12, shall not survive the indefeasible payment in full
or conversion of this Note.


      
        
           


        

        
          -28-

          
            

          

        

        
           


        

      


      (b)           Indemnified
Claims.

      


      (i)         
   The Company shall indemnify and hold harmless the Holder,
Affiliates of the Holder, officers, directors, consultant, agents and employees
of the Holder and any of the Holder’s Affiliates and their respective
representatives, successors and assigns (each an “Indemnified Party”), against
and in respect of any and all claims, suits, actions, assessments, costs,
expenses, damages, liabilities, losses and deficiencies, including, without
limitation, reasonable counsel fees and other costs and expenses incident to
investigating or defending any claims, suit, or action commenced or threatened,
any interest or penalties, and any and all amounts paid in settlement of any
claim, suit or action (“Damages”), arising out of,
resulting from or incurred in connection with (i) any inaccuracy in any
representation or the breach of any warranty hereunder or under the Letter
Agreement or any of the Guarantees, (ii) the breach by the Company of any
covenant, agreement or other obligation to be performed, or complied with, by
the Company under this Note or the Letter Agreement, or (iii) the breach by any
Guarantor of any covenant, agreement or other obligation to be performed, or
complied with, by such Guarantor under its Guaranty or the Letter
Agreement.

      


      (ii)      
     In the case of any claim for indemnification
arising from a claim of a third party, an Indemnified Party shall give prompt
written notice, following such Indemnified Party’s receipt of such claim or
demand, to the Company of any claim or demand of which such Indemnified Party
has knowledge and as to which it may request indemnification hereunder;
provided, however, that failure to give such notice will not affect such
Indemnified Party’s rights furnished hereunder unless, and then solely to the
extent that, the rights of the parties from whom indemnity is sought are
materially prejudiced as a result of such failure. The Company shall have the
right to defend and to direct the defense against any such claim or demand, in
its name or in the name of the Indemnified Party, as the case may be, at the
expense of the Company, and with counsel selected by the Company, unless (i)
such claim or demand seeks an order, injunction or other equitable relief
against the Indemnified Party, (ii) upon the request of the Indemnified Party,
the Company is unable to provide reasonable evidence to the Indemnified Party of
its financial ability to satisfy its indemnification obligations, (iii) such
claim or demand relates to or otherwise implicates the ongoing operation of the
Indemnified Party’s business, or (iv) the Indemnified Party shall have
reasonably concluded that (x) there is a conflict of interest between the
Indemnified Party and the Company in the conduct of the defense of such claim or
demand or (y) the Indemnified Party has one or more defenses not available to
the Company.  Notwithstanding anything in this Note to the contrary,
the Indemnified Party shall, at the expense of the Company, use reasonable
efforts to cooperate with the Company, and keep the Company fully informed, in
the defense of such claim or demand.  The Indemnified Party shall have
the right to participate in the defense of any claim or demand with counsel
employed at its own expense; provided, however, that, in the case of any claim
or demand described in clause (i), (ii), (iii) or (iv) of the second preceding
sentence or as to which the Company shall not in fact have employed counsel to
assume the defense of such claim or demand, the reasonable fees and
disbursements of such counsel shall be at the expense of the
Company.  The Company shall have no indemnification obligations with
respect to any such claim or demand which shall be settled by the Indemnified
Party without the prior written consent of the Company, which consent shall not
be unreasonably conditioned, delayed or withheld.  The Company shall
not settle any such claim without the prior written consent of the Indemnified
Party, unless such claim solely involves a claim for monetary Damages and such
settlement is accompanied by a document releasing the Indemnified Party from all
liability with respect to the matter in controversy.


      
        
           


        

        
          -29-

          
            

          

        

        
           


        

      


      13.           REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note and the Guarantees at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder’s right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this
Note.  Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof).  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

      


      14.           PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b)
there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
financial advisory fees and attorneys’ fees and disbursements.

      


      15.           HEADINGS.  The
headings of this Note are for convenience of reference and shall not form part
of, or affect the interpretation of, this Note.

      


      16.           FAILURE OR INDULGENCE NOT
WAIVER.  No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

      


      17.           NOTICES;
PAYMENTS.

      


      (a)       
    Notices.  All
notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be given by delivery in person, by e-mail (with a delivery
receipt), fax (with confirmation of receipt), guaranteed overnight delivery
service (with a delivery confirmation) or by registered or certified mail
(postage prepaid, return receipt requested) to the Holder or the Company, as
applicable, at the following addresses:


      
        
           


        

        
          -30-

          
            

          

        

        
           


        

      


      (i)           If
to the Company, to:

      


      DEI
Services Corporation

      7213
Sandscove Court, Suite One

      Winter
Park, Florida 32792

      Attention:      Jose
A. Diaz

      Telephone:    1-407-678-3388

      Fax:                
1-407-678-8008

      E-mail:            
jose.diaz@deicorp.net

      


      with a
copy (which will not constitute notice) to:

      


      William
R. Lowman, Jr., Esq.

      Shuffield,
Lowman & Wilson, P.A.

      Gateway
Center

      100
Legion Place, Suite 1700

      Orlando,
Florida 32801

      Telephone:    
1-407-581-9800

      Fax:                 
1-407-581-9801

      E-mail:            
wlowman@shuffieldlowman.com

      


      (ii)           If
to the Holder, to:

      


      Arotech
Corporation

      1229 Oak
Valley Drive

      Ann
Arbor, Michigan 48108

      Attention:      Chairman
and CEO

      Telephone:     1-734-761-5836

      Fax:                 
1-734-761-5368

      E-mail:            
ehrlich@arotech.com

      


      with a
copy (which will not constitute notice) to:

      


      Yaakov
Har-Oz, Esq.

      Vice
President and General Counsel

      Arotech
Corporation

      c/o
Electric Fuel Ltd.

      One
HaSolela Street, Western Industrial Zone

      Beit
Shemesh 99000, Israel

      Telephone:     011-972-2-990-6623

      Fax:                 
011-972-2-990-6688

      E-mail:            
yaakovh@arotech.com


      
        
           


        

        
          -31-

          
            

          

        

        
           


        

      


      and a
copy (which will not constitute notice) to:

      


      Steven M.
Skolnick, Esq.

      Lowenstein
Sandler PC

      65
Livingston Road

      Roseland,
New Jersey 07068

      Telephone:     1-973-597-2476

      Fax:                 
1-973-597-2477

      E-mail:            
sskolnick@lowenstein.com

      


      or at
such other address for the Company or the Holder as shall be specified by like
notice.  Any such notice or request shall be given only by, and shall
be deemed to have been received upon:  (a) registered or certified
mail, return receipt requested, on the date on which such received as indicated
in such return receipt, (b) delivery by a nationally recognized overnight
courier, one (1) Business Day after deposit with such courier, or (c) facsimile
or electronic transmission, in each case upon telephone or further electronic
communication from the recipient acknowledging receipt (whether automatic or
manual from recipient), as applicable.  The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Note,
including in reasonable detail a description of such action and the reason
therefore.  Without limiting the generality of the foregoing, the
Company will give written notice to the Holder at least twenty (20) days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the Common Stock, (B) with respect
to any pro rata subscription offer to holders of Common Stock, (C) for
determining rights to vote with respect to any Change of Control transaction,
dissolution or liquidation or (D) before entering into any agreement,
arrangement or understanding which could reasonably result in a Change of
Control (which, for the avoidance of doubt, shall not include entering into any
agreement with the Holder or any of its Affiliates).

      


      (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing; provided that the Holder may elect to receive a payment of cash via
wire transfer of immediately available funds by providing the Company with prior
written notice setting out such request and the Holder’s wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date.  Any amount of
Principal or other amounts due under this Note which is not paid when due shall
result in a late charge being incurred and payable by the Company in an amount
equal to interest on such amount at the Default Rate from the date such amount
was due until the same is paid in full (“Late Charge”).

      


      18.           CANCELLATION.  After
all Principal, accrued Interest and other amounts at any time owed on this Note
have been paid in full, this Note shall automatically be deemed canceled, shall
be surrendered to the Company for cancellation and shall not be
reissued.


      
        
           


        

        
          -32-

          
            

          

        

        
           


        

      


      19.           WAIVER OF
NOTICE.  To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
or any Guaranty.

      


      20.           GOVERNING LAW; JURISDICTION; SEVERABILITY;
JURY TRIAL.  This Note shall be construed and enforced in
accor­dance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.  The Company hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of
law.  Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision of this Note.  Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company’s
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder.  THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

      


      21.           SUBORDINATION
AGREEMENT.  Notwithstanding anything to the contrary contained
in this Note, this Note is subject to the terms and conditions of that certain
Subordination Agreement, dated as the Issuance Date, by and among Bank of
America, N.A., the initial Holder of this Note and the Company.

      


      22.           CERTAIN
DEFINITIONS.  For purposes of this Note, the following terms
shall have the following meanings:

      


      (a)           “Affiliate” means, with respect
to any specified Person, any other Person who directly or indirectly through on
or more intermediaries controls, or is controlled by, or is under common control
with, such specified Person.  For the purposes hereof, “control” 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
Stock, by contract or otherwise.


      
        
           


        

        
          -33-

          
            

          

        

        
           


        

      


      (b)           “Benefit Arrangement” means
each (i) employee benefit plan, as defined in Section 3(3) of ERISA; (ii)
employment contract and (iii) bonus, deferred compensation, incentive
compensation, performance compensation, stock purchase, stock option, stock
appreciation, restricted stock, phantom stock, saving and profit sharing,
severance or termination pay (other than statutory or the common law
requirements for reasonable notice), health or other medical, salary
continuation, cafeteria, dependent care, vacation, sick leave, holiday pay,
fringe benefit, reimbursement program, life insurance, disability or other
(whether insured or self-insured) insurance, a supplementary unemployment
benefit, pension retirement, supplementary retirement, welfare or other employee
plan, program, policy or arrangement, whether written or unwritten, formal or
informal, which any current or former employee, consultant or director of the
Company or any ERISA Affiliate participated or participates in or was or is
covered under, or was or is otherwise a party, and with respect to which the
Company or any ERISA Affiliate is or ever was a sponsor or participating
employer, or had or has an obligation to make contributions, or was or is
otherwise a party.

      


      (c)           “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

      


      (d)           “Change of Control” means that
the Company shall, directly or indirectly, in one or more related transactions,
(i) consolidate or merge with or into (whether or not the Company is the
surviving corporation) another Person or Persons, if the holders of the Voting
Stock or the Voting Power (not including any shares of Voting Stock held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such consolidation or merger) immediately prior to
such consolidation or merger shall hold or have the right to direct the voting
of less than 50% of the Voting Stock or the Voting Power, or such voting
securities of such other surviving Person immediately following such
transaction, or (ii) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than the 50% of the outstanding
shares of Voting Stock or Voting Power (not including any shares of Voting Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of the outstanding shares of Voting Stock or Voting Power (not
including any shares of Voting Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock, (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) other than the Holder and its
Affiliates (it being understood for the purposes hereof that Affiliates shall
not include the Company or any of the Guarantors), is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock, or (vii) a
majority of the members and voting power (whether by voting agreement or
otherwise) of the Company’s board of directors shall be changed from the members
and voting power as of the Issuance Date except to the extent that designees of
the Holder and its Affiliates (it being understood for the purposes hereof that
Affiliates shall not include the Company or any of the Guarantors), shall
constitute and control the majority of the members and the voting power of the
board of directors of the Company, respectively.


      
        
           


        

        
          -34-

          
            

          

        

        
           


        

      


      (e)           “Code” means the Internal
Revenue Code of 1986, as amended.

      


      (f)           “Contingent Obligation” means,
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.

      


      (g)           “ERISA Affiliate” means, with
respect to the Company, any other Person that, together with the Company, would
be treated as a single employer under Section 414 of the Code.

      


      (h)           “Environmental Law” means any
Law relating to pollution or protection of the environment, natural resources or
human health and safety, including laws relating to releases or threatened
releases of Hazardous Substances (including releases to ambient air, surface
water, groundwater, land, surface and subsurface strata) or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, release,
transport, disposal or handling of Hazardous Substances. “Environmental Laws”
include, without limitation, CERCLA, the Hazardous Materials Transportation Act
(49 U.S.C. §§ 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. §§ 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. §§
1251 et seq.), the Clean Air Act (42. U.S.C. §§ 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. §§ 2601 et seq.), the Oil Pollution Act (33
U.S.C. §§ 2701 et seq.), the Emergency Planning and Community Right-to-Know Act
(42 U.S.C. §§ 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C.
§§ 651 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. §§ 136 et seq.), and all other Governmental Authority laws analogous to
any of the above, including without limitation any laws of the State of Florida
analogous to any of the above.

      


      (i)           “Fiscal Quarter” means each of
the fiscal quarters adopted by the Company for financial reporting purposes that
correspond to the Company’s fiscal year that, as of the Issuance Date, ends on
December 31 of each year.

      


      (j)           “GAAP” means United States
generally accepted accounting principles, consistently applied.

      


      (k)           “Governmental Authority” shall
mean any nation, territory or government, foreign or domestic, any state, local
or other political subdivision thereof, and any court, bureau, tribunal, board,
commission, department, agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of government,
including, without limitation, all taxing authorities.


      
        
           


        

        
          -35-

          
            

          

        

        
           


        

      


      (l)           “Governmental Permits” means
all governmental permits granted or issued by a Governmental Authority and all
licenses, certificates of inspection, approvals or other authorizations issued
or granted by a Governmental Authority.

      


      (m)           “Guarantees” means the Guaranty
of each of the Guarantors, collectively.

      


      (n)           “Guarantor” means each of (i)
Jose A. Diaz, (ii) Charles A. Mitchell, (iii) William S. George and (iv) William
J. Patton.

      


      (o)           “Guaranty” or means the Limited
Guaranty, Pledge and Voting Agreement substantially in the form of Exhibit A attached
hereto entered into by a Guarantor in favor of the Holder on the Issuance
Date.

      


      (p)           “Hazardous Substances”
means:  (x) any petrochemical or petroleum products, oil or coal ash,
radioactive materials, radon gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and transformers or other equipment
that contain dielectric fluid which may contain levels of polychlorinated
biphenyls; (y) any chemicals, materials or substances defined as or included in
the definition of “hazardous substances,” “hazardous wastes,” “hazardous
materials,” “hazardous constituents,” “pollutants,” “toxic pollutants” or words
of similar meaning and regulatory effect under any applicable Environmental Law;
and (z) any other chemical, material or substance, the use, manufacture,
distribution in commerce, or exposure to which is prohibited, limited or
regulated by any applicable Environmental Law.

      


      (q)           “Indebtedness” of any Person
means, without duplication (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in
accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (vii) all
indebtedness referred to in clauses (i) through (vi) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.


      
        
           


        

        
          -36-

          
            

          

        

        
           


        

      


      (r)           “Intellectual Property” means
the following property of Company:  (i) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all rights arising under or in connection with all
Patents, (ii) all Marks and domain names, (iii) all Trade Secrets and
confidential business information (including, without limitation, ideas,
research, know-how, techniques, methods, data, product drawings, training
manuals, regulatory strategies, and business and marketing plans and proposals)
related to the Company, (iv) all copyrights, moral rights and other rights of
authorship, including any registrations and applications for registration with
respect to any of the foregoing, (v) all computer software used by the Company,
(vi) all computer generated data and documentation related to or used by the
Company, (vii) all third party license rights held by the Company, (viii) all
designs, plans and documentation in whatever form related to products under
development or products subject to a change in design or composition, and (ix)
all other proprietary rights, formulas, specifications, processes, techniques,
technical data and other know-how, whether now existing or hereafter developed,
in which the Company has any rights.

      


      (s)           “IRS” means the United States
Internal Revenue Service and, to the extent
relevant, the United States Department of the Treasury, and all
subdivisions, employees and agents thereof.

      


      (t)           “Knowledge” means the actual or
constructive knowledge of the Company or any of its officers, directors or
employees and the actual knowledge of any Guarantor after review by such
Guarantor of his own files.

      


      (u)           “Laws” shall mean any national,
federal, state, foreign, provincial or local law, statute, ordinance, rule,
regulation, code, ordinance, order, judgment, injunction or decree of any
country, foreign or domestic.

      


      (v)           “Letter Agreement” means that
certain letter agreement, dated as of the Issuance Date, by and among the
Company, the Guarantors and Arotech Corporation.

      


      (w)           “Lien” means any interest,
consensual or otherwise, in property, whether real, personal or mixed property
or assets, tangible or intangible, securing an obligation owed to, or a claim by
a third Person, or otherwise evidencing an interest of a Person other than the
owner of the property, whether such interest is based on common law, statute or
contract, and including, but not limited to, any security interest, security
title or lien arising from a mortgage, recordation of abstract of judgment, deed
of trust, deed to secure debt, encumbrance, restriction, charge, covenant,
restriction, claim, exception, encroachment, easement, right of way, license,
permit, incorporeal hereditament, pledge, hypothecation, conditional sale,
option trust (constructive or otherwise) or trust receipt or a lease,
consignment or bailment for security purposes and other title exceptions and
encumbrances affecting the property; provided that the term “Lien” shall not
include any Lien granted in favor the Holder under any Guaranty or pursuant to
the Letter Agreement.

      


      (x)           “Marks” means all trademarks,
service marks, trade dress and trade names, including all registrations,
applications and renewals with respect thereto, and all works of authorship,
applications, copyrights, registrations and renewals thereof owned by the
Company or in which the Company has any rights or licenses.


      
        
           


        

        
          -37-

          
            

          

        

        
           


        

      


      (y)           “Material Adverse Change” means
a material adverse change in the business, operations, properties, condition
(financial or otherwise), liabilities or prospects of the Company and its
Subsidiaries taken as a whole.

      


      (z)           “Material Adverse Effect” means
a material adverse effect on the business, operations, properties, condition
(financial or otherwise), liabilities or prospects of the Company and its
Subsidiaries taken as a whole.

      


      (aa)         “Organizational Documents”
shall mean a Person’s articles of incorporation, certificate of incorporation,
certificate of designations, bylaws, certificate of formation, operating
agreement, partnership certificate, partnership agreement, shareholders’
agreement or equivalent organizational or constituent documents.

      


      (bb)         “Patents” means the Company’s
right, title and interest in and to all unexpired domestic and foreign utility
and design patents, patent applications, similar grants and applications
therefor, and any improvements, continuations, continuations-in-part,
divisionals, extensions, reissues, reexaminations or substitutions thereof, and
any and all inventions embodied within the foregoing.

      


      (cc)         “Permitted Liens” means (i)
Liens securing Permitted Senior Debt, (ii) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (iii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, (iv) any Lien
created by operation of law, such as materialmen’s liens, mechanics’ liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings, (v) Liens upon or in any equipment
acquired or held by the Company or any of its Subsidiaries to secure the
purchase price of such equipment or indebtedness incurred solely for the purpose
of financing the acquisition or lease of such equipment, provided that the Lien
is confined solely to the property so acquired and improvements thereon, (vi)
Liens existing on the Issuance Date to the extent such Liens were disclosed in
writing to the Initial Holder of this Note, (vii) Liens incurred in connection
with the extension, renewal or refinancing of the indebtedness secured by Liens
of the type described in clauses (ii), (v) and (vi) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (viii) Liens securing
the Company’s obligations under this Note, (ix) leases or subleases and licenses
and sublicenses granted to others in the ordinary course of the Company’s and
its Subsidiaries’ businesses, not interfering in any material respect with the
business of the Company and its Subsidiaries taken as a whole, (x) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of goods, (xi)
Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default, (xii) Liens in favor of the Company, (xiii)
Liens incurred in connection with acquiring inventory in the ordinary course of
business, and (xiv) Liens securing Indebtedness of the Company that is pari
passu with this Note, provided that this Note is equally and ratably secured by
Liens on the same property or assets securing such pari passu
Indebtedness.


      
        
           


        

        
          -38-

          
            

          

        

        
           


        

      


      (dd)  
      “Permitted Transferee” of a
specified Guarantor means each of such Guarantor’s conservators, estate,
executors, administrators, heirs, devisees or any other Person taking by will or
by the laws of descent and distribution; provided that such Person is bound by
and subject to a Guaranty and the Letter Agreement to the same extent as the
specified Guarantor is subject to his Guaranty and the Letter Agreement, and all
shares of capital stock of any class or series of the Company, or securities
convertible into or exchangeable or exercisable for any shares of such capital
stock, or any options, warrants or other rights of any kind to acquire any
shares of such capital stock held by such Person is subject to said Guaranty and
the Letter Agreement.

      


      (ee)         “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

      


      (ff)          “Senior Credit Facility” means
that certain Loan Agreement, dated as of May 8, 2007, by and between the
Company, as borrower, and Bank of America, N.A., as lender, and any similar loan
agreement with any substitute bank or financial institution as lender, as the
same may amended, restated, supplemented, refinanced, renewed, extended or
otherwise modified from time to time (whether as a result of an increase in
amount of line of credit or otherwise).

      


      (gg)        “Solvent” mean, as to any
Person at any time, that (a) the fair value of the Property (as defined below)
of such Person is greater than the amount of such Person’s liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(32)(A) of the
Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended and
in effect from time to time and the regulations issued from time to time
thereunder, and, in the alternative, for purposes of the Uniform Fraudulent
Transfer Act; (b) the present fair saleable value of the Property of such Person
is not less than the amount that will be required to pay the probable liability
of such Person on its debts as they become absolute and matured; (c) such Person
is able to realize upon its Property and pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person’s ability to
pay as such debts and liabilities mature; and (e) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person’s Property would constitute unreasonably
small capital.  For the purposes hereof, “Property” shall mean all types
of real, personal or mixed property and all types of tangible or intangible
property.

      


      (hh)         “Subordinated Obligations”
means any Indebtedness of the Company expressly subordinated in right of payment
to the obligations under this Note and subject to customary stand-still and
subordination provisions.

      


      (ii)         
  “Subsidiary”
means any Person in which the Company, directly or indirectly, owns more than
fifty percent (50%) of the Voting Stock or Voting Power or holds more than fifty
percent (50%) of the equity or similar interest in such Person.


      
        
           


        

        
          -39-

          
            

          

        

        
           


        

      


      (jj)           “Tax” means any federal, state,
local, or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), 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, assessment or levy of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not, and including any obligation to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person.

      


      (kk)         “Tax Return” means any federal,
state, local or foreign 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.

      


      (ll)           “Trade Secrets” means any and
all proprietary technology, knowledge, formulas, specifications, processes,
techniques, technical data and other know-how, whether now existing or hereafter
developed, to which the Company has any rights. Until such time as any
particular patent has issued in accordance with the terms of a patent
application, the term “Trade Secrets” shall be deemed to include all inventions
claimed in such patent application. The term “Trade Secrets” shall also include
all proprietary technology, knowledge, formulas, specifications, processes,
techniques, technical data and other know-how included in any patent application
but which have not been included within an allowed claim in any
patent.

      


      (mm        “Voting Power” of a Person
means the number of votes each share of Voting Stock may cast with respect to
the general voting power to elect, or the general power to appoint, at least a
majority of the board of directors, managers or trustees of such
Person.

      


      (nn)        “Voting Stock” of a Person
means capital stock of such Person of the class or classes or series pursuant to
which the holders thereof have the general voting power to elect, or the general
power to appoint, at least a majority of the board of directors, managers or
trustees of such Person (irrespective of whether or not at the time capital
stock of any other class or classes or series shall have or might have voting
power by reason of the happening of any contingency).

      


      [Signature Page
Follows.]


      
        
           


        

        
          -40-

          
            

          

        

        
           


        

      


      IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

      


      
        	 
      	
                DEI
      SERVICES CORPORATION

              	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                By:

              	/s/
      Jose A. Diaz	 
      
	 
      	
                Name:  Jose
      A. Diaz

              	 
      
	 
      	
                Title:    President
      and CEO

              	 
      


      

       

       

       

      Signature
Page to 10% Senior Subordinated Convertible Note


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      


      ANNEX
I

      


      DEI
SERVICES CORPORATION

      


      CONVERSION
NOTICE

      


      Reference
is made to the 10% Senior Subordinated Convertible Note (the “Note”) issued to the
undersigned by DEI SERVICES CORPORATION, a Florida corporation (the “Company”).  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the entire principal amount of the Note into shares of Common Stock, no
par value per share, of the Company (“Common Stock”), as of the date
specified below.  Capitalized terms used herein and not otherwise
defined shall have the respective meanings set forth in the Note.

      


      
        	
                Date
      of Conversion:

              	 
      


      

       

      
        	
                Principal
      amount of Note:

              	 
      


      

       

      
        	
                Please
      confirm the following information:

                 

              
	
                Conversion
      Price:

              	 
      


      

       

      
        	
                Number
      of shares of Common Stock to be issued:

              	 
      
	
                 

                Please
      issue the Common Stock into which the Note is being converted in the
      following name and to the following
address:

              


      

       

      
        	
                Issue
      to:

              	 
      
	 
      	
                 
      

                 

              
	 
      	
                 
      

                 

              


      

      
        	
                 

                Facsimile
      Number:

              	 
      


      

       

      
        	
                Authorization:

              	 
      


      

       

      
        	
                By:

              	 
      


      

       

      
        	
                Title:

              	 
      


      

       

      
        	
                Dated:

              	 
      


      

       

      
        	
                Account
      Number:

              	 
      
	
                  (if
      electronic book entry transfer)

                 

              	 
      


      

      
        	
                Transaction
      Code Number:

              	 
      
	
                  (if
      electronic book entry transfer)

              	 
      


      


      
        
           


        

        
          
          

          
            

          

        

        
           


        

      


      EXHIBIT
A

      


      FORM
OF LIMITED GUARANTY, PLEDGE AND VOTING AGREEMENT