Exhibit 10.1


 


NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT


 


THIS NINTH AMENDMENT
TO LOAN AND SECURITY AGREEMENT ("Amendment"), dated as of May 3, 2013 (or dated as of March 31, 2013, in
the case of the definition of the term "Revolver Termination Date" as contained in the Loan Agreement attached hereto
as Exhibit A) (the "Amendment Date"), is between LAPOLLA INDUSTRIES,
INC. ("Borrower") and BANK OF AMERICA, N.A., a national banking association ("Lender").


RECITALS


 


Borrower and Lender
have entered into that certain Loan and Security Agreement dated as of August 31, 2010, as amended by the First Amendment to Loan
and Security Agreement dated as of November 10, 2010, the Second Amendment to Loan and Security Agreement dated as of March 14,
2011, the Third Amendment to Loan and Security Agreement dated as of May 11, 2011, the Fourth Amendment to Loan and Security
Agreement dated as of August 17, 2011, the Fifth Amendment to Loan and Security Agreement dated as of November 21, 2011, the Sixth
Amendment to Loan and Security Agreement dated as of April 16, 2012, the Seventh Amendment to Loan and Security Agreement dated
as of June 29, 2012, and the Eighth Amendment to Loan and Security Agreement dated as November 15, 2012 (collectively, and as may
hereafter be amended or otherwise modified, the "Loan Agreement").


NOW, THEREFORE,
in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows effective as of the date hereof unless otherwise indicated:


ARTICLE 1

Definitions


 


Section 1.1Definitions.
Terms defined by the Loan Agreement, where used herein and not otherwise defined, shall have the same meanings herein as are prescribed
by the Loan Agreement, as amended hereby.


ARTICLE 2

Amendments


 


Section 2.1Amendments
to the Loan Agreement. Effective as of the Amendment Date, the Loan Agreement (including all Schedules and Exhibits thereto)
is hereby amended to read in its entirety as set forth in, and to be in the form and substance as provided in, Exhibit A
attached hereto and incorporated herein by reference.


 


ARTICLE 3


Conditions Precedent


 


Section 3.1Condition Precedent. The
effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent (except if and to
the extent that any such condition precedent is waived in writing by Lender at any time):


 


(a)Borrower shall have delivered
or paid (as applicable) to Lender:


 


(i)an executed original counterpart
of this Amendment, in form and substance satisfactory to Lender, duly executed by Borrower; and


 


(ii)Borrower shall have paid to
Lender an amendment fee in the amount of $32,500;


 


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(b)after giving effect to this
Amendment, no Default or Event of Default shall be in existence; and


 


(c)all proceedings taken in connection
with the transactions contemplated by this Amendment and all documentation and other legal matters incident thereto shall be satisfactory
to Lender.


 


SECTION
1.      ARTICLE 4

Ratifications, Representations and Warranties


Section 4.1Ratifications.
The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth
in the Loan Agreement and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the other Loan Documents are ratified and confirmed and shall continue in full force and effect. Borrower and Lender
agree that the Loan Agreement as amended hereby and the other Loan Documents shall continue to be legal, valid, binding and enforceable
in accordance with their respective terms.


Section 4.2Representations
and Warranties. Borrower hereby represents and warrants to Lender as follows: (a) no Default or Event of Default exists;
and (b) the representations and warranties set forth in the Loan Documents are true and correct on and as of the date hereof
with the same effect as though made on and as of such date except with respect to any representations and warranties limited by
their terms to a specific date.


Section 4.3WAIVER
AND RELEASE. TO INDUCE LENDER TO AGREE TO THE TERMS OF THIS AMENDMENT, EACH OBLIGOR (BY ITS EXECUTION BELOW) REPRESENTS AND
WARRANTS THAT AS OF THE DATE OF ITS EXECUTION OF THIS AMENDMENT THERE ARE NO CLAIMS OR OFFSETS AGAINST OR RIGHTS OF RECOUPMENT
WITH RESPECT TO OR DEFENSES OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT:


1.1.1       
(a)HEREBY WAIVES ANY AND ALL SUCH CLAIMS, OFFSETS, RIGHTS OF RECOUPMENT, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN
OR UNKNOWN, ARISING PRIOR TO THE DATE OF ITS EXECUTION OF THIS AMENDMENT; AND


1.1.2       
(b)HEREBY RELEASES AND DISCHARGES LENDER, AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS, AFFILIATES
AND ATTORNEYS (COLLECTIVELY THE "RELEASED PARTIES"), FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES,
CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH
ANY OBLIGOR EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM
OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.


 


 


 


 


 


 


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SECTION
2.      ARTICLE 5

Other Agreements


Section 5.1Survival
of Representations and Warranties. All representations and warranties made in this Amendment or any other Loan Document, including
any Loan Document furnished in connection with this Amendment, shall survive the execution and delivery of this Amendment and the
other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right
of Lender to rely upon them.


Section 5.2Reference
to Loan Agreement. Each of the Loan Documents, including the Loan Agreement, is hereby amended so that any reference in such
Loan Document to the Loan Agreement shall mean a reference to the Loan Agreement as amended hereby. This Amendment shall constitute
a Loan Document.


Section 5.3Expenses
of Lender. As provided in the Loan Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation and execution of this Amendment and the other Loan Documents executed pursuant hereto,
including without limitation, the costs and fees of Lender's legal counsel.


Section 5.4Severability.
Each provision of this Amendment shall be interpreted in such manner as to be valid under Applicable Law. If any provision is found
to be invalid under Applicable Law, it shall be ineffective only to the extent of such invalidity and the remaining provisions
of this Amendment shall remain in full force and effect.


Section 5.5GOVERNING
LAW. THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO FEDERAL LAWS RELATING TO NATIONAL BANKS).


Section 5.6Successors
and Assigns. This Amendment is binding upon and shall inure to the benefit of Lender and Borrower and their respective successors
and assigns, except Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent
of Lender. Any assignment in violation of this Section 5.6 shall be void.


Section 5.7Counterparts;
Facsimile or Electronic Signatures. This Amendment may be executed in counterparts, each of which shall constitute an original,
but all of which when taken together shall constitute a single contract. This Amendment shall become effective when Lender has
received counterparts bearing the signatures of all parties hereto. Delivery of a signature page of this Amendment by telecopy
or other electronic means shall be effective as delivery of a manually executed counterpart of such agreement.


Section 5.8Headings.
The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.


Section 5.9Amendment
Fee. Borrower shall pay to Lender, concurrently with Borrower's execution of this Amendment, an amendment fee in the amount
of $32,500, which amendment fee shall be fully earned when payable and shall be non-refundable.


Section 5.10Entire
Agreement. Time is of the essence of this Amendment. This Amendment, the Loan Agreement and the other Loan Documents embody
the final, entire agreement among the parties relating to the subject matter hereof and supersede any and all previous commitments,
agreements, representations and understandings, whether oral or written, relating to the subject matter hereof and may not be contradicted
or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto.


 


 


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Section 5.11Effective
Date of Amendment to the Definition of the Term "Revolver Termination Date". Notwithstanding anything to the contrary
contained herein, the effective date of the amendment and restatement of the definition of the term "Revolver Termination
Date" as contained in the Loan Agreement attached hereto as Exhibit A is March 31, 2013, for all purposes.


Executed effective as of the Amendment Date.


 


 


BORROWER:


 


LAPOLLA INDUSTRIES, INC.


 


 


By: /s Michael T. Adams, EVP


Name: Michael T. Adams


Title: Executive Vice President


 


 


LENDER:


 


BANK OF AMERICA, N.A.


 


 


By: /s/ H. Michael Wills, SVP


Name: H. Michael Wills


Title: Senior Vice President


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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EXHIBIT A


TO


NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT


DATED AS OF MAY 3, 2013


BETWEEN


LAPOLLA INDUSTRIES, INC.


AND


BANK OF AMERICA, N.A.


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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LAPOLLA
INDUSTRIES, INC.


as Borrower


______________________________________________________________________________


______________________________________________________________________________


LOAN AND
SECURITY AGREEMENT


Dated as of August
31, 2010, as amended by the


First Amendment
to Loan and Security Agreement dated as of November 10, 2010,


the Second Amendment
to Loan and Security Agreement dated as of March 14, 2011,


the Third Amendment
to Loan and Security Agreement dated as of May 11, 2011,


the Fourth Amendment
to Loan and Security Agreement dated as of August 17, 2011,


the Fifth Amendment
to Loan and Security Agreement dated as of November 21, 2011,


the Sixth Amendment
to Loan and Security Agreement dated as of April 16, 2012,


the Seventh Amendment
to Loan and Security Agreement dated as of June 29, 2012,


the Eighth Amendment
to Loan and Security Agreement dated as of November 12, 2012,


and the Ninth
Amendment to Loan and Security Agreement, dated as of May 3, 2013






______________________________________________________________________________


______________________________________________________________________________


BANK OF
AMERICA, N.A.,


as Lender


 




     

     

    

TABLE
OF CONTENTS


Page


 





	SECTION 1.	DEFINITIONS; RULES OF CONSTRUCTION	1
	1.1.	Definitions.	1
	1.2.	Accounting Terms.	19
	1.3.	Uniform Commercial Code.20	 
	1.4.	Certain Matters of Construction.	20
	SECTION 2.	CREDIT FACILITIES	20
	2.1.	Revolver Commitment.	20
	2.2.	Term Loan Commitment.	21
	2.3.	Letter of Credit Facility.	21
	SECTION 3.	INTEREST, FEES AND CHARGES	22
	3.1.	Interest.	22
	3.2.	Fees.	24
	3.3.	Computation of Interest, Fees, Yield Protection.	24
	3.4.	Reimbursement Obligations.	24
	3.5.	Illegality.	25
	3.6.	Inability to Determine Rates.	25
	3.7.	Increased Costs; Capital Adequacy.	25
	3.8.	Mitigation.	26
	3.9.	Funding Losses. 	26
	3.10.	Maximum Interest.	26
	3.11.	Excess Resulting from Exchange Rate.	26
	SECTION 4.	LOAN ADMINISTRATION	27
	4.1.	Manner of Borrowing and Funding Revolver Loans.	27
	4.2.	Number and Amount of LIBOR Loans; Determination of Rate.	27
	4.3.	One Obligation.	28
	4.4.	Effect of Termination.	28
	SECTION 5.	PAYMENTS	28
	5.1.	General Payment Provisions.	28
	5.2.	Repayment of Revolver Loans.	28
	5.3.	Repayment of Term Loan.	28
	5.4.	Payment of Other Obligations.	29
	5.5.	Marshaling; Payments Set Aside.	29
	5.6.	Application of Payments.	29
	5.7.	Loan Account; Account Stated.	30
	5.8.	Taxes.	30
	5.9.	Nature and Extent of Borrower's Liability.	30
	SECTION 6.	CONDITIONS PRECEDENT	31
	6.1.	Conditions Precedent to Initial Loans.	31
	6.2.	Conditions Precedent to All Credit Extensions.	33
	SECTION 7.	COLLATERAL	33
	7.1.	Grant of Security Interest.	33
	7.2.	Lien on Deposit Accounts; Cash Collateral.	34
	7.3.	Reserved.	34
	7.4.	Other Collateral.	34
	7.5.	No Assumption of Liability.	35
	7.6.	Further Assurances; Extent of Liens.	35
	7.7.	Foreign Subsidiary Stock.	35







 





 


 


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	SECTION 8.	COLLATERAL ADMINISTRATION	35
	8.1.	Borrowing Base Certificates.	35
	8.2.	Administration of Accounts.	35
	8.3.	Administration of Inventory.	37
	8.4.	Administration of Equipment.	37
	8.5.	Administration of Deposit Accounts.	38
	8.6.	General Provisions.	38
	8.7.	Power of Attorney.	39
	SECTION 9.	REPRESENTATIONS AND WARRANTIES	40
	9.1.	General Representations and Warranties.	40
	9.2.	Complete Disclosure.	44
	SECTION 10.	COVENANTS AND CONTINUING AGREEMENTS	44
	10.1.	Affirmative Covenants.	44
	10.2.	Negative Covenants.	47
	10.3.	Financial Covenants.	50
	SECTION 11.	EVENTS OF DEFAULT; REMEDIES ON DEFAULT	51
	11.1.	Events of Default.	51
	11.2.	Remedies upon Default.	52
	11.3.	License.	53
	11.4.	Setoff.	53
	11.5.	Remedies Cumulative; No Waiver.	53
	SECTION 12.	MISCELLANEOUS	53
	12.1.	Consents, Amendments and Waivers.	53
	12.2.	Indemnity.	54
	12.3.	Notices and Communications.	54
	12.4.	Performance of Borrower's Obligations.	54
	12.5.	Credit Inquiries.	55
	12.6.	Severability.	55
	12.7.	Cumulative Effect; Conflict of Terms.	55
	12.8.	Counterparts.	55
	12.9.	Entire Agreement.	55
	12.10.	No Control; No Advisory or Fiduciary Responsibility.	55
	12.11.	Confidentiality.	56
	12.12.	Reserved.	56
	12.13.	GOVERNING LAW.	56
	12.14.	Consent to Forum.	56
	12.15.	Waivers by Borrower.	56
	12.16.	Patriot Act Notice..	57
	12.17.	NO ORAL AGREEMENT.	57







 


LIST
OF SCHEDULES





	Schedule 8.5	Deposit Accounts
	Schedule 8.6.1	Business Locations
	Schedule 9.1.4	Names and Capital Structure
	Schedule 9.1.11	Patents, Trademarks, Copyrights and Licenses
	Schedule 9.1.14	Environmental Matters
	Schedule 9.1.15	Restrictive Agreements
	Schedule 9.1.16	Litigation
	Schedule 9.1.18	Pension Plans
	Schedule 10.2.2	Existing Liens
	Schedule 10.2.17	Existing Affiliate Transactions










 


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LOAN
AND SECURITY AGREEMENT


THIS LOAN AND
SECURITY AGREEMENT, dated as of August 31, 2010, as amended by the First Amendment to Loan and Security Agreement dated as
of November 10, 2010, the Second Amendment to Loan and Security Agreement dated as of March 14, 2011, the Third Amendment
to Loan and Security Agreement dated as of May 11, 2011, the Fourth Amendment to Loan and Security Agreement dated as of August
17, 2011, the Fifth Amendment to Loan and Security Agreement dated as of November 21, 2011, the Sixth Amendment to Loan and Security
Agreement dated as of April 16, 2012, the Seventh Amendment to Loan and Security Agreement dated as of June 29, 2012, the Eighth
Amendment to Loan and Security Agreement dated as of November 12, 2012, and the Ninth Amendment to Loan and Security Agreement,
dated as of May 3, 2013 (or dated as of March 31, 2013, in the case of the definition of the term "Revolver Termination
Date"), is between LaPolla Industries,
Inc., a Delaware corporation ("Borrower"), and BANK OF AMERICA, N.A., a national banking association
("Lender").


R E C I T A L S:


Borrower has requested
that Lender provide a credit facility to Borrower to finance its business enterprise. Lender is willing to provide the credit facility
on the terms and conditions set forth in this Agreement.


NOW, THEREFORE,
for valuable consideration hereby acknowledged, the parties agree as follows:


SECTION
3.      DEFINITIONS; RULES OF CONSTRUCTION


3.1.           
Definitions. As used herein, the following terms have the meanings set forth below:


Account:
as defined in the UCC, including all rights to payment for goods sold or leased, or for services rendered.


Account Debtor:
a Person who is obligated under an Account, Chattel Paper or General Intangible.


Accounts Formula
Amount: 85% of the Value of Eligible Accounts.


Activation Notice:
a written notice by Lender to Borrower pursuant to Section 8.2.5(d), directing that all payments in respect of payments
on Canadian Accounts shall be transferred to a Dominion Account other than the Canadian Dominion Account.


Affiliate:
with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled
by or is under common Control with the Person specified. "Control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise
voting power, by contract or otherwise. "Controlling" and "Controlled" have correlative meanings.


Agreement:
this Loan and Security Agreement, as it may be amended, supplemented, renewed, extended, replaced or otherwise modified from time
to time.


Anti-Terrorism
Laws: any laws relating to terrorism or money laundering, including the Patriot Act.


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Applicable Law:
all laws, rules, regulations and governmental guidelines applicable to the Person, conduct, transaction, agreement or matter in
question, including all applicable statutory law, common law and equitable principles, and all provisions of constitutions, treaties,
statutes, rules, regulations, orders and decrees of Governmental Authorities.


Applicable Margin:
with respect to any Type of Loan, the margin set forth below:


	Base Rate Revolver Loans and UK Base Rate Revolver Loans	 	LIBOR Revolver Loans	 	LIBOR Term Loans
	 	2.25%		 	 	3.25%		 	 	4.00%	



 


 


Asset Disposition:
a sale, lease, license, consignment, transfer or other disposition of Property of an Obligor, including a disposition of Property
in connection with a sale-leaseback transaction or synthetic lease.


Availability:
the Borrowing Base minus the principal balance of all Revolver Loans.


Availability Reserve:
the sum (without duplication) of (a) the Basic Reserve plus (b) the Inventory Reserve plus (c) the
Rent and Charges Reserve plus (d) the LC Reserve plus (e) the Bank Product Reserve plus (f) UK Priority
Payable Reserve plus (g) all accrued Royalties, whether or not then due and payable by a Borrower plus (h) the
aggregate amount of liabilities secured by Liens upon Collateral that are senior to Lender's Liens (but imposition of any such
reserve shall not waive an Event of Default arising therefrom) plus (i) such additional reserves, in such amounts and
with respect to such matters, as Lender in its discretion may elect to impose from time to time.


 


Bank Product:
any of the following products, services or facilities extended to Borrower or Subsidiary by Lender or any of its Affiliates: (a)
Cash Management Services; (b) products under Hedging Agreements; (c) commercial credit card and merchant card services; and (d)
leases and other banking products or services as may be requested by Borrower or Subsidiary, other than Letters of Credit.


Bank Product
Debt: Debt and other obligations of an Obligor relating to Bank Products.


Bank Product
Reserve: the aggregate amount of reserves established by Lender from time to time in its discretion in respect of Bank Product
Debt.


Bankruptcy Code:
Title 11 of the United States Code.


Base Rate:
for any day, a per annum rate equal to the greater of (a) the Prime Rate for such day; (b) the Federal Funds Rate for such day,
plus 0.50%; or (c) LIBOR for a 30 day interest period as determined on such day, plus 1.50%.


Base Rate Loan:
any Loan that bears interest based on the Base Rate.


Basic Reserve:
an amount, determined as of any day, equal to $500,000.


Base Rate Revolver
Loan: a Revolver Loan that bears interest based on the Base Rate.


Board of Governors:
the Board of Governors of the Federal Reserve System.


 


 


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Borrowed Money:
with respect to any Obligor, without duplication, its (a) Debt that (i) arises from the lending of money by any Person to such
Obligor, (ii) is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments, (iii) accrues interest
or is a type upon which interest charges are customarily paid (excluding trade payables owing in the Ordinary Course of Business),
or (iv) was issued or assumed as full or partial payment for Property; (b) Capital Leases; (c) reimbursement obligations with respect
to letters of credit; and (d) guaranties of any Debt of the foregoing types owing by another Person.


Borrowing:
a group of Loans of one Type that are made on the same day or are converted into Loans of one Type on the same day.


Borrowing Base:
on any date of determination, an amount equal to the lesser of (a) the Revolver Commitment, minus the LC Reserve; or (b)
the sum of the Accounts Formula Amount, plus the Inventory Formula Amount, minus the Availability Reserve; provided
notwithstanding the foregoing that, for purposes of clause (b) preceding, the amount included in the Inventory Formula Amount
in respect of Inventory located in Canada plus the amount included in the Accounts Formula Amount in respect of Accounts
payable by an Account Debtor that is organized or has its principal office or assets in Canada shall not at any time exceed $4,000,000


Borrowing Base
Certificate: a certificate, in form and substance satisfactory to Lender, by which Borrower certifies calculation of the Borrowing
Base.


Business Day:
any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are
in fact closed in, North Carolina and Texas, and if such day relates to a LIBOR Loan, any such day on which dealings in Dollar
deposits are conducted between banks in the London interbank Eurodollar market.


Canadian Accounts:
Accounts resulting from Canadian Sales.


 


Canadian Disbursement
Account: deposit account #711449328214 maintained at Bank of America, N.A., (acting through its Canada branch), or such other
account as may be mutually agreed in writing by Lender and Borrower.


 


Canadian Dominion Account:
a Dominion Account, deposit account #711449328206, maintained at Bank of America, N.A., (acting through its Canada branch), or
such other account as may be designated by Lender to Borrower in writing for the deposit of payments on Canadian Accounts.


 


Canadian Sales:
all sales of goods or services by Borrower to residents of Canada or with respect to which the sales price is payable by residents
of Canada.


 


Capital Expenditures:
all liabilities incurred or expenditures made by Borrower or Subsidiary for the acquisition of fixed assets, or any improvements,
replacements, substitutions or additions thereto with a useful life of more than one year.


Capital Lease:
any lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.


Cash Collateral:
cash, and any interest or other income earned thereon, that is delivered to Lender to Cash Collateralize any Obligations.


Cash Collateral
Account: a demand deposit, money market or other account maintained with Lender and subject to Lender's Liens.


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Cash Collateralize:
the delivery of cash to Lender, as security for the payment of Obligations, in an amount equal to (a) with respect to LC Obligations,
105% of the aggregate LC Obligations, and (b) with respect to any inchoate, contingent or other Obligations (including Obligations
arising under Bank Products), Lender's good faith estimate of the amount due or to become due, including all fees and other amounts
relating to such Obligations. "Cash Collateralization" has a correlative meaning.


Cash Equivalents:
(a) marketable obligations issued or unconditionally guaranteed by, and backed by the full faith and credit of, the United States
government, maturing within 12 months of the date of acquisition; (b) certificates of deposit, time deposits and bankers' acceptances
maturing within 12 months of the date of acquisition, and overnight bank deposits, in each case which are issued by a commercial
bank organized under the laws of the United States or any state or district thereof, rated A-1 (or better) by S&P or P-1 (or
better) by Moody's at the time of acquisition, and (unless issued by Lender) not subject to offset rights; (c) repurchase obligations
with a term of not more than 30 days for underlying investments of the types described in clauses (a) and (b) entered into with
any bank meeting the qualifications specified in clause (b); (d) commercial paper rated A-1 (or better) by S&P or P-1 (or better)
by Moody's, and maturing within nine months of the date of acquisition; and (e) shares of any money market fund that has substantially
all of its assets invested continuously in the types of investments referred to above, has net assets of at least $500,000,000
and has the highest rating obtainable from either Moody's or S&P.


Cash Management
Services: any services provided from time to time by Lender or any of its Affiliates to Borrower or Subsidiary in connection
with operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-payable,
electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop
payment services.


CERCLA: the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. § 9601 et seq.).


Change in Law:
the occurrence, after the date hereof, of (a) the adoption or taking effect of any law, rule, regulation or treaty; (b) any change
in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority;
or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental
Authority.


Change of Control:
(a) Richard J. Kurtz ceases to own and control, beneficially and of record, directly or indirectly, greater than 51% of all Voting
Equity Interests in Borrower; (b) a change in the majority of directors of Borrower, unless approved by the then majority of directors;
or (c) all or substantially all of Borrower's assets are sold or transferred.


Claims: all
liabilities, obligations, losses, damages, penalties, judgments, proceedings, interest, costs and expenses of any kind (including
remedial response costs, reasonable attorneys' fees and Extraordinary Expenses) at any time (including after Full Payment of the
Obligations) incurred by or asserted against any Indemnitee in any way relating to (a) any Loans, Letters of Credit, Loan Documents,
or the use thereof or transactions relating thereto, (b) any action taken or omitted to be taken by any Indemnitee in connection
with any Loan Documents, (c) the existence or perfection of any Liens, or realization upon any Collateral, (d) exercise of any
rights or remedies under any Loan Documents or Applicable Law, or (e) failure by any Obligor to perform or observe any terms of
any Loan Document, in each case including all costs and expenses relating to any investigation, litigation, arbitration or other
proceeding (including an Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is a party thereto.


Closing Date:
as defined in Section 6.1, which date was August 31, 2010.


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Code: the
Internal Revenue Code of 1986.


Collateral:
all Property described in Section 7.1, all Property described in any Security Documents as security for any Obligations,
and all other Property that now or hereafter secures (or is intended to secure) any Obligations.


Commitment Termination
Date: the earliest to occur of (a) the Revolver Termination Date; (b) the date on which Borrower terminates the Revolver Commitment
pursuant to Section 2.1.3; or (c) the date on which the Revolver Commitment is terminated pursuant to Section 11.2.


Commitments:
the Revolver Commitment and Term Loan Commitment.


Compliance Certificate:
a certificate, in form and substance satisfactory to Lender, by which Borrower certifies compliance with Sections 10.2.3
and 10.3 and lists all outstanding Bank Products.


Contingent Obligation:
any obligation of a Person arising from a guaranty, indemnity or other assurance of payment or performance of any Debt, lease,
dividend or other obligation ("primary obligations") of another obligor ("primary obligor") in
any manner, whether directly or indirectly, including any obligation of such Person under any (a) guaranty, endorsement, co-making
or sale with recourse of an obligation of a primary obligor; (b) obligation to make take-or-pay or similar payments regardless
of nonperformance by any other party to an agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor,
(ii) to supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure working capital, equity
capital, net worth or solvency of the primary obligor, (iv) to purchase Property or services for the purpose of assuring the ability
of the primary obligor to perform a primary obligation, or (v) otherwise to assure or hold harmless the holder of any primary obligation
against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be the stated or determinable amount
of the primary obligation (or, if less, the maximum amount for which such Person may be liable under the instrument evidencing
the Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with respect thereto.


CWA: the
Clean Water Act (33 U.S.C. §§ 1251 et seq.).


Debt: as
applied to any Person, without duplication, (a) all items that would be included as liabilities on a balance sheet in accordance
with GAAP, including Capital Leases, but excluding trade payables incurred and being paid in the Ordinary Course of Business; (b)
all Contingent Obligations; (c) all reimbursement obligations in connection with letters of credit issued for the account of such
Person; and (d) in the case of Borrower, the Obligations. The Debt of a Person shall include any recourse Debt of any partnership
in which such Person is a general partner or joint venturer.


Default:
an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default.


Default Rate:
for any Obligation (including, to the extent permitted by law, interest not paid when due), 2% plus the interest rate otherwise
applicable thereto.


Deposit Account:
(i) any "deposit account" as such term is defined in Article 9 of the UCC and in any event shall include all accounts
and sub-accounts relating to any of the foregoing and (ii) with respect to any such Deposit Account located outside of the U.S.,
any bank account with a deposit function.


 


 


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Deposit Account
Control Agreements: the Deposit Account control agreements (whether in the form of an agreement, notice and acknowledgement
or like instrument) to be executed by each institution maintaining a Deposit Account for Borrower, in favor of Lender, as security
for the Obligations.


Designated Account
Debtor: means an Account Debtor that is identified by Borrower and Lender as a "Designated Account Debtor" for purposes
of clause (a)(iii) of the definition of Eligible Account, and evidenced in writing signed by Borrower and Lender.


Distribution:
any declaration or payment of a distribution, interest or dividend on any Equity Interest (other than payment-in-kind); any distribution,
advance or repayment of Debt to a holder of Equity Interests; or any purchase, redemption, or other acquisition or retirement for
value of any Equity Interest.


Dollar Equivalent:
on any date, with respect to any amount denominated in Dollars, such amount in Dollars, and with respect to any stated amount in
a currency other than Dollars, the amount of Dollars that Lender determines (which determination shall be conclusive and binding
absent manifest error) would be necessary to be sold on such date at the applicable Exchange Rate to obtain the stated amount of
the other currency.


Dollars:
lawful money of the United States.


Dominion Account:
a special account established by Borrower at Lender or a bank acceptable to Lender, over which Lender has exclusive control for
withdrawal purposes.


EBITDA:
determined on a consolidated basis for Borrower and Subsidiaries, net income, calculated before interest expense, provision for
income taxes, depreciation and amortization expense, non-cash stock-based compensation expense, gains or losses arising from the
sale of capital assets, gains arising from the write-up of assets, and any extraordinary gains (in each case, to the extent included
in determining net income).


 


Eligible Account:
an Account owing to Borrower that arises in the Ordinary Course of Business from the sale of goods, is payable in
Dollars (or, in the case of an Account owing by ** Group or another Account Debtor approved by Lender in its sole discretion as
provided in clause (g) below, is payable in Euros or Sterling) and is deemed by Lender, in its discretion, to be an Eligible
Account. Without limiting the foregoing, no Account shall be an Eligible Account if (a) it is unpaid for more than (i) 90
days after the original invoice date if the original due date is 30 days or less from the original invoice date or (iii)
120 days after the original invoice date if the original due date is more than 30 days and less than or equal to
60 days from the original invoice date and the Account Debtor for such Account is a Designated Account Debtor; (b) 25% or
more of the Accounts owing by the Account Debtor are not Eligible Accounts under the foregoing clause; (c) when aggregated with
other Accounts owing by the Account Debtor, it exceeds 15% of the aggregate Eligible Accounts (or such higher percentage
as Lender may establish for the Account Debtor from time to time); (d) it does not conform with a covenant or representation herein;
(e) it is owing by a creditor or supplier, or is otherwise subject to a potential offset, counterclaim, dispute, deduction, discount,
recoupment, reserve, defense, chargeback, credit or allowance (but ineligibility shall be limited to the amount thereof); (f) an
Insolvency Proceeding has been commenced by or against the Account Debtor; or the Account Debtor has failed, has suspended or ceased
doing business, is liquidating, dissolving or winding up its affairs, or is not Solvent; or the Borrower is not able to bring suit
or enforce remedies against the Account Debtor through judicial process; (g) the Account Debtor is organized or has its principal
offices or assets outside the United States or Canada, unless payment of such Account is secured by an irrevocable letter of credit,
in form and substance satisfactory to Lender and issued by a financial institution acceptable to Lender, in each case in Lender's
sole discretion, payable in Dollars in the full face amount of such Account, and Lender has control (as


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defined by Section 9.107 of the UCC)
of all Letter of Credit Rights associated with such letter of credit, provided that ** or any other Account Debtor from time to
time approved in writing by Lender (for purposes of this definition of the term Eligible Account) in its sole discretion which
is organized or has its principal office and assets in the United Kingdom shall not be excluded by virtue of this clause (g)
if (but only if) the Accounts of such Account Debtor are acceptable to Lender in its sole discretion, which Accounts may be payable
in Dollars, Euros or Sterling, and are fully covered by credit insurance in form and substance and provided by an insurance company
acceptable to Lender in its sole discretion; (h) it is owing by a Government Authority, unless the Account Debtor is the United
States or any department, agency or instrumentality thereof and the Account has been assigned to Lender in compliance with the
Assignment of Claims Act; (i) it is not subject to a duly perfected, first priority Lien in favor of Lender, or is subject to any
other Lien; (j) the goods giving rise to it have not been delivered to and accepted by the Account Debtor, the services giving
rise to it have not been accepted by the Account Debtor, or it otherwise does not represent a final sale; (k) it is evidenced by
Chattel Paper or an Instrument of any kind, or has been reduced to judgment; (l) its payment has been extended, the Account Debtor
has made a partial payment, or it arises from a sale on a cash-on-delivery basis; (m) it arises from a sale to an Affiliate, from
a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment, or other repurchase or return basis,
or from a sale to a Person for personal, family or household purposes; (n) it represents a progress billing or retainage, or relates
to services for which a performance, surety or completion bond or similar assurance has been issued; or (o) it includes a billing
for interest, fees or late charges, but ineligibility shall be limited to the extent thereof. In calculating delinquent portions
of Accounts under clauses (a) and (b), credit balances more than 90 days old will be excluded. For the avoidance of doubt, in the
event that any Eligible Accounts are payable in Euros or Sterling, then the amount of such Eligible Accounts for purposes of the
determination of the Borrowing Base and other matters under this Agreement shall be the Dollar Equivalent thereof.


Eligible Inventory:
Inventory owned by Borrower that Lender, in its discretion, deems to be Eligible Inventory. Without limiting the foregoing, no
Inventory shall be Eligible Inventory unless it (a) is finished goods or raw materials, and not work-in-process, packaging
or shipping materials, labels, samples, display items, bags, replacement parts or manufacturing supplies; (b) is not held on consignment,
nor subject to any deposit or downpayment; (c) is in new and saleable condition and is not damaged, defective, shopworn or otherwise
unfit for sale; (d) is not slow-moving, obsolete or unmerchantable, and does not constitute returned or repossessed goods; (e)
meets all standards imposed by any Governmental Authority, and does not constitute hazardous materials under any Environmental
Law; (f) conforms with the covenants and representations herein; (g) is subject to Lender's duly perfected, first priority Lien,
and no other Lien; (h) is within the continental United States or Canada, is not in transit except between locations of Borrower,
and is not consigned to any Person; (i) is not subject to any warehouse receipt or negotiable Document; (j) is not subject to any
License or other arrangement that restricts Borrower's or Lender's right to dispose of such Inventory, unless Lender has received
an appropriate Lien Waiver; (k) is located on premises owned or leased by Borrower at which the aggregate Value of all Eligible
Inventory located on such premises exceeds $100,000, (l) is not located on leased premises or in the possession of a warehouseman,
processor, repairman, mechanic, shipper, freight forwarder or other Person, unless the lessor or such Person has delivered a Lien
Waiver or an appropriate Rent and Charges Reserve has been established; and (m) is reflected in the details of a current perpetual
inventory report.


Enforcement Action:
any action to enforce any Obligations or Loan Documents or to realize upon any Collateral (whether by judicial action, self-help,
notification of Account Debtors, exercise of setoff or recoupment, or otherwise).


 


 


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Environmental
Laws: all Applicable Laws (including all programs, permits and guidance promulgated by regulatory agencies), relating to public
health (but excluding occupational safety and health, to the extent regulated by OSHA) or the protection or pollution of the environment,
including CERCLA, RCRA and CWA.


Environmental
Notice: a notice (whether written or oral) from any Governmental Authority or other Person of any possible noncompliance with,
investigation of a possible violation of, litigation relating to, or potential fine or liability under any Environmental Law, or
with respect to any Environmental Release, environmental pollution or hazardous materials, including any complaint, summons, citation,
order, claim, demand or request for correction, remediation or otherwise.


Environmental
Release: a release as defined in CERCLA or under any other Environmental Law.


Equity Interest:
the interest of any (a) shareholder in a corporation; (b) partner in a partnership (whether general, limited, limited liability
or joint venture); (c) member in a limited liability company; or (d) other Person having any other form of equity security or ownership
interest.


ERISA: the
Employee Retirement Income Security Act of 1974.


ERISA Affiliate:
any trade or business (whether or not incorporated) under common control with an Obligor within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).


ERISA Event:
(a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Obligor or ERISA Affiliate from a Pension Plan subject
to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA)
or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal
by any Obligor or ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) any Obligor or ERISA
Affiliate fails to meet any funding obligations with respect to any Pension Plan or Multiemployer Plan, or requests a minimum funding
waiver; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title IV of ERISA,
other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligor or ERISA Affiliate.


Euro: the
single currency of the Participating Member States which have adopted the euro unit as their single currency pursuant to the Treaty
of Rome of March 25, 1957, establishing the European Community.


Event of Default:
as defined in Section 11.


Exchange Rate:
the exchange rate, as determined by Lender, applicable to conversion of a currency into Dollars that is (a) reported by Bloomberg
(or another commercially available source designated by Lender) as of the end of the preceding Business Day in the financial market
for such currency; or (b) if such report is unavailable for any reason, the spot rate for the purchase of such currency with Dollars
through Lender's principal foreign exchange trading office for the currency during such office's preceding Business Day.


 


 


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Excluded Tax:
with respect to Lender or any other recipient of a payment to be made by or on account of any Obligation, (a) taxes imposed on
or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by
the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal
office is located or, in the case of Lender, in which its applicable lending office is located; and (b) any branch profits taxes
imposed by the United States, Canada or any similar tax imposed by any other jurisdiction in which Borrower is located.


Extraordinary
Expenses: all costs, expenses or advances that Lender may incur during a Default or Event of Default, or during the pendency
of an Insolvency Proceeding of an Obligor, including those relating to (a) any audit, inspection, repossession, storage, repair,
appraisal, insurance, manufacture, preparation or advertising for sale, sale, collection, or other preservation of or realization
upon any Collateral; (b) any action, arbitration or other proceeding (whether instituted by or against Lender, any Obligor, any
representative of creditors of an Obligor or any other Person) in any way relating to any Collateral (including the validity, perfection,
priority or avoidability of Lender's Liens with respect to any Collateral), Loan Documents, Letters of Credit or Obligations, including
any lender liability or other Claims; (c) the exercise, protection or enforcement of any rights or remedies of Lender in, or the
monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of any taxes, charges or Liens with respect to any Collateral;
(e) any Enforcement Action; and (f) negotiation and documentation of any modification, waiver, workout, restructuring or forbearance
with respect to any Loan Documents or Obligations. Such costs, expenses and advances include transfer fees, Other Taxes, storage
fees, insurance costs, permit fees, utility reservation and standby fees, legal fees, appraisal fees, brokers' fees and commissions,
auctioneers' fees and commissions, accountants' fees, environmental study fees, wages and salaries paid to employees of any Obligor
or independent contractors in liquidating any Collateral, and travel expenses.


Federal Funds
Rate: (a) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers on the applicable Business Day (or on the preceding Business Day, if the applicable day
is not a Business Day), as published by the Federal Reserve Bank of New York on the next Business Day; or (b) if no such rate is
published on the next Business Day, the average rate (rounded up, if necessary, to the nearest 1/8 of 1%) charged to Lender on
the applicable day on such transactions, as determined by Lender.


Fiscal Quarter:
each period of three months, commencing on the first day of a Fiscal Year.


Fiscal Year:
the fiscal year of Borrower and Subsidiaries for accounting and tax purposes, ending on December 31 of each year.


Fixed Charge Coverage
Ratio: the ratio, determined for any period on a consolidated basis for Borrower and Subsidiaries, of (a) EBITDA to (b) the
sum of Capital Expenditures (except those financed with Borrowed Money other than Revolver Loans), cash taxes paid, interest expense
(other than payment-in-kind), principal payments made on Borrowed Money, and Distributions made, in each case determined for such
period.


 


FLSA: the
Fair Labor Standards Act of 1938.


Foreign Plan:
any employee benefit plan or arrangement (a) maintained or contributed to by any Obligor or Subsidiary that is not subject to the
laws of the United States; or (b) mandated by a government other than the United States for employees of any Obligor or Subsidiary.


 


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Foreign Subsidiary:
a Subsidiary that is a "controlled foreign corporation" under Section 957 of the Code, such that a guaranty by such Subsidiary
of the Obligations or a Lien on the assets of such Subsidiary to secure the Obligations would result in material tax liability
to Borrower.


Full Payment:
with respect to any Obligations, (a) the full and indefeasible cash payment thereof, including any interest, fees and other charges
accruing during an Insolvency Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC Obligations
or inchoate or contingent in nature, Cash Collateralization thereof (or delivery of a standby letter of credit acceptable to Lender
in its discretion, in the amount of required Cash Collateral); and (c) a release of any Claims of Obligors against Lender arising
on or before the payment date. The Revolver Loans shall not be deemed to have been paid in full until the Revolver Commitment has
expired or been terminated.


GAAP: generally
accepted accounting principles in effect in the United States from time to time.


Governmental
Approvals: all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and required
reports to, all Governmental Authorities.


Governmental
Authority: any federal, state, municipal, foreign or other governmental department, agency, commission, board, bureau, court,
tribunal, instrumentality, political subdivision, or other entity or officer exercising executive, legislative, judicial, regulatory
or administrative functions for or pertaining to any government or court, in each case whether associated with the United States,
a state, district or territory thereof, or a foreign entity or government.


Guarantors:
Richard Kurtz and each other Person who guarantees payment or performance of any Obligations, and Guarantor means any of
the foregoing.


Guaranty:
each guaranty agreement executed by a Guarantor in favor of Lender.


Hedging Agreement:
an agreement relating to any swap, cap, floor, collar, option, forward, cross right or obligation, or combination thereof or similar
transaction, with respect to interest rate, foreign exchange, currency, commodity, credit or equity risk.


Indemnified Taxes:
Taxes other than Excluded Taxes.


Indemnitees:
Lender and its officers, directors, employees, Affiliates, agents and attorneys.


Insolvency Proceeding:
any case or proceeding commenced by or against a Person under any state, federal or foreign law for, or any agreement of such Person
to, (a) the entry of an order for relief under the Bankruptcy Code, Bankruptcy and Insolvency Act (Canada), Companies'
Creditors Arrangement Act (Canada), Bankruptcy Act 1966 (Cth), the Corporations Act (2001) (Cth) or any other
insolvency, debtor relief or debt adjustment law; (b) the appointment of a receiver, trustee, liquidator, administrator, conservator
or other custodian for such Person or any part of its Property; or (c) an assignment or trust mortgage for the benefit of creditors.


Insurance Assignment:
each collateral assignment of insurance pursuant to which an Obligor assigns to Lender such Obligor's rights under key-man life,
business interruption or other insurance policies as Lender deems appropriate, as security for the Obligations.


 


 


 


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Intellectual
Property: all intellectual and similar Property of a Person, including inventions, designs, patents, copyrights, trademarks,
service marks, trade names, trade secrets, confidential or proprietary information, customer lists, know-how, software and databases;
all embodiments or fixations thereof and all related documentation, applications, registrations and franchises; all licenses or
other rights to use any of the foregoing; and all books and records relating to the foregoing.


Intellectual
Property Claim: any claim or assertion (whether in writing, by suit or otherwise) that Borrower's or Subsidiary's ownership,
use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other Property violates another Person's
Intellectual Property.


Interest Period:
as defined in Section 3.1.3.


Inventory:
as defined in the UCC, including all goods intended for sale, lease, display or demonstration; all work in process; and all raw
materials, and other materials and supplies of any kind that are or could be used in connection with the manufacture, printing,
packing, shipping, advertising, sale, lease or furnishing of such goods, or otherwise used or consumed in Borrower's business (but
excluding Equipment).


Inventory Formula
Amount: the lesser of (i) 55% of the Value of Eligible Inventory, (ii) 85% of the NOLV Percentage of the Value of Eligible
Inventory or (iii) $5,000,000.


Inventory Reserve:
reserves established by Lender to reflect factors that may negatively impact the Value of Inventory, including change in salability,
obsolescence, seasonality, theft, shrinkage, imbalance, change in composition or mix, markdowns and vendor chargebacks.


Investment:
any acquisition of all or substantially all assets of a Person; any acquisition of record or beneficial ownership of any Equity
Interests of a Person; or any advance or capital contribution to or other investment in a Person.


IRS: the
United States Internal Revenue Service.


LC Application:
an application by Borrower to Lender for issuance of a Letter of Credit, in form and substance satisfactory to Lender.


LC Conditions:
the following conditions necessary for issuance of a Letter of Credit: (a) each of the conditions set forth in Section 6;
(b) after giving effect to such issuance, total LC Obligations do not exceed the Letter of Credit Subline, no Overadvance exists
and, if no Revolver Loans are outstanding, the LC Obligations do not exceed the Borrowing Base (without giving effect to the LC
Reserve for purposes of this calculation); (c) the expiration date of such Letter of Credit is (i) no more than 365 days from issuance,
in the case of standby Letters of Credit, (ii) no more than 120 days from issuance, in the case of documentary Letters of Credit,
and (iii) at least 20 Business Days prior to the Revolver Termination Date; (d) the Letter of Credit and payments thereunder are
denominated in Dollars; and (e) the purpose and form of the proposed Letter of Credit is satisfactory to Lender in its discretion.


LC Documents:
all documents, instruments and agreements (including LC Requests and LC Applications) delivered by Borrower or any other Person
to Lender in connection with issuance, amendment or renewal of, or payment under, any Letter of Credit.


LC Obligations:
the sum (without duplication) of (a) all amounts owing by Borrower for any drawings under Letters of Credit; (b) the stated amount
of all outstanding Letters of Credit; and (c) all fees and other amounts owing with respect to Letters of Credit.


 


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LC Request:
a request for issuance of a Letter of Credit, to be provided by Borrower, in form satisfactory to Lender.


LC Reserve:
the aggregate of all LC Obligations, other than (a) those that have been Cash Collateralized; and (b) if no Default or Event of
Default exists, those constituting charges owing to Lender.


Lender: as
defined in the preamble to this Agreement and includes the foreign branches of Bank of America, N.A., including Bank of America,
N.A. (acting through its London branch).


Lender Professionals:
attorneys, accountants, appraisers, auditors, business valuation experts, environmental engineers or consultants, turnaround consultants,
and other professionals and experts retained by Lender.


Letter of Credit:
any standby or documentary letter of credit issued by Lender for the account of Borrower, or any indemnity, guarantee, exposure
transmittal memorandum or similar form of credit support issued by Lender for the benefit of Borrower.


Letter of Credit
Subline: $3,000,000.


LIBOR: for
any Interest Period with respect to a LIBOR Loan, the per annum rate of interest (rounded up, if necessary, to the nearest 1/8th
of 1%), determined by Lender at approximately 11:00 a.m. (London time) two Business Days prior to commencement of such Interest
Period, for a term comparable to such Interest Period, equal to (a) the British Bankers Association LIBOR Rate ("BBA LIBOR"),
as published by Reuters (or other commercially available source designated by Lender); or (b) if BBA LIBOR is not available for
any reason, the interest rate at which Dollar deposits in the approximate amount of the LIBOR Loan would be offered by Lender's
London branch to major banks in the London interbank Eurodollar market. If the Board of Governors imposes a Reserve Percentage
with respect to LIBOR deposits, then LIBOR shall be the foregoing rate, divided by 1 minus the Reserve Percentage.


LIBOR Loan:
each set of LIBOR Revolver Loans or LIBOR Term Loans having a common length and commencement of Interest Period.


LIBOR Revolver
Loan: a Revolver Loan that bears interest based on LIBOR.


LIBOR Term Loan:
a Term Loan that bears interest based on LIBOR.


License:
any license or agreement under which an Obligor is authorized to use Intellectual Property in connection with any manufacture,
marketing, distribution or disposition of Collateral, any use of Property or any other conduct of its business.


Licensor:
any Person from whom an Obligor obtains the right to use any Intellectual Property.


Lien: any
Person's interest in Property securing an obligation owed to, or a claim by, such Person, whether such interest is based on common
law, statute or contract, including liens, security interests, pledges, hypothecations, statutory trusts, reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Property.


 


 


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Lien Waiver:
an agreement, in form and substance satisfactory to Lender, by which (a) for any material Collateral located on leased premises,
the lessor waives or subordinates any Lien it may have on the Collateral, and agrees to permit Lender to enter upon the premises
and remove the Collateral or to use the premises to store or dispose of the Collateral; (b) for any Collateral held by a warehouseman,
processor, shipper, customs broker or freight forwarder, such Person waives or subordinates any Lien it may have on the Collateral,
agrees to hold any Documents in its possession relating to the Collateral as agent for Lender, and agrees to deliver the Collateral
to Lender upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Lender's Lien,
waives or subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to Lender upon request; and
(d) for any Collateral subject to a Licensor's Intellectual Property rights, the Licensor grants to Lender the right, vis-à-vis
such Licensor, to enforce Lender's Liens with respect to the Collateral, including the right to dispose of it with the benefit
of the Intellectual Property, whether or not a default exists under any applicable License.


Loan: a Revolver
Loan or Term Loan.


Loan Account:
the loan account established by Lender on its books pursuant to Section 5.7.


Loan Documents:
this Agreement, Other Agreements and Security Documents.


Loan Year:
each 12 month period commencing on the Closing Date and on each anniversary of the Closing Date.


Margin Stock:
as defined in Regulation U of the Board of Governors.


Material Adverse
Effect: the effect of any event or circumstance that, taken alone or in conjunction with other events or circumstances, (a)
has or could be reasonably expected to have a material adverse effect on the business, operations, Properties, prospects or condition
(financial or otherwise) of any Obligor, on the value of any material Collateral, on the enforceability of any Loan Documents,
or on the validity or priority of Lender's Liens on any Collateral; (b) impairs the ability of any Obligor to perform any obligations
under the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability of Lender to enforce or
collect any Obligations or to realize upon any Collateral.


Material Contract:
any agreement or arrangement to which Borrower or Subsidiary is party (other than the Loan Documents) (a) that is deemed to be
a material contract under any securities law applicable to such Obligor, including the Securities Act of 1933; (b) for which breach,
termination, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect; or (c) that relates
to Subordinated Debt, or Debt in an aggregate amount of $250,000 or more.


Moody's:
Moody's Investors Service, Inc., and its successors.


Multiemployer
Plan: any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Obligor or ERISA Affiliate
makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.


Net Proceeds:
with respect to an Asset Disposition, proceeds (including, when received, any deferred or escrowed payments) received by Borrower
or Subsidiary in cash from such disposition, net of (a) reasonable and customary costs and expenses actually incurred in connection
therewith, including legal fees and sales commissions; (b) amounts applied to repayment of Debt secured by a Permitted Lien senior
to Lender's Liens on Collateral sold; (c) transfer or similar taxes; and (d) reserves for indemnities, until such reserves are
no longer needed.


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NOLV Percentage:
the net orderly liquidation value of Inventory, expressed as a percentage, expected to be realized at an orderly, negotiated sale
held within a reasonable period of time, net of all liquidation expenses, as determined from the most recent appraisal, if any,
of Borrower's Inventory performed by an appraiser and on terms satisfactory to Lender.


Notice of Borrowing:
a Notice of Borrowing to be provided by Borrower to request a Borrowing of Revolver Loans, in form satisfactory to Lender.


Notice of Conversion/Continuation:
a Notice of Conversion/Continuation to be provided by Borrower to request a conversion or continuation of any Loans as LIBOR Loans,
in form satisfactory to Lender.


Obligations:
all (a) principal of and premium, if any, on the Loans, (b) LC Obligations and other obligations of Obligors with respect to Letters
of Credit, (c) interest, expenses, fees and other sums payable by Obligors under Loan Documents, (d) obligations of Obligors under
any indemnity for Claims, (e) Extraordinary Expenses, (f) Bank Product Debt, and (g) other Debts, obligations and liabilities of
any kind owing by any Obligor to Lender, whether now existing or hereafter arising, whether evidenced by a note or other writing,
whether allowed in any Insolvency Proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance,
loan, guaranty, indemnification or otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary
or secondary, or joint or several.


Obligor:
Borrower, each Guarantor, and any other Person that is liable for payment of any Obligations or that has granted a Lien in favor
of Lender on its assets to secure any Obligations, and "Obligors" means all the foregoing.


Ordinary Course
of Business: the ordinary course of business of Borrower or Subsidiary, consistent with past practices and undertaken in good
faith.


Organic Documents:
with respect to any Person, its charter, certificate or articles of incorporation, bylaws, articles of organization, limited liability
agreement, operating agreement, members agreement, shareholders agreement, partnership agreement, certificate of partnership, certificate
of formation, voting trust agreement, or similar agreement or instrument governing the formation or operation of such Person.


OSHA: the
Occupational Safety and Hazard Act of 1970.


Other Agreement:
each LC Document; Lien Waiver; Borrowing Base Certificate, Compliance Certificate, financial statement or report delivered hereunder;
or other document, instrument or agreement (other than this Agreement or a Security Document) now or hereafter delivered by an
Obligor or other Person to Lender in connection with any transactions relating hereto.


Other Taxes:
all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from
any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.


Overadvance:
as defined in Section 2.1.4.


Patent Assignment:
each patent collateral assignment agreement pursuant to which an Obligor assigns to Lender such Obligor's interests in its patents,
as security for the Obligations.


Patriot Act:
the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,
Pub. L. No. 107-56, 115 Stat. 272 (2001).


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Payment Item:
each check, draft or other item of payment payable to Borrower, including those constituting proceeds of any Collateral.


PBGC: the
Pension Benefit Guaranty Corporation.


Pension Plan:
any employee pension benefit plan (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA Affiliate or to which the Obligor or ERISA
Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section
4064(a) of ERISA, has made contributions at any time during the preceding five plan years.


Permitted Asset
Disposition: as long as no Default or Event of Default exists and all Net Proceeds are remitted to Lender, an Asset Disposition
that is (a) a sale of Inventory in the Ordinary Course of Business; (b) a disposition of Equipment that, in the aggregate during
any 12 month period, has a fair market or book value (whichever is more) of $100,000 or less; (c) a disposition of Inventory that
is obsolete, unmerchantable or otherwise unsalable in the Ordinary Course of Business; (d) termination of a lease of real or personal
Property that is not necessary for the Ordinary Course of Business, could not reasonably be expected to have a Material Adverse
Effect and does not result from an Obligor's default; or (e) approved in writing by Lender.


Permitted Contingent
Obligations: Contingent Obligations (a) arising from endorsements of Payment Items for collection or deposit in the Ordinary
Course of Business; (b) arising from Hedging Agreements permitted hereunder; (c) existing on the Closing Date, and any extension
or renewal thereof that does not increase the amount of such Contingent Obligation when extended or renewed; (d) incurred in the
Ordinary Course of Business with respect to surety, appeal or performance bonds, or other similar obligations; (e) arising from
customary indemnification obligations in favor of purchasers in connection with dispositions of Equipment permitted hereunder;
(f) arising under the Loan Documents; or (g) in an aggregate amount of $100,000 or less at any time.


Permitted Distribution:
A Distributions in respect of preferred shares of Borrower, provided, that Borrower has demonstrated to Lender on a pro
forma basis that (a) Availability equaled or exceeded and amount equal to the sum of (i) $1,500,000 plus (ii) the amount
of such proposed Distribution, for each of the 30 consecutive days preceding the date of making such proposed Distribution, (b)
the Fixed Charge Coverage Ratio is 1.25:1.0, (c) all Obligations in respect of the Term Loan have been paid in full and (d) no
Default or Event of Default shall be in existence.


Permitted Lien:
as defined in Section 10.2.2.


Permitted Purchase
Money Debt: Purchase Money Debt of Borrower and Subsidiaries that is unsecured or secured only by a Purchase Money Lien, as
long as the aggregate amount does not exceed $100,000 at any time and its incurrence does not violate Section 10.2.3.


Person: any
individual, corporation, limited liability company, partnership, joint venture, joint stock company, land trust, business trust,
unincorporated organization, Governmental Authority or other entity.


Plan: any
employee benefit plan (as such term is defined in Section 3(3) of ERISA) established by an Obligor or, with respect to any such
plan that is subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.


 


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Prime Rate:
the rate of interest announced by Lender from time to time as its prime rate. Such rate is set by Lender on the basis of various
factors, including its costs and desired return, general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above or below such rate. Any change in such rate announced by Lender shall take
effect at the opening of business on the day specified in the public announcement of such change.


Properly Contested:
with respect to any obligation of an Obligor, (a) the obligation is subject to a bona fide dispute regarding amount or the Obligor's
liability to pay; (b) the obligation is being properly contested in good faith by appropriate proceedings promptly instituted and
diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not have a Material
Adverse Effect, nor result in forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the Obligor,
unless bonded and stayed to the satisfaction of Lender; and (f) if the obligation results from entry of a judgment or other order,
such judgment or order is stayed pending appeal or other judicial review.


Property:
any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.


Purchase Money
Debt: (a) Debt (other than the Obligations) for payment of any of the purchase price of fixed assets; (b) Debt (other than
the Obligations) incurred within 10 days before or after acquisition of any fixed assets, for the purpose of financing any of the
purchase price thereof; and (c) any renewals, extensions or refinancings (but not increases) thereof.


Purchase Money
Lien: a Lien that secures Purchase Money Debt, encumbering only the fixed assets acquired with such Debt and constituting a
Capital Lease or a purchase money security interest under the UCC.


RCRA: the
Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i).


Real Estate:
all right, title and interest (whether as owner, lessor or lessee) in any real Property or any buildings, structures, parking areas
or other improvements thereon.


Refinancing Conditions:
the following conditions for Refinancing Debt: (a) it is in an aggregate principal amount that does not exceed the principal amount
of the Debt being extended, renewed or refinanced; (b) it has a final maturity no sooner than, a weighted average life no less
than, and an interest rate no greater than, the Debt being extended, renewed or refinanced; (c) it is subordinated to the Obligations
at least to the same extent as the Debt being extended, renewed or refinanced; (d) the representations, covenants and defaults
applicable to it are no less favorable to Borrower than those applicable to the Debt being extended, renewed or refinanced; (e)
no additional Lien is granted to secure it; (f) no additional Person is obligated on such Debt; and (g) upon giving effect to it,
no Default or Event of Default exists.


Refinancing Debt:
Borrowed Money that is the result of an extension, renewal or refinancing of Debt permitted under Section 10.2.1(b), (d)
or (f).


Reimbursement
Date: as defined in Section 2.3.2.


Rent and Charges
Reserve: the aggregate of (a) all past due rent and other amounts owing by an Obligor to any landlord, warehouseman, processor,
repairman, mechanic, shipper, freight forwarder, broker or other Person who possesses any Collateral or could assert a Lien on
any Collateral; and (b) a reserve at least equal to three months rent and other charges that could be payable to any such Person,
unless it has executed a Lien Waiver. 


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Reportable Event:
any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.


Reserve Percentage:
the reserve percentage (expressed as a decimal, rounded up to the nearest 1/8th of 1%) applicable to member banks under regulations
issued from time to time by the Board of Governors for determining the maximum reserve requirement (including any emergency, supplemental
or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities").


Restricted Investment:
any Investment by Borrower or Subsidiary, other than (a) Investments in Subsidiaries to the extent existing on the Closing Date;
(b) Cash Equivalents that are subject to Lender's Lien and control, pursuant to documentation in form and substance satisfactory
to Lender; and (c) loans and advances permitted under Section 10.2.7.


Restrictive Agreement:
an agreement (other than a Loan Document) that conditions or restricts the right of any Borrower, Subsidiary or other Obligor to
incur or repay Borrowed Money, to grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any agreement
evidencing Borrowed Money, or to repay any intercompany Debt.


Revolver Commitment:
Lender's obligation to make Revolving Loans and to issue Letters of Credit in an amount up to $13,000,000 in the aggregate.


Revolver Loan:
a loan made pursuant to Section 2.1 or deemed made pursuant to Section 2.3.2.


Revolver Termination
Date: the earliest to occur of (a) March 31, 2016, (b) 90 days prior to the maturity date of the Subordinated Term
Debt (which maturity date presently is June 29, 2014), provided, however, that this clause (b) shall not be applicable if
either (i) the Subordinated Term Debt has been refinanced, on or before March 31, 2016, on terms acceptable to Lender
in its sole discretion as confirmed in writing by Lender to Borrower or (ii) the Subordinated Term Debt has been paid in full
on or before 90 days prior to its maturity date, or (c) 90 days prior to the maturity date of the indebtedness evidenced and
governed by that certain "Junior Note" as such term is defined in that certain Subordinated Agreement dated as of April
16, 2012, among Borrower, Richard J. Kurtz and Lender (which maturity date presently is October 1, 2014).


Royalties:
all royalties, fees, expense reimbursement and other amounts payable by Borrower under a License.


S&P:
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.


Secured Parties:
Lender and providers of Bank Products.


Security Documents:
the Guaranties, UK Security Agreements, Patent Assignments, Trademark Security Agreements, Insurance Assignments, Deposit
Account Control Agreements, and all other documents, instruments and agreements now or hereafter securing (or given
with the intent to secure) any Obligations.


Senior Officer:
the chairman of the board, president, chief executive officer or chief financial officer of Borrower or, if the context requires,
an Obligor.


 


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Seventh Amendment
Effective Date: means the "Amendment Date" as defined by the certain Seventh Amendment to Loan and Security Agreement
dated as of the "Amendment Date" defined therein, between Lender and Borrower.


Solvent:
as to any Person, such Person (a) owns Property whose fair salable value is greater than the amount required to pay all of its
debts (including contingent, subordinated, unmatured and unliquidated liabilities); (b) owns Property whose present fair salable
value (as defined below) is greater than the probable total liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of such Person as they become absolute and matured; (c) is able to pay all of its debts as they mature; (d) has capital
that is not unreasonably small for its business and is sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage; (e) is not "insolvent" within the meaning of Section 101(32) of the Bankruptcy
Code; and (f) has not incurred (by way of assumption or otherwise) any obligations or liabilities (contingent or otherwise) under
any Loan Documents, or made any conveyance in connection therewith, with actual intent to hinder, delay or defraud either present
or future creditors of such Person or any of its Affiliates. "Fair salable value" means the amount that could
be obtained for assets within a reasonable time, either through collection or through sale under ordinary selling conditions by
a capable and diligent seller to an interested buyer who is willing (but under no compulsion) to purchase.


Sterling:
the lawful currency of the United Kingdom.


Subordinated
Debt: Debt incurred by Borrower that is expressly subordinate and junior in right of payment to Full Payment of all Obligations,
and is on terms (including maturity, interest, fees, repayment, covenants and subordination) satisfactory to Lender.


Subordinated
Term Debt: Subordinated Debt in the principal amount of $4,400,000 under the certain Note Purchase Agreement, dated as of the
Seventh Amendment Effective Date, among Borrower, Enhanced Capital Texas Fund LP, a Texas limited partnership, as junior agent,
and the "Purchasers" defined therein, as may be amended, amended and restated, supplemented or otherwise modified in
accordance with the terms of the Subordinated Term Debt Intercreditor Agreement.


Subordinated
Term Debt Intercreditor Agreement: The certain Intercreditor Agreement dated as of the Seventh Amendment Effective Date, among
Lender, Borrower and Enhanced Capital Texas Fund LP, a Texas limited partnership, as junior agent, as may be amended, amended and
restated, supplemented or otherwise modified in accordance with the terms thereof.


Subsidiary:
any entity at least 50% of whose voting securities or Equity Interests is owned by Borrower (including indirect ownership by Borrower
through other entities in which the Borrower directly or indirectly owns 50% of the voting securities or Equity Interests).


Taxes: all
present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental
Authority, including any interest, additions to tax or penalties applicable thereto.


Term Loan:
a loan made pursuant to Section 2.2.


Term Loan Commitment:
Lender's obligation to make a Term Loan in an amount up to $2,500,000.


Term Loan Maturity
Date: August 31, 2012.


 


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Trademark Security
Agreement: each trademark security agreement pursuant to which an Obligor grants a Lien to Lender on such Obligor's interests
in trademarks, as security for the Obligations.


Type: any
type of a Loan (i.e., Base Rate Loan, UK Base Rate Revolver Loan or LIBOR Loan) that has the same interest option and, in the case
of LIBOR Loans, the same Interest Period.


UCC: the
Uniform Commercial Code as in effect in the State of Texas or, when the laws of any other jurisdiction govern the perfection or
enforcement of any Lien, the Uniform Commercial Code of such jurisdiction.


UK or United
Kingdom: the United Kingdom of Great Britain and Northern Ireland.


UK Accounts: Accounts
resulting from UK Sales.


 


UK Base Rate: with
respect to Euros and Sterling, for any day, a fluctuating rate of interest per annum equal to the rate of interest in effect for
such day as announced from time to time by Bank of America, N.A. (acting through its London branch) as its "base rate"
with respect to such currency. Any change in such rate shall take effect at the opening of business on the day of such change.


 


UK Base Rate Revolver
Loan: a UK Revolver Loan that bears interest based on the UK Base Rate.


 


UK Disbursement Account:
a deposit account maintained at Bank of America, N.A. (acting through its London branch) and designated by Lender as the UK Disbursement
Account, or such other account as may be mutually agreed in writing by Lender and Borrower.


 


UK Dominion Account:
a Dominion Account maintained at Bank of America, N.A. (acting through its London branch) and designated by Lender as the UK Dominion
Account, or such other account as may be designated by Lender to Borrower in writing for the deposit of payments on UK Accounts,
over which Lender has exclusive control for withdrawal purposes.


 


UK Loan Sublimit:
$500,000.


 


UK Priority Payables
Reserve: on any date of determination, a reserve in such amount as Lender may determine in its discretion (but not exceeding
any statutory limit on any such amounts) which reflects the full amount of any liabilities or amounts which (by virtue of any Liens,
choate or inchoate, or any statutory provision) rank or are capable of ranking in priority to Lender's Liens and/or for amounts
which may represent costs relating to the enforcement of Lender's Liens including, without limitation, but only to the extent prescribed
pursuant to English law and statute then in force, (i) amounts due to employees in respect of unpaid wages and holiday pay, (ii)
the "prescribed part" of floating charge realisations held for unsecured creditors, (iii) the expenses and liabilities
incurred by any administrator (or other insolvency officer) and any remuneration of such administrator (or other insolvency officer),
and (iv) the amount of any unpaid contributions to occupational pension schemes and state scheme premiums.


 


UK Revolver Loan:
a Revolver Loan made by Lender to Borrower pursuant to Section 2.1, which Revolver Loan shall be denominated in Sterling or Euros
and shall be a UK Base Rate Revolver Loan.


 


UK Sales: all sales
of goods or services by Borrower to residents of the UK or with respect to which the sales price is payable by residents of the
UK.


 


 


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UK Security Agreements:
each debenture or other security agreement among Borrower and Lender which is governed by, or intended for use by Lender under
or with respect to, UK Law.


 


Unfunded Pension
Liability: the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section
412 of the Code for the applicable plan year.


Upstream Payment:
a Distribution by a Subsidiary of Borrower to Borrower.


US Dominion Account:
means (a) Dominion Account, deposit account # ** or (b) Dominion Account, deposit account # **, in each case maintained at
Bank of America, N.A., or such other account as may be designated by Lender to Borrower in writing for the deposit of payments
on Accounts and Collateral other than Canadian Accounts.


Value: (a)
for Inventory, its value determined on the basis of the lower of cost or market, calculated on a first-in, first-out basis, and
excluding any portion of cost attributable to intercompany profit among Borrower and its Affiliates; and (b) for an Account, its
face amount, net of any returns, rebates, discounts (calculated on the shortest terms), credits, allowances or Taxes (including
sales, excise or other taxes) that have been or could be claimed by the Account Debtor or any other Person.


Voting Equity Interests:
in the case of a corporation, Equity Interests that, by their terms or pursuant to any voting agreement or arrangement, entitle
the record or beneficial owner thereof to vote in an election of directors of such corporation.


 


3.2.           
Accounting Terms. Under the Loan Documents (except as otherwise specified herein), all accounting terms shall
be interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with
GAAP applied on a basis consistent with the most recent audited financial statements of Borrower delivered to Lender before the
Closing Date and using the same inventory valuation method as used in such financial statements, except for any change required
or permitted by GAAP if Borrower's certified public accountants concur in such change, the change is disclosed to Lender, and Section
10.3 is amended in a manner satisfactory to Lender to take into account the effects of the change.


3.3.           
Uniform Commercial Code. As used herein, the following terms are defined in accordance with the UCC in effect
in the State of Texas from time to time: "Chattel Paper," "Commercial Tort Claim," "Deposit Account,"
"Document," "Equipment," "General Intangibles," "Goods," "Instrument," "Investment
Property," "Letter-of-Credit Right" and "Supporting Obligation."


3.4.           
Certain Matters of Construction. The terms "herein," "hereof," "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any
pronoun used shall be deemed to cover all genders. In the computation of periods of time from a specified date to a later specified
date, "from" means "from and including," and "to" and "until" each mean "to but excluding."
The terms "including" and "include" shall mean "including, without limitation" and, for purposes
of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit any provision.
Section titles appear as a matter of convenience only and shall not affect the interpretation of any Loan Document. All references
to (a) laws or statutes include all related rules, regulations, interpretations, amendments and successor provisions; (b) any document,
instrument or agreement include any amendments, waivers and other modifications, extensions or renewals (to the extent permitted
by the Loan Documents); (c) any section mean, unless the context otherwise requires, a section of this Agreement; (d) any exhibits
or schedules mean, unless the context


 


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otherwise requires,
exhibits and schedules attached hereto, which are hereby incorporated by reference; (e) any Person include successors and assigns;
(f) time of day mean time of day at Lender's notice address under Section 12.3.1; or (g) discretion of Lender mean its sole
and absolute discretion. All calculations of Value, fundings of Loans, issuances of Letters of Credit and payments of Obligations
shall be in Dollars and, unless the context otherwise requires, all determinations (including calculations of Borrowing Base and
financial covenants) made from time to time under the Loan Documents shall be made in light of the circumstances existing at such
time. Borrowing Base calculations shall be consistent with historical methods of valuation and calculation, and otherwise satisfactory
to Lender (and not necessarily calculated in accordance with GAAP). Borrower shall have the burden of establishing any alleged
negligence, misconduct or lack of good faith by Lender under any Loan Documents. No provision of any Loan Documents shall be construed
against any party by reason of such party having, or being deemed to have, drafted the provision. Whenever the phrase "to
the best of Borrower's knowledge" or words of similar import are used in any Loan Documents, it means actual knowledge of
a Senior Officer, or knowledge that a Senior Officer would have obtained if he or she had engaged in good faith and diligent performance
of his or her duties, including reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the
matter to which such phrase relates.


SECTION
4.      CREDIT FACILITIES


4.1.           
Revolver Commitment.


4.1.1       
Revolver Loans. Lender agrees, on the terms set forth herein, to make Revolver Loans to Borrower in an aggregate
amount up to the Revolver Commitment, from time to time through the Commitment Termination Date. The Revolver Loans may be repaid
and reborrowed as provided herein. In no event shall Lender have any obligation to honor a request for a Revolver Loan that is
a UK Revolver Loan if such request, when added to the unpaid balance of UK Revolver Loans outstanding, would exceed the UK Loan
Sublimit. In no event shall Lender have any obligation to honor a request for a Revolver Loan if the unpaid balance (based on the
Dollar Equivalent thereof) of Revolver Loans outstanding at such time (including the requested Loan) would exceed the Borrowing
Base.


4.1.2       
Use of Proceeds. The proceeds of Revolver Loans shall be used by Borrower solely (a) to satisfy existing Debt; (b)
to pay fees and transaction expenses associated with the closing of this credit facility; (c) to pay Obligations in accordance
with this Agreement; and (d) for working capital and other lawful corporate purposes of Borrower.


4.1.3       
Voluntary Reduction or Termination of Revolver Commitment.


(a)               
The Revolver Commitment shall terminate on the Revolver Termination Date, unless sooner terminated in accordance with this
Agreement. Upon at least 90 days prior written notice to Lender at any time after the first Loan Year, Borrower may, at its option,
terminate the Revolver Commitment and this credit facility. Any notice of termination given by Borrower shall be irrevocable. On
the termination date, Borrower shall make Full Payment of all Obligations.


(b)              
Borrower may permanently reduce the Revolver Commitment upon at least 90 days prior written notice to Lender, which notice
shall specify the amount of the reduction and shall be irrevocable once given. Each reduction shall be in a minimum amount of $1,000,000,
or an increment of $1,000,000 in excess thereof.


 


 


 


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4.1.4       
Overadvances. If the sum of all outstanding Revolver Loans plus the LC Obligations (exclusive of fees owing with
respect to Letters of Credit ) exceeds the Borrowing Base ("Overadvance") at any time, the excess amount shall
be payable by Borrower on demand by Lender, but all such Revolver Loans and LC Obligations shall nevertheless constitute
Obligations secured by the Collateral and entitled to all benefits of the Loan Documents. Any funding or sufferance of an Overadvance
shall not constitute a waiver of the Event of Default caused thereby.


4.2.           
Term Loan Commitment. Lender agrees, on the terms set forth herein, to make a Term Loan to Borrower in an amount
up to the Term Loan Commitment. The Term Loan shall be funded by Lender on the Closing Date, and the Term Loan Commitment shall
expire upon funding. Once repaid, whether such repayment is voluntary or required, no portion of the Term Loan may be reborrowed.


4.3.           
Letter of Credit Facility.


4.3.1       
Issuance of Letters of Credit. Lender agrees to issue Letters of Credit from time to time until 30 days prior to
the Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set forth herein, including
the following:


(a)               
Borrower acknowledges that Lender's willingness to issue any Letter of Credit is conditioned upon its receipt of a LC Application
with respect to the requested Letter of Credit, as well as such other instruments and agreements as Lender may customarily require
for issuance of a letter of credit of similar type and amount. Lender shall have no obligation to issue any Letter of Credit unless
(i) it receives a LC Request and LC Application at least three Business Days prior to the requested date of issuance; and (ii)
each LC Condition is satisfied.


(b)              
Letters of Credit may be requested by Borrower only (i) to support obligations of Borrower incurred in the Ordinary Course
of Business; or (ii) for other purposes as Lender may approve from time to time in writing. The renewal or extension of any Letter
of Credit shall be treated as the issuance of a new Letter of Credit, except that delivery of a new LC Application shall be required
at the discretion of Lender.


(c)               
Borrower assumes all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary. In connection with
issuance of any Letter of Credit, Lender shall not be responsible for the existence, character, quality, quantity, condition, packing,
value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character, quality,
quantity, condition, packing, value or delivery of any goods from that expressed in any Documents; the form, validity, sufficiency,
accuracy, genuineness or legal effect of any Documents or of any endorsements thereon; the time, place, manner or order in which
shipment of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a Letter of Credit or
Documents; any deviation from instructions, delay, default or fraud by any shipper or other Person in connection with any goods,
shipment or delivery; any breach of contract between a shipper or vendor and Borrower; errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors
in interpretation of technical terms; the misapplication by a beneficiary of any Letter of Credit or the proceeds thereof; or any
consequences arising from causes beyond the control of Lender, including any act or omission of a Governmental Authority. Lender
shall be fully subrogated to the rights and remedies of each beneficiary whose claims against Borrower are discharged with proceeds
of any Letter of Credit.


 


 


 


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(d)              
In connection with its administration of and enforcement of rights or remedies under any Letters of Credit or LC Documents,
Lender shall be entitled to act, and shall be fully protected in acting, upon any certification, documentation or communication
in whatever form believed by Lender, in good faith, to be genuine and correct and to have been signed, sent or made by a proper
Person. Lender may consult with and employ legal counsel, accountants and other experts to advise it concerning its obligations,
rights and remedies, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance
upon, any advice given by such experts. Lender may employ agents and attorneys-in-fact in connection with any matter relating to
Letters of Credit or LC Documents, and shall not be liable for the negligence or misconduct of agents and attorneys-in-fact selected
with reasonable care.


4.3.2       
Reimbursement. If Lender honors any request for payment under a Letter of Credit, Borrower shall pay to Lender, on
the same day ("Reimbursement Date"), the amount paid under such Letter of Credit, together with interest at the
interest rate for Base Rate Revolver Loans from the Reimbursement Date until payment by Borrower. The obligation of Borrower to
reimburse Lender for any payment made under a Letter of Credit shall be absolute, unconditional, irrevocable, and joint and several,
and shall be paid without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim,
setoff, defense or other right that Borrower may have at any time against the beneficiary. Whether or not Borrower submits a Notice
of Borrowing, Borrower shall be deemed to have requested, and, unless otherwise determined by Lender, Lender shall be deemed to
have made, a Borrowing of Base Rate Revolver Loans in an amount necessary to pay all amounts due on any Reimbursement Date.


4.3.3       
Cash Collateral. If any LC Obligations, whether or not then due or payable, shall for any reason be outstanding at
any time (a) that an Event of Default exists, (b) that Availability is less than zero, (c) after the Commitment Termination Date,
or (d) within 20 Business Days prior to the Revolver Termination Date, then Borrower shall, at Lender's request, Cash Collateralize
the stated amount of all outstanding Letters of Credit and pay to Lender the amount of all other LC Obligations. If Borrower fails
to provide Cash Collateral as required herein, Lender may advance, as Revolver Loans, the amount of the Cash Collateral required.


SECTION
5.      INTEREST, FEES AND CHARGES


5.1.           
Interest.


5.1.1       
Rates and Payment of Interest.


(a)               
The Obligations shall bear interest (i) if a Base Rate Loan, at the Base Rate in effect from time to time, plus the Applicable
Margin; (ii) if a UK Base Rate Revolver Loan, at the UK Base Rate in effect from time to time, plus the Applicable Margin, (iii)
if a LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable Margin; and (iv) if any other Obligation (including,
to the extent permitted by law, interest not paid when due), at the Base Rate in effect from time to time, plus the Applicable
Margin for Base Rate Revolver Loans. Interest shall accrue from the date the Loan is advanced or the Obligation is incurred or
payable, until paid by Borrower. If a Loan is repaid on the same day made, one day's interest shall accrue.


(b)              
During an Insolvency Proceeding with respect to Borrower, or during any other Event of Default if Lender in its discretion
so elects, Obligations shall bear interest at the Default Rate (whether before or after any judgment). Borrower acknowledges that
the cost and expense to Lender due to an Event of Default are difficult to ascertain and that the Default Rate is a fair and reasonable
estimate to compensate Lender for this.


 


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(c)               
Interest accrued on the Loans shall be due and payable in arrears, (i) on the first day of each month; (ii) on any date
of prepayment, with respect to the principal amount of Loans being prepaid; and (iii) on the Commitment Termination Date. Interest
accrued on any other Obligations shall be due and payable as provided in the Loan Documents and, if no payment date is specified,
shall be due and payable on demand. Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and
payable on demand.


5.1.2       
Application of LIBOR to Outstanding Loans.


(a)               
Borrower may on any Business Day, subject to delivery of a Notice of Conversion/Continuation, elect to convert any portion
of the Base Rate Loans to, or to continue any LIBOR Loan at the end of its Interest Period as, a LIBOR Loan. During any Default
or Event of Default, Lender may declare that no Loan may be made, converted or continued as a LIBOR Loan.


(b)              
Whenever Borrower desires to convert or continue Loans as LIBOR Loans, Borrower shall give Lender a Notice of Conversion/Continuation,
no later than 11:00 a.m. at least three Business Days before the requested conversion or continuation date. Each Notice of Conversion/Continuation
shall be irrevocable, and shall specify the amount of Loans to be converted or continued, the conversion or continuation date (which
shall be a Business Day), and the duration of the Interest Period (which shall be deemed to be 30 days if not specified). If, upon
the expiration of any Interest Period in respect of any LIBOR Loans, Borrower shall have failed to deliver a Notice of Conversion/Continuation,
they shall be deemed to have elected to convert such Loans into Base Rate Loans.


5.1.3       
Interest Periods. In connection with the making, conversion or continuation of any LIBOR Loans, Borrower shall select
an interest period ("Interest Period") to apply, which interest period shall be 30, 60, or 90 days; provided,
however, that:


(a)               
the Interest Period shall commence on the date the Loan is made or continued as, or converted into, a LIBOR Loan, and shall
expire on the numerically corresponding day in the calendar month at its end;


(b)              
if any Interest Period commences on a day for which there is no corresponding day in the calendar month at its end or if
such corresponding day falls after the last Business Day of such month, then the Interest Period shall expire on the last Business
Day of such month; and if any Interest Period would expire on a day that is not a Business Day, the period shall expire on the
next Business Day; and


(c)               
no Interest Period shall extend beyond the Revolver Termination Date; and no Interest Period for a LIBOR Term Loan may be
established that would require repayment before the end of an Interest Period in order to make any scheduled principal payment
on the Term Loan.


5.1.4       
Interest Rate Not Ascertainable. If Lender shall determine that on any date for determining LIBOR, due to any circumstance
affecting the London interbank market, adequate and fair means do not exist for ascertaining such rate on the basis provided herein,
then Lender shall immediately notify Borrower of such determination. Until Lender notifies Borrower that such circumstance no longer
exists, the obligation of Lender to make LIBOR Loans shall be suspended, and no further Loans may be converted into or continued
as LIBOR Loans.


 


 


 


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5.2.           
Fees.


5.2.1       
Unused Line Fee. Borrower shall pay to Lender a fee equal to 0.75% per annum times the amount by which the Revolver
Commitment exceeds the average daily balance of Revolver Loans and stated amount of Letters of Credit during any month. Such fee
shall be payable in arrears, on the first day of each month and on the Commitment Termination Date.


5.2.2       
LC Facility Fees. Borrower shall pay to Lender (a) a fee equal to the Applicable Margin in effect for LIBOR Revolver
Loans times the average daily stated amount of Letters of Credit, which fee shall be payable monthly in arrears, on the first day
of each month; (b) a fronting fee equal to 0.25% per annum on the stated amount of each Letter of Credit, which fee shall be payable
monthly in arrears, on the first day of each month; and (c) all customary charges associated with the issuance, amending, negotiating,
payment, processing, transfer and administration of Letters of Credit, which charges shall be paid as and when incurred. During
an Event of Default, the fee payable under clause (a) shall be increased by 2% per annum.


5.2.3       
Closing Fee. Borrower shall pay to Lender a closing fee of $100,000, which shall be paid concurrently with the funding
of the initial Loans hereunder.


5.3.           
Computation of Interest, Fees, Yield Protection. All interest, as well as fees and other charges calculated on
a per annum basis, shall be computed for the actual days elapsed, based on a year of 360 days. Each determination by Lender of
any interest, fees or interest rate hereunder shall be final, conclusive and binding for all purposes, absent manifest error. All
fees shall be fully earned when due and shall not be subject to rebate, refund or proration. All fees payable under Section
3.2 are compensation for services and are not, and shall not be deemed to be, interest or any other charge for the use, forbearance
or detention of money. A certificate as to amounts payable by Borrower under Section 3.4, 3.6, 3.7, 3.9 or
5.8, submitted to Borrower by Lender shall be final, conclusive and binding for all purposes, absent manifest error, and Borrower
shall pay such amounts to the appropriate party within 10 days following receipt of the certificate.


5.4.           
Reimbursement Obligations. Borrower shall reimburse Lender for all Extraordinary Expenses. Borrower shall also
reimburse Lender for all legal, accounting, appraisal, consulting, and other fees, costs and expenses incurred by it in connection
with (a) negotiation and preparation of any Loan Documents, including any amendment or other modification thereof; (b) administration
of and actions relating to any Collateral, Loan Documents and transactions contemplated thereby, including any actions taken to
perfect or maintain priority of Lender's Liens on any Collateral, to maintain any insurance required hereunder or to verify Collateral;
and (c) subject to the limits of Section 10.1.1(b), each inspection, audit or appraisal with respect to any Obligor or Collateral,
whether prepared by Lender's personnel or a third party. All legal, accounting and consulting fees shall be charged to Borrower
by Lender's professionals at their full hourly rates, regardless of any reduced or alternative fee billing arrangements that Lender
or any of its Affiliates may have with such professionals with respect to this or any other transaction. If, for any reason (including
inaccurate reporting on financial statements or a Compliance Certificate), it is determined that a higher Applicable Margin should
have applied to a period than was actually applied, then the proper margin shall be applied retroactively and Borrower shall immediately
pay to Lender an amount equal to the difference between the amount of interest and fees that would have accrued using the proper
margin and the amount actually paid. All amounts payable by Borrower under this Section shall be due on demand.


 


 


 


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5.5.           
Illegality. If Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority
has asserted that it is unlawful, for Lender to make, maintain or fund LIBOR Loans, or to determine or charge interest rates based
upon LIBOR, or any Governmental Authority has imposed material restrictions on the authority of Lender to purchase or sell, or
to take deposits of, Dollars in the London interbank market, then, on notice thereof by Lender to Borrower, any obligation of Lender
to make or continue LIBOR Loans or to convert Base Rate Loans to LIBOR Loans shall be suspended until Lender notifies Borrower
that the circumstances giving rise to such determination no longer exist. Upon delivery of such notice, Borrower shall prepay or,
if applicable, convert all LIBOR Loans to Base Rate Loans, either on the last day of the Interest Period therefor, if Lender may
lawfully continue to maintain LIBOR Loans to such day, or immediately, if Lender may not lawfully continue to maintain LIBOR Loans.
Upon any such prepayment or conversion, Borrower shall also pay accrued interest on the amount so prepaid or converted.


5.6.           
Inability to Determine Rates. If Lender notifies Borrower for any reason in connection with a request for a Borrowing
of, conversion to or continuation of, a LIBOR Loan that (a) Dollar deposits are not being offered to banks in the London interbank
Eurodollar market for the applicable amount and Interest Period of such Loan, (b) adequate and reasonable means do not exist for
determining LIBOR for the requested Interest Period, or (c) LIBOR for the requested Interest Period does not adequately and fairly
reflect the cost to Lender of funding such Loan, then the obligation of Lender to make or maintain LIBOR Loans shall be suspended
until it revokes the notice. Upon receipt of the notice, Borrower may revoke any pending request for a Borrowing of, conversion
to or continuation of a LIBOR Loan or, failing that, will be deemed to have submitted a request for a Base Rate Loan.


5.7.           
Increased Costs; Capital Adequacy.


5.7.1       
Change in Law. If any Change in Law shall:


(a)               
impose modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement
against assets of, deposits with or for the account of, or credit extended or participated in by, Lender (except any reserve requirement
reflected in LIBOR);


(b)              
subject Lender to any Tax with respect to any Loan, Loan Document or Letter of Credit, or change the basis of taxation of
payments to Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 5.8 and the imposition
of, or any change in the rate of, any Excluded Tax payable by Lender); or


(c)               
impose on Lender or the London interbank market any other condition, cost or expense affecting any Loan, Loan Document or
Letter of Credit;


and the result thereof
shall be to increase the cost to Lender of making or maintaining any LIBOR Loan (or of maintaining its obligation to make any such
Loan), or to increase the cost to Lender of issuing or maintaining any Letter of Credit (or of maintaining its obligation to issue
any Letter of Credit), or to reduce the amount of any sum received or receivable by Lender hereunder (whether of principal, interest
or any other amount) then, upon request by Lender, Borrower will pay to Lender such additional amount or amounts as will compensate
Lender for such additional costs incurred or reduction suffered.


 


 


 


 


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5.7.2       
Capital Adequacy. If Lender determines that any Change in Law affecting Lender or its holding company regarding capital
requirements has or would have the effect of reducing the rate of return on Lender's or such holding company's capital as a consequence
of this Agreement, Commitments, Loans or Letters of Credit to a level below that which Lender or such holding company could have
achieved but for such Change in Law (taking into consideration Lender's and such holding company's policies with respect to capital
adequacy), then from time to time Borrower will pay to Lender such additional amount or amounts as will compensate it or its holding
company for any such reduction suffered.


5.7.3       
Compensation. Failure or delay on the part of Lender to demand compensation pursuant to this Section shall not constitute
a waiver of its right to demand such compensation, but Borrower shall not be required to compensate Lender for any increased costs
incurred or reductions suffered more than nine months prior to the date that Lender notifies Borrower of the Change in Law giving
rise to such increased costs or reductions and of Lender's intention to claim compensation therefor (except that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be
extended to include the period of retroactive effect thereof).


5.8.           
Mitigation. If Lender gives a notice under Section 3.5 or requests compensation under Section 3.7,
or if Borrower is required to pay additional amounts under Section 5.8, then Lender shall use reasonable efforts to designate
a different lending office or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates,
if, in the judgment of Lender, such designation or assignment (a) would eliminate the need for such notice or reduce amounts payable
or to be withheld in the future, as applicable; and (b) would not subject Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to it. Borrower shall pay all reasonable costs and expenses incurred by Lender in connection with
any such designation or assignment.


5.9.           
Funding Losses. If for any reason (a) any Borrowing of, or conversion to or continuation of, a LIBOR Loan does
not occur on the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn),
(b) any repayment or conversion of a LIBOR Loan occurs on a day other than the end of its Interest Period, or (c) Borrower fails
to repay a LIBOR Loan when required hereunder, then Borrower shall pay to Lender all losses and expenses that it sustains as a
consequence thereof, including loss of anticipated profits and any loss or expense arising from liquidation or redeployment of
funds or from fees payable to terminate deposits of matching funds. Lender shall not be required to purchase Dollar deposits in
the London interbank market or any other offshore Dollar market to fund any LIBOR Loan, but the provisions hereof shall be deemed
to apply as if Lender had purchased such deposits to fund its LIBOR Loans.


5.10.       
Maximum Interest. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid
or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by Applicable
Law ("maximum rate"). If Lender shall receive interest in an amount that exceeds the maximum rate, the excess interest
shall be applied to the principal of the Obligations or, if it exceeds such unpaid principal, refunded to Borrower. In determining
whether the interest contracted for, charged or received by Lender exceeds the maximum rate, Lender may, to the extent permitted
by Applicable Law, (a) characterize any payment that is not principal as an expense, fee or premium rather than interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and spread in equal or unequal parts the total
amount of interest throughout the contemplated term of the Obligations hereunder.


 


 


 


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5.11.       
Excess Resulting from Exchange Rate. If, as a result of fluctuations in exchange rates or otherwise, the Dollar
Equivalent of (a) the sum of all outstanding Revolver Loans plus LC Obligations (exclusive of fees owing with respect to Letters
of Credit) exceeds the Borrowing Base, or (b) the sum of all outstanding UK Revolver Loans exceeds the UK Loan Sublimit, then in
each case the excess amount thereof shall be payable by Borrower within three Business Days following demand by Lender. Without
in any way limiting the foregoing provisions, Lender may daily on each Business Day (or less frequently, as Lender may desire)
make the necessary exchange rate calculations to determine whether any such excess exists on such date and advise Borrower if such
excess exists.


SECTION
6.      LOAN ADMINISTRATION


6.1.           
Manner of Borrowing and Funding Revolver Loans.


6.1.1       
Notice of Borrowing.


(a)               
Whenever Borrower desires funding of a Borrowing of Revolver Loans, Borrower shall give Lender a Notice of Borrowing. Such
notice must be received by Lender no later than 11:00 a.m. (i) on the Business Day of the requested funding date, in the case of
Base Rate Loans, (ii) at least two Business Days prior to the requested funding date, in the case of UK Revolver Loans, and (iii)
at least three Business Days prior to the requested funding date, in the case of LIBOR Loans. Notices received after 11:00 a.m.
shall be deemed received on the next Business Day. Each Notice of Borrowing shall be irrevocable and shall specify (A) the amount
of the Borrowing, (B) the requested funding date (which must be a Business Day), (C) whether the Borrowing is to be made as Base
Rate Loans, UK Base Rate Revolver Loans or LIBOR Loans, and (D) in the case of LIBOR Loans, the duration of the applicable Interest
Period (which shall be deemed to be 30 days if not specified).


(b)              
Unless payment is otherwise timely made by Borrower, the becoming due of any Obligations (whether principal, interest, fees
or other charges, including Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product Debt) shall be deemed to be
a request for Base Rate Revolver Loans on the due date, in the amount of such Obligations. The proceeds of such Revolver Loans
shall be disbursed as direct payment of the relevant Obligation. In addition, Lender may, at its option, charge such Obligations
against any operating, investment or other account of Borrower maintained with Lender or any of its Affiliates.


(c)               
If Borrower establishes a controlled disbursement account with Lender or any of its Affiliates, then the presentation for
payment of any check or other item of payment drawn on such account at a time when there are insufficient funds to cover it shall
be deemed to be a request for Base Rate Revolver Loans or UK Base Rate Revolver Loans, as applicable, on the date of such presentation,
in the amount of the check and items presented for payment. The proceeds of such Revolver Loans may be disbursed directly to the
controlled disbursement account or other appropriate account.


6.1.2       
Fundings. Lender shall fund each Borrowing on the applicable funding date and, subject to the terms of this Agreement,
shall disburse the proceeds as directed by Borrower, provided that the funding of any Borrowing of UK Base Rate Revolver Loans
shall be made to Borrower, by Bank of America, N.A. (acting through its London branch) in the UK Disbursement Account.


 


 


 


 


 


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6.1.3       
Notices. Borrower authorizes Lender to extend, convert or continue Loans, effect selections of interest rates, and
transfer funds to or on behalf of Borrower based on telephonic or e-mailed instructions. Borrower shall confirm each such request
by prompt delivery to Lender of a Notice of Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs in
any material respect from the action taken by Lender, the records of Lender shall govern. Lender shall not have any liability for
any loss suffered by Borrower as a result of Lender acting upon its understanding of telephonic or e-mailed instructions from a
person believed in good faith to be a person authorized to give such instructions on Borrower's behalf.


6.2.           
Number and Amount of LIBOR Loans; Determination of Rate. Each Borrowing of LIBOR Loans when made shall be in
a minimum amount of $500,000 plus any increment of $100,000 in excess thereof. No more than four Borrowings of LIBOR Loans may
be outstanding at any time, and all LIBOR Loans having the same length and beginning date of their Interest Periods shall be aggregated
together and considered one Borrowing for this purpose. Upon determining LIBOR for any Interest Period requested by Borrower, Lender
shall promptly notify Borrower thereof by telephone or electronically and, if requested by Borrower, shall confirm any telephonic
notice in writing.


6.3.           
One Obligation. The Loans, LC Obligations and other Obligations shall constitute one general obligation of Borrower
and (unless otherwise expressly provided in any Loan Document) shall be secured by Lender's Lien upon all Collateral.


6.4.           
Effect of Termination. On the effective date of any termination of the Revolver Commitment, all Obligations shall
be immediately due and payable, and each Secured Party may terminate its Bank Products. All undertakings of Borrower contained
in the Loan Documents shall survive any termination, and Lender shall retain its Liens in the Collateral and all of its rights
and remedies under the Loan Documents until Full Payment of the Obligations. Notwithstanding Full Payment of the Obligations, Lender
shall not be required to terminate its Liens in any Collateral unless, with respect to any damages Lender may incur as a result
of the dishonor or return of Payment Items applied to Obligations, Lender receives (a) a written agreement, executed by Borrower
and any Person whose advances are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such damages;
or (b) such Cash Collateral as Lender, in its discretion, deems necessary to protect against any such damages. The provisions of
Sections 2.3, 3.4, 3.6, 3.7, 3.9, 5.5, 5.8, 12.2 and this Section, and the obligation of each Obligor with
respect to each indemnity given by it in any Loan Document, shall survive Full Payment of the Obligations and any release relating
to this credit facility.


SECTION
7.      PAYMENTS


7.1.           
General Payment Provisions. All payments of Obligations shall be made in the currency of the underlying Obligations,
without offset, counterclaim or defense of any kind, free of (and without deduction for) any Taxes, and in immediately available
funds, not later than 12:00 noon on the due date. Any payment after such time shall be deemed made on the next Business Day. Any
payment of a LIBOR Loan prior to the end of its Interest Period shall be accompanied by all amounts due under Section 3.9.
Any prepayment of Loans shall be applied first to Base Rate Loans and UK Base Rate Revolver Loans and then to LIBOR Loans.


 


 


 


 


 


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7.2.           
Repayment of Revolver Loans. Revolver Loans shall be due and payable in full on the Revolver Termination Date,
unless payment is sooner required hereunder. Revolver Loans may be prepaid from time to time, without penalty or premium. If any
Asset Disposition includes the disposition of Accounts or Inventory, then Net Proceeds equal to the greater of (a) the net book
value of such Accounts and Inventory, or (b) the reduction in the Borrowing Base upon giving effect to such disposition, shall
be applied to the Revolver Loans. Notwithstanding anything herein to the contrary, if an Overadvance exists, Borrower shall, on
the sooner of Lender's demand or the first Business Day after Borrower has knowledge thereof, repay the outstanding Revolver Loans
in an amount sufficient to reduce the principal balance of Revolver Loans to the Borrowing Base.


7.3.           
Repayment of Term Loan.


7.3.1       
Payment of Principal. Principal of the Term Loan shall be repaid on the first Business Day of each month in consecutive
monthly installments on the first Business Day of each month, commencing on October 1, 2010, each such installment to be in an
amount equal to 1/24 of the principal balance of the Term Loan outstanding on the Closing Date, until the Term Loan Maturity Date,
on which date all principal, interest and other amounts owing with respect to the Term Loan shall be due and payable in full. Once
repaid, whether such repayment is voluntary or required, no portion of the Term Loan may be reborrowed.


7.3.2       
Mandatory Prepayments.


(a)               
Concurrently with any Permitted Asset Disposition of Equipment, Borrower shall prepay the Term Loan in an amount equal to
the Net Proceeds of such disposition;


(b)              
Concurrently with the receipt of any proceeds of insurance or condemnation awards paid in respect of any Equipment or Real
Estate, Borrower shall prepay the Term Loan in an amount equal to such proceeds, subject to Section 8.6.2;


(c)               
Concurrently with the receipt of any key man life insurance proceeds, Borrower shall prepay the Term Loan in an amount equal
to such proceeds;


(d)              
Concurrently with any issuance of Equity Interests by Borrower (other than Equity Interests issued pursuant to Borrower's
Equity Incentive Plan or the exercise of any outstanding warrants), Borrower shall prepay the Term Loan in an amount equal to the
net proceeds of such issuance; and


(e)               
On the Commitment Termination Date, Borrower shall prepay the entire Term Loan (unless sooner repaid hereunder).


7.3.3       
Optional Prepayments. Borrower may, at its option from time to time after April 15, 2011, prepay the Term Loan,
which prepayment must be at least $50,000, plus any increment of $50,000 in excess thereof, provided that (a) no Default
or Event of Default shall exist at the time of, or result from, such prepayment, and (b) Borrower's Availability shall exceed $1,500,000,
in each such case after giving effect to such prepayment. Borrower shall give written notice to Lender of an intended prepayment
of the Term Loan, which notice shall specify the amount of the prepayment, shall be irrevocable once given, shall be given at least
10 Business Days prior to the end of a month and shall be effective as of the first day of the next month.


 


 


 


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7.3.4       
Interest; Application of Prepayments. Each prepayment of the Term Loan shall be accompanied by all interest accrued
thereon and any amounts payable under Section 3.9, and shall be applied to principal in inverse order of maturity.


7.4.           
Payment of Other Obligations. Obligations other than Loans, including LC Obligations and Extraordinary Expenses,
shall be paid by Borrower as provided in the Loan Documents or, if no payment date is specified, on demand.


7.5.           
Marshaling; Payments Set Aside. Lender shall have no obligation to marshal any assets in favor of any Obligor
or against any Obligations. If any payment by or on behalf of Borrower is made to Lender, or Lender exercises a right of setoff,
and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by Lender in its discretion) to be repaid to a trustee,
receiver or any other Person, then to the extent of such recovery, the Obligation originally intended to be satisfied, and all
Liens, rights and remedies relating thereto, shall be revived and continued in full force and effect as if such payment had not
been made or such setoff had not occurred.


7.6.           
Application of Payments. The ledger balance in (a) the US Dominion Accounts as of the end of each Business Day,
and (b) the Canadian Dominion Account as of the end of each Business Day after Lender sends to Borrower an Activation Notice, in
each case shall be applied to the Obligations at the beginning of the next Business Day, as applicable. However, solely for purposes
of computing interest hereunder, and in addition to Lender's standard fees and charges relating to the account, any application
by Lender of such balance to the Obligations shall be deemed to be made at the beginning of the second Business Day. If, as a result
of such application, a credit balance exists, the balance shall not accrue interest in favor of Borrower and shall be made available
to Borrower as long as no Default or Event of Default exists. Borrower irrevocably waives the right to direct the application of
any payments or Collateral proceeds, and agrees that Lender shall have the continuing, exclusive right to apply and reapply same
against the Obligations, in such manner as Lender deems advisable.


7.7.           
Loan Account; Account Stated.


7.7.1       
Loan Account. Lender shall maintain in accordance with its usual and customary practices an account or accounts ("Loan
Account") evidencing the Debt of Borrower resulting from each Loan or issuance of a Letter of Credit from time to time.
Any failure of Lender to record anything in the Loan Account, or any error in doing so, shall not limit or otherwise affect the
obligation of Borrower to pay any amount owing hereunder. Lender may maintain a single Loan Account in the name of Borrower, and
Borrower confirms that such arrangement shall have no effect on the joint and several character of its liability for the Obligations.
Entries Binding. Entries made in the Loan Account shall constitute presumptive evidence of the information contained therein. If
any information contained in the Loan Account is provided to or inspected by any Person, then such information shall be conclusive
and binding on such Person for all purposes absent manifest error, except to the extent such Person notifies Lender in writing
within 30 days after receipt or inspection that specific information is subject to dispute.


 


 


 


 


 


 


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7.8.           
Taxes.


7.8.1       
Payments Free of Taxes. All payments by Obligors of Obligations shall be free and clear of and without reduction
for any Taxes. If Applicable Law requires any Obligor or Lender to withhold or deduct any Tax (including backup withholding or
withholding Tax), Lender shall pay the amount withheld or deducted to the relevant Governmental Authority. If the withholding or
deduction is made on account of Indemnified Taxes or Other Taxes, the sum payable by Borrower shall be increased so that Lender
receives an amount equal to the sum it would have received if no such withholding or deduction (including deductions applicable
to additional sums payable under this Section) had been made. Without limiting the foregoing, Borrower shall timely pay all Other
Taxes to the relevant Governmental Authorities.


7.8.2       
Payment. Borrower shall indemnify, hold harmless and reimburse (within 10 days after demand therefor) Lender for
any Indemnified Taxes or Other Taxes (including those attributable to amounts payable under this Section) withheld or deducted
by any Obligor or Lender, or paid by Lender, with respect to any Obligations, Letters of Credit or Loan Documents, whether or not
such Taxes were properly asserted by the relevant Governmental Authority, and including all penalties, interest and reasonable
expenses relating thereto. A certificate as to the amount of any such payment or liability delivered to Borrower by Lender shall
be conclusive, absent manifest error. As soon as practicable after any payment of Taxes by Borrower, Borrower shall deliver to
Lender a receipt from the Governmental Authority or other evidence of payment satisfactory to Lender.


7.9.           
Nature and Extent of Borrower's Liability.


7.9.1       
Liability. Borrower agrees that it is liable for, and absolutely and unconditionally agrees to pay and perform all
Obligations and all agreements under the Loan Documents. Borrower agrees that its obligations hereunder shall not be discharged
until Full Payment of the Obligations, and that such obligations are absolute and unconditional, irrespective of (a) the genuineness,
validity, regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document,
or any other document, instrument or agreement to which any Obligor is or may become a party or be bound; (b) the absence of any
action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any
kind by Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a Lien or to preserve rights
against, any security or guaranty for the Obligations or any action, or the absence of any action, by Lender in respect thereof
(including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Lender in an Insolvency
Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) the disallowance of any claims of Lender against
any Obligor for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (g) any other action
or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except Full
Payment of all Obligations.


7.9.2       
Waivers.


(a)               
Borrower expressly waives all rights that it may have now or in the future under any statute, at common law, in equity or
otherwise, to compel Lender to marshal assets or to proceed against any Obligor, other Person or security for the payment or performance
of any Obligations before, or as a condition to, proceeding against Borrower. Borrower waives all defenses available to a surety,
guarantor or accommodation co-obligor other than Full Payment of all Obligations. It is agreed among Borrower and Lender that the
provisions of this Section 5.9 are of the essence of the transaction contemplated by the Loan Documents and that, but for
such provisions, Lender would decline to make Loans and issue Letters of Credit. Borrower acknowledges that its guaranty pursuant
to this Section is necessary to the conduct and promotion of its business, and can be expected to benefit such business.


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(b)              
Lender may, in its discretion, pursue such rights and remedies as it deems appropriate, including realization upon Collateral
or any Real Estate by judicial foreclosure or non-judicial sale or enforcement, without affecting any rights and remedies under
this Section 5.9. If, in taking any action in connection with the exercise of any rights or remedies, Lender shall forfeit
any other rights or remedies, including the right to enter a deficiency judgment against Borrower or other Person, whether because
of any Applicable Laws pertaining to "election of remedies" or otherwise, Borrower consents to such action and waives
any claim based upon it, even if the action may result in loss of any rights of subrogation that Borrower might otherwise have
had. Borrower waives all rights and defenses arising out of an election of remedies, such as nonjudicial foreclosure with respect
to any security for the Obligations, even though that election of remedies destroys Borrower's rights of subrogation against any
other Person. Lender may bid all or a portion of the Obligations at any foreclosure or trustee's sale or at any private sale, and
the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid
at any such sale, whether Lender or any other Person is the successful bidder, shall be conclusively deemed to be the fair market
value of the Collateral, and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively
deemed to be the amount of the Obligations guaranteed under this Section 5.9, notwithstanding that any present or future
law or court decision may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled
but for such bidding at any such sale.


7.9.3       
Subordination. Borrower hereby subordinates any claims, including any rights at law or in equity to payment, subrogation,
reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other Obligor, howsoever
arising, to the Full Payment of all Obligations.


SECTION
8.      CONDITIONS PRECEDENT


8.1.           
Conditions Precedent to Initial Loans. In addition to the conditions set forth in Section 6.2, Lender
shall not be required to fund any requested Loan, issue any Letter of Credit or otherwise extend credit to Borrower hereunder,
until the date ("Closing Date") that each of the following conditions has been satisfied:


(a)               
Each other Loan Document shall have been duly executed and delivered to Lender by each of the signatories thereto, and each
Obligor shall be in compliance with all terms thereof.


(b)              
Lender shall have received acknowledgments of all filings or recordations necessary to perfect its Liens in the Collateral,
as well as all Lien searches and other evidence satisfactory to Lender that such Liens are the only Liens upon the Collateral,
except Permitted Liens.


(c)               
Lender shall have received evidence, in form and substance satisfactory to Lender, that concurrently upon disbursement of
the initial Borrowings all Debt owing by Borrower to ComVest Capital, LLC will be paid in full and all Liens securing such Debt
will be released and terminated.


(d)              
Lender shall have received duly executed agreements establishing each Dominion Account and related lockbox, in form and
substance, and with financial institutions, satisfactory to Lender.


(e)               
Lender shall have received certificates, in form and substance satisfactory to it, from a knowledgeable Senior Officer of
Borrower certifying that, after giving effect to the initial Loans and transactions hereunder, (i) Borrower is Solvent; (ii) no
Default or Event of Default exists; (iii) the representations and warranties set forth in Section 9 are true and correct;
and (iv) Borrower has complied with all agreements and conditions to be satisfied by it under the Loan Documents.


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(f)               
Lender shall have received a certificate of a duly authorized officer of each Obligor, certifying (i) that attached copies
of such Obligor's Organic Documents are true and complete, and in full force and effect, without amendment except as shown; (ii)
that an attached copy of resolutions authorizing execution and delivery of the Loan Documents is true and complete, and that such
resolutions are in full force and effect, were duly adopted, have not been amended, modified or revoked, and constitute all resolutions
adopted with respect to this credit facility; and (iii) to the title, name and signature of each Person authorized to sign the
Loan Documents. Lender may conclusively rely on this certificate until it is otherwise notified by the applicable Obligor in writing.


(g)               
Lender shall have received a written opinion of Greenbaum Rowe Smith & Davis LLP, as well as any local counsel to Borrower
or Lender, in form and substance satisfactory to Lender.


(h)              
Lender shall have received copies of the charter documents of each Obligor, certified by the Secretary of State or other
appropriate official of such Obligor's jurisdiction of organization. Lender shall have received good standing certificates for
each Obligor, issued by the Secretary of State or other appropriate official of such Obligor's jurisdiction of organization and
each jurisdiction where such Obligor's conduct of business or ownership of Property necessitates qualification.


(i)                
Lender shall have received copies of policies or certificates of insurance for the insurance policies carried by Borrower,
all in compliance with the Loan Documents.


(j)                
Lender shall have completed its business, financial and legal due diligence of Obligors, including a roll-forward of its
previous field examination, with results satisfactory to Lender. No material adverse change in the financial condition of any Obligor
or in the quality, quantity or value of any Collateral shall have occurred since December 31, 2009.


(k)              
Borrower shall have paid all fees and expenses to be paid to Lender on the Closing Date.


(l)                
Lender shall have received a Borrowing Base Certificate prepared as of the Closing Date.


(m)            
After giving effect to all Borrowings to be made on the Closing Date and payment of all fees and expenses due hereunder,
and with all of Borrower's indebtedness, liabilities, and obligations current, Borrower's Availability, less the aggregate amount
of past due payables aged 60 days or more past the original invoice date, shall not be less than the greater of (i) 10% of the
Borrowing Base and (ii) $1,000,000.


(n)              
Borrower shall have delivered evidence to Lender, in form and substance satisfactory to Lender, that EBITDA for the fiscal
quarter ended June 30, 2010 was not less than $750,000.


(o)              
Lender shall have received financial statements, in form and substance acceptable to Lender, for Guarantor.


(p)              
an Insurance Assignment in respect of key man life insurance on the life of Douglas J. Kramer, in form and substance acceptable
to Lender.


(q)              
a Deposit Account Control Agreement for each deposit account into which any proceeds of Collateral will be deposited pursuant
to this Agreement.


 


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8.2.           
Conditions Precedent to All Credit Extensions. Lender shall not be required to fund any Loans, issue any Letters
of Credit, or grant any other accommodation to or for the benefit of Borrower, unless the following conditions are satisfied:


(a)               
No Default or Event of Default shall exist at the time of, or result from, such funding, issuance or grant;


(b)              
The representations and warranties of each Obligor in the Loan Documents shall be true and correct on the date of, and upon
giving effect to, such funding, issuance or grant (except for representations and warranties that expressly relate to an earlier
date);


(c)               
All conditions precedent in any other Loan Document shall be satisfied;


(d)              
No event shall have occurred or circumstance exist that has or could reasonably be expected to have a Material Adverse Effect;
and


(e)               
With respect to issuance of a Letter of Credit, the LC Conditions shall be satisfied.


Each request (or deemed
request) by Borrower for funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall constitute a representation
by Borrower that the foregoing conditions are satisfied on the date of such request and on the date of such funding, issuance or
grant. As an additional condition to any funding, issuance or grant, Lender shall have received such other information, documents,
instruments and agreements as it deems appropriate in connection therewith.


SECTION
9.      COLLATERAL


9.1.           
Grant of Security Interest. To secure the prompt payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in and Lien upon all Property of Borrower, including all of the following Property,
whether now owned or hereafter acquired, and wherever located:


(a)               
all Accounts;


(b)              
all Chattel Paper, including electronic chattel paper;


(c)               
all Commercial Tort Claims, including those shown on Schedule 9.1.16;


(d)              
all Deposit Accounts;


(e)               
all Documents;


(f)               
all General Intangibles, including Intellectual Property;


(g)               
all Goods, including Inventory, Equipment and fixtures;


(h)              
all Instruments;


(i)                
all Investment Property;


(j)                
all Letter-of-Credit Rights;


 


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(k)              
all Supporting Obligations;


(l)                
all monies, whether or not in the possession or under the control of Lender, or a bailee or Affiliate of Lender, including
any Cash Collateral;


(m)            
all accessions to, substitutions for, and all replacements, products, and cash and non-cash proceeds of the foregoing, including
proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage or destruction
of any Collateral; and


(n)              
all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs and computer
records) pertaining to the foregoing.


9.2.           
Lien on Deposit Accounts; Cash Collateral.


9.2.1       
Deposit Accounts. To further secure the prompt payment and performance of all Obligations, Borrower hereby grants
to Lender a continuing security interest in and Lien upon all amounts credited to any Deposit Account of Borrower, including any
sums in any blocked or lockbox accounts or in any accounts into which such sums are swept. Borrower hereby authorizes and directs
each bank or other depository to deliver to Lender, upon request, all balances in any Deposit Account maintained by Borrower, without
inquiry into the authority or right of Lender to make such request.


9.2.2       
Cash Collateral. Any Cash Collateral may be invested, at Lender's discretion and with the consent of Borrower, but
Lender shall have no duty to do so, regardless of any agreement or course of dealing with Borrower, and shall have no responsibility
for any investment or loss. Borrower hereby grants to Lender a security interest in all Cash Collateral held from time to time
and all proceeds thereof, as security for the Obligations, whether such Cash Collateral is held in a Cash Collateral Account or
elsewhere. Lender may apply Cash Collateral to the payment of any Obligations, in such order as Lender may elect, as they become
due and payable. Each Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of Lender. Borrower
or other Person claiming through or on behalf of any Borrower shall not have any right to any Cash Collateral, until Full Payment
of all Obligations.


9.3.           
Reserved.


9.4.           
Other Collateral.


9.4.1       
Commercial Tort Claims. Borrower shall promptly notify Lender in writing if Borrower has a Commercial Tort Claim
(other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $100,000), shall promptly
amend Schedule 9.1.16 to include such claim, and shall take such actions as Lender deems appropriate to subject such claim
to a duly perfected, first priority Lien in favor of Lender.


9.4.2       
Certain After-Acquired Collateral. Borrower shall promptly notify Lender in writing if, after the Closing Date, Borrower
obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, Documents, Instruments, Intellectual Property,
Investment Property or Letter-of-Credit Rights and, upon Lender's request, shall promptly take such actions as Lender deems appropriate
to effect Lender's duly perfected, first priority Lien upon such Collateral, including obtaining any appropriate possession, control
agreement or Lien Waiver. If any Collateral is in the possession of a third party, at Lender's request, Borrower shall obtain an
acknowledgment that such third party holds the Collateral for the benefit of Lender.


 


 


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9.5.           
No Assumption of Liability. The Lien on Collateral granted hereunder is given as security only and shall not
subject Lender to, or in any way modify, any obligation or liability of Borrower relating to any Collateral.


9.6.           
Further Assurances; Extent of Liens. Promptly upon request, Borrower shall deliver such instruments, assignments,
title certificates, or other documents or agreements, and shall take such actions, as Lender deems appropriate under Applicable
Law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Agreement. Borrower authorizes
Lender to file any financing statement that indicates the Collateral as "all assets" or "all personal property"
of Borrower, or words to similar effect, and ratifies any action taken by Lender before the Closing Date to effect or perfect its
Lien on any Collateral. All of Lender's Liens on Collateral (and all evidences of such Liens), whether effected hereunder or under
any other Loan Document, are granted to Lender as agent for the benefit of all Secured Parties.


9.7.           
Foreign Subsidiary Stock. Notwithstanding Section 7.1, the Collateral shall include only 65% of the voting stock
of any Foreign Subsidiary.


SECTION
10.  COLLATERAL ADMINISTRATION


10.1.       
Borrowing Base Certificates. As soon as available but in any event (i) within 3 Business Days after the
end of each calendar week for so long as Availability is greater than or equal to $1,500,000 or (ii) daily following any day on
which Availability is less than $1,500,000 and continuing until Availability has equaled or exceeded $1,500,000 for at least 45
consecutive days, Borrower shall deliver to Lender a Borrowing Base Certificate prepared as of the close of business, and at such
other times as Lender may request. All calculations of Availability in any Borrowing Base Certificate shall originally be made
by Borrower and certified by a Senior Officer, provided that Lender may from time to time review and adjust any such calculation
(a) to reflect its reasonable estimate of declines in value of any Collateral, due to collections received in the Dominion Accounts
or otherwise; (b) to adjust advance rates to reflect changes in dilution, quality, mix and other factors affecting Collateral;
and (c) to the extent the calculation is not made in accordance with this Agreement or does not accurately reflect the Availability
Reserve.


10.2.       
Administration of Accounts.


10.2.1   
Records and Schedules of Accounts. Borrower shall keep accurate and complete records of its Accounts, including all
payments and collections thereon, and shall submit to Lender sales, collection, reconciliation and other reports in form satisfactory
to Lender, on such periodic basis as Lender may request. Borrower shall also provide to Lender, on or before the 15th day of each
month, a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account's Account Debtor
name and address, amount, invoice date and due date, showing any discount, allowance, credit, authorized return or dispute, and
including such proof of delivery, copies of invoices and invoice registers, copies of related documents, repayment histories, status
reports and other information as Lender may reasonably request. If Accounts in an aggregate face amount of $500,000 or more cease
to be Eligible Accounts, Borrower shall notify Lender of such occurrence promptly (and in any event within one Business Day) after
Borrower has knowledge thereof.


10.2.2   
Taxes. If an Account of Borrower includes a charge for any Taxes, Lender is authorized, in its discretion, to pay
the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor; provided,
however, that Lender shall not be liable for any Taxes that may be due from Borrower or with respect to any Collateral.


 


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10.2.3   
Account Verification. Whether or not a Default or Event of Default exists, Lender shall have the right at any time,
in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts
of Borrower by mail, telephone or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.


10.2.4   
Maintenance of Dominion Account. Borrower shall maintain Dominion Accounts pursuant to lockbox or other arrangements
acceptable to Lender. Borrower shall obtain a Deposit Account Control Agreement from each lockbox servicer and Dominion Account
bank, establishing Lender's control over and Lien in the lockbox or Dominion Account, requiring immediate deposit of all remittances
received in the lockbox to a Dominion Account, and waiving offset rights of such servicer or bank, except for customary administrative
charges. Notwithstanding any other provisions in this Agreement, UK Dominion Accounts must be maintained exclusively at Bank of
America, N.A. (acting through its London branch) and shall be under the sole dominion and exclusive control of Lender; provided,
that collected funds will be disbursed from UK Dominion Accounts in the discretion of Lender. If a Dominion Account or a UK Dominion
Account is not maintained with Lender, Lender may require immediate transfer of all funds in such account to a Dominion
Account or a UK Dominion Account, respectively, maintained with Lender. Lender assumes no responsibility to Borrower for any lockbox
arrangement or Dominion Account, including any claim of accord and satisfaction or release with respect to any Payment Items accepted
by any bank.


10.2.5   
Proceeds of Collateral; Canadian Disbursement Account.


(a)               
Borrower shall request in writing and otherwise take all necessary steps to ensure that all payments on Canadian Accounts
are made directly to the Canadian Dominion Account (or a lockbox relating to the Canadian Dominion Account). If Borrower or any
Subsidiary receives cash or Payment Items with respect to any Canadian Accounts, it shall hold same in trust for Lender and promptly
(not later than the next Business Day) deposit same into the Canadian Dominion Account.


(b)              
Borrower shall request in writing and otherwise take all necessary steps to ensure that all payments on Accounts other than
Canadian Accounts or otherwise relating to any Collateral other than Canadian Accounts are made directly to a US Dominion Account
(or a lockbox relating to a US Dominion Account). If Borrower or Subsidiary receives cash or Payment Items with respect to any
Accounts other than Canadian Accounts or otherwise relating to any Collateral other than Canadian Accounts, it shall hold same
in trust for Lender and promptly (not later than the next Business Day) deposit same into a US Dominion Account.


(c)               
For so long as Lender has not sent to Borrower an Activation Notice pursuant to Section 8.25(d) collected funds that
are deposited to the Canadian Dominion Account shall be transferred to the Canadian Disbursement Account, provided, that
the Canadian Disbursement Account is subject to Lender's control pursuant to Section 8.5. All collected funds in the Canadian
Dominion Account on and after the date on which Lender sends to Borrower an Activation Notice shall be transferred to Lender for
application to the Obligations.


(d)              
Lender shall have the irrevocable right to send Borrower an Activation Notice with respect to the Canadian Dominion Account
at any time in Lender's sole discretion, without prior notice, whether or not any Default or Event of Default has occurred or remains
in existence.


 


 


 


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(e)               
The aggregate amount of funds on deposit in the Canadian Disbursement Account shall not exceed, on any day, an amount (determined
according to applicable currency exchange rates on such day as determined by Lender) equivalent to 150,000 Dollars. Borrower shall
cause all amounts, if any, at any time on deposit in the Canadian Disbursement Account in excess of an amount (determined according
to applicable currency exchange rates on such day as determined by Lender) equivalent to 150,000 Dollars to be promptly transferred
to Lender for application to the Obligations.


10.3.       
Administration of Inventory.


10.3.1   
Records and Reports of Inventory. Borrower shall keep accurate and complete records of its Inventory, including costs
and daily withdrawals and additions, and shall submit to Lender inventory and reconciliation reports in form satisfactory to Lender,
on such periodic basis as Lender may request. Borrower shall conduct a physical inventory at least once per calendar year (and
on a more frequent basis if requested by Lender when an Event of Default exists) and periodic cycle counts consistent with historical
practices, and shall provide to Lender a report based on each such inventory and count promptly upon completion thereof, together
with such supporting information as Lender may request. Lender may participate in and observe each physical count.


10.3.2   
Returns of Inventory. Borrower shall not return any Inventory to a supplier, vendor or other Person, whether for
cash, credit or otherwise, unless (a) such return is in the Ordinary Course of Business; (b) no Default, Event of Default or Overadvance
exists or would result therefrom; (c) Lender is promptly notified if the aggregate Value of all Inventory returned in any month
exceeds $100,000; and (d) any payment received by Borrower for a return is promptly remitted to Lender for application to the Obligations.


10.3.3   
Acquisition, Sale and Maintenance. Borrower shall not acquire or accept any Inventory on consignment or approval,
and shall take all steps to assure that all Inventory is produced in accordance with Applicable Law, including the FLSA. Borrower
shall not sell any Inventory on consignment or approval or any other basis under which the customer may return or require Borrower
to repurchase such Inventory. Borrower shall use, store and maintain all Inventory with reasonable care and caution, in accordance
with applicable standards of any insurance and in conformity with all Applicable Law, and shall make current rent payments (within
applicable grace periods provided for in leases) at all locations where any Collateral is located.


10.4.       
Administration of Equipment.


10.4.1   
Records and Schedules of Equipment. Borrower shall keep accurate and complete records of its Equipment, including
kind, quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Lender, on such periodic basis as Lender
may request, a current schedule thereof, in form satisfactory to Lender. Promptly upon request, Borrower shall deliver to Lender
evidence of their ownership or interests in any Equipment.


10.4.2   
Dispositions of Equipment. Borrower shall not sell, lease or otherwise dispose of any Equipment, without the prior
written consent of Lender, other than (a) a Permitted Asset Disposition; and (b) replacement of Equipment that is worn, damaged
or obsolete with Equipment of like function and value, if the replacement Equipment is acquired substantially contemporaneously
with such disposition and is free of Liens.


 


 


 


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10.4.3   
Condition of Equipment. The Equipment is in good operating condition and repair, and all necessary replacements and
repairs have been made so that the value and operating efficiency of the Equipment is preserved at all times, reasonable wear and
tear excepted. Borrower shall ensure that the Equipment is mechanically and structurally sound, and capable of performing the functions
for which it was designed, in accordance with manufacturer specifications. Borrower shall not permit any Equipment to become affixed
to real Property unless any landlord or mortgagee delivers a Lien Waiver.


10.5.       
Administration of Deposit Accounts. Schedule 8.5 sets forth all Deposit Accounts maintained by Borrower,
including all Dominion Accounts. Borrower shall take all actions necessary to establish Lender's control of each such Deposit Account
through a Deposit Account Control Agreement (other than an account domiciled in the U.S. or Canada exclusively used for payroll,
payroll taxes or employee benefits, or an account containing not more than $10,000 at any time). Borrower shall be the sole account
holder of each Deposit Account and shall not allow any other Person (other than Lender) to have control over a Deposit Account
or any Property deposited therein. Borrower shall promptly notify Lender of any opening or closing of a Deposit Account and, with
the consent of Lender, will amend Schedule 8.5 to reflect same.


10.6.       
General Provisions.


10.6.1   
Location of Collateral. All tangible items of Collateral, other than Inventory in transit, shall at all times be
kept by Borrower at the business locations set forth in Schedule 8.6.1, except that Borrower may (a) make sales or other
dispositions of Collateral in accordance with Section 10.2.6; and (b) move Collateral to another location in the United
States, upon 30 Business Days prior written notice to Lender.


10.6.2   
Insurance of Collateral; Condemnation Proceeds.


(a)               
Borrower shall maintain insurance with respect to the Collateral, covering casualty, hazard, theft, malicious mischief,
flood and other risks, in amounts, with endorsements and with insurers (with a Best Rating of at least A7, unless otherwise approved
by Lender) satisfactory to Lender. All proceeds under each policy shall be payable to Lender. From time to time upon request, Borrower
shall deliver to Lender the originals or certified copies of its insurance policies and updated flood plain searches. Unless Lender
shall agree otherwise, each policy shall include satisfactory endorsements (i) showing Lender as loss payee; (ii) requiring 30
days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever; and (iii) specifying
that the interest of Lender shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property,
nor by the occupation of the premises for purposes more hazardous than are permitted by the policy. If Borrower fails to provide
and pay for any insurance, Lender may, at its option, but shall not be required to, procure the insurance and charge Borrower therefor.
Borrower agrees to deliver to Lender, promptly as rendered, copies of all reports made to insurance companies. While no Event of
Default exists, Borrower may settle, adjust or compromise any insurance claim, as long as the proceeds are delivered to Lender.
If an Event of Default exists, only Lender shall be authorized to settle, adjust and compromise such claims.


(b)              
Any proceeds of insurance (other than proceeds from workers' compensation or D&O insurance) and any awards arising from
condemnation of any Collateral shall be paid to Lender. Any such proceeds or awards that relate to Inventory shall be applied to
payment of the Revolver Loans, and then to any other Obligations outstanding, other than the Term Loan. Subject to clause (c) below,
any proceeds or awards that relate to Equipment or Real Estate shall be applied first to the Term Loan, then to Revolver Loans
and then to other Obligations.


 


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(c)               
If requested by Borrower in writing within 15 days after Lender's receipt of any insurance proceeds or condemnation awards
relating to any loss or destruction of Equipment or Real Estate, Borrower may use such proceeds or awards to repair or replace
such Equipment or Real Estate (and until so used, the proceeds shall be held by Lender as Cash Collateral) as long as (i) no Default
or Event of Default exists; (ii) such repair or replacement is promptly undertaken and concluded, in accordance with plans satisfactory
to Lender; (iii) replacement buildings are constructed on the sites of the original casualties and are of comparable size, quality
and utility to the destroyed buildings; (iv) the repaired or replaced Property is free of Liens, other than Permitted Liens that
are not Purchase Money Liens; (v) Borrower complies with disbursement procedures for such repair or replacement as Lender may reasonably
require; and (vi) the aggregate amount of such proceeds or awards from any single casualty or condemnation does not exceed $3,000,000.


10.6.3   
Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping
any Collateral, all Taxes payable with respect to any Collateral (including any sale thereof), and all other payments required
to be made by Lender to any Person to realize upon any Collateral, shall be borne and paid by Borrower. Lender shall not be liable
or responsible in any way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable care in
its custody while Collateral is in Lender's actual possession), for any diminution in the value thereof, or for any act or default
of any warehouseman, carrier, forwarding agency or other Person whatsoever, but the same shall be at Borrower's sole risk.


10.6.4   
Defense of Title to Collateral. Borrower shall at all times defend its title to Collateral and Lender's Liens therein
against all Persons, claims and demands whatsoever, except Permitted Liens.


10.7.       
Power of Attorney. Borrower hereby irrevocably constitutes and appoints Lender (and all Persons designated by
Lender) as Borrower's true and lawful attorney (and agent-in-fact) for the purposes provided in this Section. Lender, or Lender's
designee, may, without notice and in either its or Borrower's name, but at the cost and expense of Borrower:


(a)               
Endorse Borrower's name on any Payment Item or other proceeds of Collateral (including proceeds of insurance) that come
into Lender's possession or control; and


(b)              
During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and enforce payment
of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts; (ii) settle,
adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect
Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for such amounts and at such times
as Lender deems advisable; (iv) collect, liquidate and receive balances in Deposit Accounts or investment accounts, and take control,
in any manner, of proceeds of Collateral; (v) prepare, file and sign Borrower's name to a proof of claim or other document in a
bankruptcy of an Account Debtor, or to any notice, assignment or satisfaction of Lien or similar document; (vi) receive, open and
dispose of mail addressed to Borrower, and notify postal authorities to deliver any such mail to an address designated by Lender;
(vii) endorse any Chattel Paper, Document, Instrument, bill of lading, or other document or agreement relating to any Accounts,
Inventory or other Collateral; (viii) use Borrower's stationery and sign its name to verifications of Accounts and notices to Account
Debtors; (ix) use information contained in any data processing, electronic or information systems relating to Collateral; (x) make
and adjust claims under insurance policies; (xi) take any action as may be necessary or appropriate to obtain payment under any
letter of credit, banker's acceptance or other instrument for which Borrower is a beneficiary; and (xii) take all other actions
as Lender deems appropriate to fulfill Borrower's obligations under the Loan Documents.


 


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SECTION
11.  REPRESENTATIONS AND WARRANTIES


11.1.       
General Representations and Warranties. To induce Lender to enter into this Agreement and to make available the
Commitments, Loans and Letters of Credit, Borrower represents and warrants that:


11.1.1   
Organization and Qualification. Borrower and Subsidiary is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization. Borrower and Subsidiary is duly qualified, authorized to do business and
in good standing as a foreign corporation in each jurisdiction where failure to be so qualified could reasonably be expected to
have a Material Adverse Effect.


11.1.2   
Power and Authority. Each Obligor is duly authorized to execute, deliver and perform its Loan Documents. The execution,
delivery and performance of the Loan Documents have been duly authorized by all necessary action, and do not (a) require any consent
or approval of any holders of Equity Interests of any Obligor, other than those already obtained; (b) contravene the Organic Documents
of any Obligor; (c) violate or cause a default under any Applicable Law or Material Contract; or (d) result in or require the imposition
of any Lien (other than Permitted Liens) on any Property of any Obligor.


11.1.3   
Enforceability. Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto, enforceable
in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement
of creditors' rights generally.


11.1.4   
Capital Structure. Schedule 9.1.4 shows, for Borrower and Subsidiary, its name, its jurisdiction of organization,
its authorized and issued Equity Interests, the holders of its Equity Interests, and all agreements binding on such holders with
respect to their Equity Interests. Except as disclosed on Schedule 9.1.4, in the five years preceding the Closing Date,
no Borrower or Subsidiary has acquired any substantial assets from any other Person nor been the surviving entity in a merger or
combination. Borrower has good title to its Equity Interests in its Subsidiaries, subject only to Lender's Lien, and all such Equity
Interests are duly issued, fully paid and non-assessable. There are no outstanding purchase options, warrants, subscription rights,
agreements to issue or sell, convertible interests, phantom rights or powers of attorney relating to Equity Interests of any Borrower
or Subsidiary.


11.1.5   
Title to Properties; Priority of Liens. Borrower and each Subsidiary have good and marketable title to (or valid
leasehold interests in) all of its Real Estate, and good title to all of its personal Property, including all Property reflected
in any financial statements delivered to Lender, in each case free of Liens except Permitted Liens. Borrower and each Subsidiary
has paid and discharged all lawful claims that, if unpaid, could become a Lien on its Properties, other than Permitted Liens. All
Liens of Lender in the Collateral are duly perfected, first priority Liens, subject only to Permitted Liens that are expressly
allowed to have priority over Lender's Liens.


11.1.6   
Accounts. Lender may rely, in determining which Accounts are Eligible Accounts, on all statements and representations
made by Borrower with respect thereto. Borrower warrants, with respect to each Account at the time it is shown as an Eligible Account
in a Borrowing Base Certificate, that:


(a)               
it is genuine and in all respects what it purports to be, and is not evidenced by a judgment;


(b)              
it arises out of a completed, bona fide sale and delivery of goods in the Ordinary Course of Business, and substantially
in accordance with any purchase order, contract or other document relating thereto;


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(c)               
it is for a sum certain, maturing as stated in the invoice covering such sale, a copy of which has been furnished or is
available to Lender on request;


(d)              
it is not subject to any offset, Lien (other than Lender's Lien), deduction, defense, dispute, counterclaim or other adverse
condition except as arising in the Ordinary Course of Business and disclosed to Lender; and it is absolutely owing by the Account
Debtor, without contingency in any respect;


(e)               
no purchase order, agreement, document or Applicable Law restricts assignment of the Account to Lender (regardless of whether,
under the UCC, the restriction is ineffective), and the Borrower is the sole payee or remittance party shown on the invoice;


(f)               
no extension, compromise, settlement, modification, credit, deduction or return has been authorized with respect to the
Account, except discounts or allowances granted in the Ordinary Course of Business for prompt payment that are reflected on the
face of the invoice related thereto and in the reports submitted to Lender hereunder; and


(g)               
to the best of Borrower's knowledge, (i) there are no facts or circumstances that are reasonably likely to impair the enforceability
or collectibility of such Account; (ii) the Account Debtor had the capacity to contract when the Account arose, continues to meet
the Borrower's customary credit standards, is Solvent, is not contemplating or subject to an Insolvency Proceeding, and has not
failed, or suspended or ceased doing business; and (iii) there are no proceedings or actions threatened or pending against any
Account Debtor that could reasonably be expected to have a material adverse effect on the Account Debtor's financial condition.


11.1.7   
Financial Statements. The consolidated and consolidating balance sheets, and related statements of income, cash flow
and shareholder's equity, of Borrower and Subsidiaries that have been and are hereafter delivered to Lender, are prepared in accordance
with GAAP, and fairly present the financial positions and results of operations of Borrower and Subsidiaries at the dates and for
the periods indicated. All projections delivered from time to time to Lender have been prepared in good faith, based on reasonable
assumptions in light of the circumstances at such time. Since December 31, 2009, there has been no change in the condition, financial
or otherwise, of any Borrower or Subsidiary that could reasonably be expected to have a Material Adverse Effect. No financial statement
delivered to Lender at any time contains any untrue statement of a material fact, nor fails to disclose any material fact necessary
to make such statement not materially misleading. Borrower and each Subsidiary are Solvent.


11.1.8   
Surety Obligations. No Borrower or Subsidiary is obligated as surety or indemnitor under any bond or other contract
that assures payment or performance of any obligation of any Person, except as permitted hereunder.


11.1.9   
Taxes. Borrower and each Subsidiary have filed all federal, state and local tax returns and other reports that it
is required by law to file, and has paid, or made provision for the payment of, all Taxes upon it, its income and its Properties
that are due and payable, except to the extent being Properly Contested. The provision for Taxes on the books of Borrower and each
Subsidiary is adequate for all years not closed by applicable statutes, and for its current Fiscal Year.


11.1.10                       
Brokers. There are no brokerage commissions, finder's fees or investment banking fees payable in connection with
any transactions contemplated by the Loan Documents.


 


 


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11.1.11                       
Intellectual Property. Borrower and each Subsidiary own or has the lawful right to use all Intellectual Property
necessary for the conduct of its business, without conflict with any rights of others. There is no pending or, to Borrower's knowledge,
threatened Intellectual Property Claim with respect to Borrower, any Subsidiary or any of their Property (including any Intellectual
Property). Except as disclosed on Schedule 9.1.11, no Borrower or Subsidiary pays or owes any Royalty or other compensation
to any Person with respect to any Intellectual Property. All Intellectual Property owned, used or licensed by, or otherwise subject
to any interests of, any Borrower or Subsidiary is shown on Schedule 9.1.11.


11.1.12                       
Governmental Approvals. Borrower and each Subsidiary have, is in compliance with, and is in good standing with respect
to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its Properties. All necessary import,
export or other licenses, permits or certificates for the import or handling of any goods or other Collateral have been procured
and are in effect, and Borrower and Subsidiaries have complied with all foreign and domestic laws with respect to the shipment
and importation of any goods or Collateral, except where noncompliance could not reasonably be expected to have a Material Adverse
Effect.


11.1.13                       
Compliance with Laws. Borrower and each Subsidiary have duly complied, and its Properties and business operations
are in compliance, in all material respects with all Applicable Law, except where noncompliance could not reasonably be expected
to have a Material Adverse Effect. There have been no citations, notices or orders of material noncompliance issued to any Borrower
or Subsidiary under any Applicable Law. No Inventory has been produced in violation of the FLSA.


11.1.14                       
Compliance with Environmental Laws. Except as disclosed on Schedule 9.1.14, to Borrower's knowledge, no Borrower's
or Subsidiary's past or present operations, Real Estate or other Properties are subject to any federal, state or local investigation
to determine whether any remedial action is needed to address any environmental pollution, hazardous material or environmental
clean-up. No Borrower or Subsidiary has received any Environmental Notice. No Borrower or Subsidiary has any contingent liability
with respect to any Environmental Release, environmental pollution or hazardous material on any Real Estate now or previously owned,
leased or operated by it.


11.1.15                       
Burdensome Contracts. No Borrower or Subsidiary is a party or subject to any contract, agreement or charter restriction
that could reasonably be expected to have a Material Adverse Effect. No Borrower or Subsidiary is party or subject to any Restrictive
Agreement, except as shown on Schedule 9.1.15. No such Restrictive Agreement prohibits the execution, delivery or performance
of any Loan Document by an Obligor.


11.1.16                       
Litigation. Except as shown on Schedule 9.1.16, there are no proceedings or investigations pending or, to
any Borrower's knowledge, threatened against Borrower or Subsidiary, or any of their businesses, operations, Properties, prospects
or conditions, that (a) relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be expected
to have a Material Adverse Effect if determined adversely to Borrower or Subsidiary. Except as shown on such Schedule, no Obligor
has a Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than
$100,000). No Borrower or Subsidiary is in default with respect to any order, injunction or judgment of any Governmental Authority.


11.1.17                       
No Defaults. No event or circumstance has occurred or exists that constitutes a Default or Event of Default. No Borrower
or Subsidiary is in default, and no event or circumstance has occurred or exists that with the passage of time or giving of notice
would constitute a default, under any Material Contract or in the payment of any Borrowed Money. There is no basis upon which any
party (other than Borrower or Subsidiary) could terminate a Material Contract prior to its scheduled termination date.


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11.1.18                       
ERISA. Except as disclosed on Schedule 9.1.18:


(a)               
Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and other federal
and state laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter
from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge
of Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Obligor and ERISA Affiliate
has made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or
an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.


(b)              
There are no pending or, to the knowledge of Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted in or could reasonably
be expected to have a Material Adverse Effect.


(c)               
(i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect
to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA Affiliate
has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section
4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v)
no Obligor or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.


(d)              
With respect to any Foreign Plan, (i) all employer and employee contributions required by law or by the terms of the Foreign
Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices; (ii) the fair market value of
the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book
reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the
accrued benefit obligations with respect to all current and former participants in such Foreign Plan according to the actuarial
assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted
accounting principles; and (iii) it has been registered as required and has been maintained in good standing with applicable regulatory
authorities.


11.1.19                       
Trade Relations. There exists no actual or threatened termination, limitation or modification of any business relationship
between Borrower or Subsidiary and any customer or supplier, or any group of customers or suppliers, who individually or in the
aggregate are material to the business of Borrower or Subsidiary. There exists no condition or circumstance that could reasonably
be expected to impair the ability of Borrower or Subsidiary to conduct its business at any time hereafter in substantially the
same manner as conducted on the Closing Date.


11.1.20                       
Labor Relations. No Borrower or Subsidiary is party to or bound by any collective bargaining agreement, management
agreement or consulting agreement. There are no material grievances, disputes or controversies with any union or other organization
of any Borrower's or Subsidiary's employees, or, to Borrower's knowledge, any asserted or threatened strikes, work stoppages or
demands for collective bargaining.


11.1.21                       
Payable Practices. No Borrower or Subsidiary has made any material change in its historical accounts payable practices
from those in effect on the Closing Date.


 


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11.1.22                       
Not a Regulated Entity. No Obligor is (a) an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning of the Investment Company Act of 1940; or (b)
subject to regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or any other Applicable
Law regarding its authority to incur Debt.


11.1.23                       
Margin Stock. No Borrower or Subsidiary is engaged, principally or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying any Margin Stock. No Loan proceeds or Letters of Credit will be used
by Borrower to purchase or carry, or to reduce or refinance any Debt incurred to purchase or carry, any Margin Stock or for any
related purpose governed by Regulations T, U or X of the Board of Governors.


11.2.       
Complete Disclosure. No Loan Document contains any untrue statement of a material fact, nor fails to disclose
any material fact necessary to make the statements contained therein not materially misleading. There is no fact or circumstance
that any Obligor has failed to disclose to Lender in writing that could reasonably be expected to have a Material Adverse Effect.


SECTION
12.  COVENANTS AND CONTINUING AGREEMENTS


12.1.       
Affirmative Covenants. As long as any Commitment or Obligations are outstanding, Borrower shall, and shall cause
each Subsidiary to:


12.1.1   
Inspections; Appraisals.


(a)               
Permit Lender from time to time, subject (except when a Default or Event of Default exists) to reasonable notice and normal
business hours, to visit and inspect the Properties of Borrower or Subsidiary, inspect, audit and make extracts from Borrower's
or Subsidiary's books and records, and discuss with its officers, employees, agents, advisors and independent accountants Borrower's
or Subsidiary's business, financial condition, assets, prospects and results of operations. Lender shall not have any duty to Borrower
to make any inspection, nor to share any results of any inspection, appraisal or report with Borrower. Borrower acknowledges that
all inspections, appraisals and reports are prepared by Lender for its purposes, and Borrower shall not be entitled to rely upon
them.


(b)              
Reimburse Lender for all its charges, costs and expenses in connection with (i) examinations of any Obligor's books
and records or any other financial or Collateral matters as Lender deems appropriate, up to three times per Loan Year; and (ii)
appraisals of Inventory, Equipment up to one time per Loan Year; provided, however, that if an examination or appraisal is initiated
during a Default or Event of Default, all charges, costs and expenses therefor shall be reimbursed by Borrower without regard to
such limits. Subject to and without limiting the foregoing, Borrower specifically agrees to pay Lender's then standard charges
for each day that an employee of Lender or its Affiliates is engaged in any examination activities, and shall pay the standard
charges of Lender's internal appraisal group. This Section shall not be construed to limit Lender's right to conduct examinations
or to obtain appraisals at any time in its discretion, nor to use third parties for such purposes.


12.1.2   
Financial and Other Information. Keep adequate records and books of account with respect to its business activities,
in which proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish to Lender:


 


 


 


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(a)               
as soon as available, and in any event within 105 days after the close of each Fiscal Year, balance sheets as of the end
of such Fiscal Year and the related statements of income, cash flow and shareholders' equity for such Fiscal Year, on consolidated
and consolidating bases for Borrower and Subsidiaries, which consolidated statements shall be audited and certified (without qualification)
by a firm of independent certified public accountants of recognized standing selected by Borrower and acceptable to Lender, and
shall set forth in comparative form corresponding figures for the preceding Fiscal Year and other information acceptable to Lender;


(b)              
as soon as available, and in any event within 20 days after the end of each month (but within 75 days after the last month
in a Fiscal Year), unaudited balance sheets as of the end of such month and the related statements of income and cash flow for
such month and for the portion of the Fiscal Year then elapsed, on consolidated and consolidating bases for Borrower and Subsidiaries,
setting forth in comparative form corresponding figures for the preceding Fiscal Year and certified by the chief financial officer
of Borrower as prepared in accordance with GAAP and fairly presenting the financial position and results of operations for such
month and period, subject to normal year-end adjustments and the absence of footnotes;


(c)               
concurrently with delivery of financial statements under clauses (a) and (b) above, or more frequently if requested by Lender
while a Default or Event of Default exists, a Compliance Certificate executed by the chief financial officer of Borrower;


(d)              
concurrently with delivery of financial statements under clause (a) above, copies of all management letters and other material
reports submitted to Borrower by its accountants in connection with such financial statements;


(e)               
not later than 20 days prior to the end of each Fiscal Year, projections of Borrower's consolidated balance sheets, results
of operations, cash flow and Availability for the next Fiscal Year, month by month;


(f)               
at Lender's request, a listing of Borrower's trade payables, specifying the trade creditor and balance due, and a detailed
trade payable aging, all in form satisfactory to Lender;


(g)               
promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports that Borrower
has made generally available to its shareholders; copies of any regular, periodic and special reports or registration statements
or prospectuses that Borrower files with the Securities and Exchange Commission or any other Governmental Authority, or any securities
exchange; and copies of any press releases or other statements made available by Borrower to the public concerning material changes
to or developments in the business of Borrower;


(h)              
promptly after the sending or filing thereof, copies of any annual report to be filed in connection with each Plan or Foreign
Plan;


(i)                
such other reports and information (financial or otherwise) as Lender may request from time to time in connection with any
Collateral or Borrower's, Subsidiary's or other Obligor's financial condition or business;


(j)                
as soon as available, and in any event within 120 days after the close of each Fiscal Year, financial statements for each
Guarantor, in form and substance satisfactory to Lender; and


(k)              
as soon as available, and in any event no fewer than three times per Fiscal Year as requested by Lender if no Event of Default
has occurred, a field examination, and at such other times as may be requested by Lender if a Default or an Event of Default has
occurred, a field examination and appraisal of Inventory, in form and substance satisfactory to Lender.


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12.1.3   
Notices. Notify Lender in writing, promptly after Borrower's obtaining knowledge thereof, of any of the following
that affects an Obligor: (a) the threat or commencement of any proceeding or investigation, whether or not covered by insurance,
if an adverse determination could have a Material Adverse Effect; (b) any pending or threatened labor dispute, strike or walkout,
or the expiration of any material labor contract; (c) any default under or termination of a Material Contract; (d) the existence
of any Default or Event of Default; (e) any judgment in an amount exceeding $50,000; (f) the assertion of any Intellectual Property
Claim, if an adverse resolution could have a Material Adverse Effect; (g) any violation or asserted violation of any Applicable
Law (including ERISA, OSHA, FLSA, or any Environmental Laws), if an adverse resolution could have a Material Adverse Effect; (h)
any Environmental Release by an Obligor or on any Property owned, leased or occupied by an Obligor; or receipt of any Environmental
Notice; (i) the occurrence of any ERISA Event; (j) the discharge of or any withdrawal or resignation by Borrower' independent accountants;
or (k) any opening of a new office or place of business, at least 30 days prior to such opening.


12.1.4   
Landlord and Storage Agreements. Upon request, provide Lender with copies of all existing agreements, and promptly
after execution thereof provide Lender with copies of all future agreements, between an Obligor and any landlord, warehouseman,
processor, shipper, bailee or other Person that owns any premises at which any Collateral may be kept or that otherwise may possess
or handle any Collateral.


12.1.5   
Compliance with Laws. Comply with all Applicable Laws, including ERISA, Environmental Laws, FLSA, OSHA, Anti-Terrorism
Laws, and laws regarding collection and payment of Taxes, and maintain all Governmental Approvals necessary to the ownership of
its Properties or conduct of its business, unless failure to comply (other than failure to comply with Anti-Terrorism Laws) or
maintain could not reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing,
if any Environmental Release occurs at or on any Properties of Borrower or Subsidiary, it shall act promptly and diligently to
investigate and report to Lender and all appropriate Governmental Authorities the extent of, and to make appropriate remedial action
to eliminate, such Environmental Release, whether or not directed to do so by any Governmental Authority.


12.1.6   
Taxes. Pay and discharge all Taxes prior to the date on which they become delinquent or penalties attach, unless
such Taxes are being Properly Contested.


12.1.7   
Insurance. In addition to the insurance required hereunder with respect to Collateral, maintain insurance with insurers
(with a Best Rating of at least A7, unless otherwise approved by Lender) satisfactory to Lender, (a) with respect to the Properties
and business of Borrower and Subsidiaries of such type (including product liability, workers' compensation, larceny, embezzlement,
or other criminal misappropriation insurance), in such amounts, and with such coverages and deductibles as are customary for companies
similarly situated; and (b) business interruption insurance in an amount not less than $3,000,000, with deductibles and subject
to an Insurance Assignment satisfactory to Lender.


12.1.8   
Licenses. Keep each License affecting any Collateral (including the manufacture, distribution or disposition of Inventory)
or any other material Property of Borrower and Subsidiaries in full force and effect; promptly notify Lender of any proposed modification
to any such License, or entry into any new License, in each case at least 30 days prior to its effective date; pay all Royalties
when due; and notify Lender of any default or breach asserted by any Person to have occurred under any License.


 


 


 


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12.1.9   
Future Subsidiaries. Promptly notify Lender upon any Person becoming a Subsidiary and, if such Person is not a Foreign
Subsidiary, cause it to guaranty the Obligations in a manner satisfactory to Lender, and to execute and deliver such documents,
instruments and agreements and to take such other actions as Lender shall require to evidence and perfect a Lien in favor of Lender
on all assets of such Person, including delivery of such legal opinions, in form and substance satisfactory to Lender, as it shall
deem appropriate.


12.1.10                       
Depository Bank. Maintain Lender as its principal depository bank, including for the maintenance of all operating,
collection, disbursement and other deposit accounts and for all Cash Management Services.


12.1.11                       
Reserved.


12.1.12                       
Key Man Life Insurance. Maintain life insurance policies, with insurers satisfactory to Lender, insuring the life
of Douglas J. Kramer in an amount at least equal to $2,500,000, with respect to which the owner and beneficiary shall be Borrower
and all proceeds shall be collaterally assigned to Lender pursuant to an Insurance Assignment in form and substance acceptable
to Lender.


12.1.13                       
Principal Depository Bank. Borrower and each Subsidiary will maintain Lender as its principal depository bank, including
for the maintenance of operating, administrative, cash management, collection activity, and other deposit accounts for the conduct
of its business.


12.1.14                       
Liquidity Forecast. Not later than the third Business Day following any three consecutive Business Days on which
Availability is less than $500,000, Borrower will deliver to Lender a liquidity forecast, forecasting Borrower's Availability for
the next succeeding 20 Business Days thereafter, which forecast shall be in form and substance satisfactory to Lender and demonstrate,
to Lender' satisfaction in its discretion, adequate available liquidity for Borrower's operations during such period.


12.1.15                       
Canadian Operations. Not later than thirty (30) days after the end of any fiscal quarter in which the aggregate Canadian
Sales for the four (4) preceding fiscal quarters then ended exceed $20,000,000, Borrower shall notify Lender that Canadian Sales
for such period exceeded such amount and provide information and documentation to Lender, in form and substance satisfactory
to Lender, with regard to each of the following matters, in each case demonstrating such matters to Lender's satisfaction in its
sole discretion: (i) the structure of operations of the Canadian portion of Borrower's business, including without limitation,
any continuation as an unincorporated branch and all loan, security and related documentation ( including opinions confirming
the enforceability of  Lender's first priority Liens), (ii) Borrower's compliance with all covenants under the Loan Documents,
including without limitation, the payment and remittance of all Taxes, including corporate, harmonized or other sales, excise,
customs and withholding Taxes, in respect of the Canadian portion of Borrower's business and/or any collection and remittance to
Borrower or any other Person in the United States or to Lender or deposit accounts controlled or swept by Lender (and if requested
by Lender, Borrower covenants and agrees to provide documentary evidence of the calculation, payment and remittance to Canada Revenue
Agency and other applicable taxing authorities in Canada to the satisfaction of Lender) and (iii) any inclusion in the Borrowing
Base of Inventory located in Canada or Accounts payable by residents of Canada.


12.2.       
Negative Covenants. As long as any Commitment or Obligations are outstanding, Borrower shall not, and shall cause
each Subsidiary not to:


12.2.1   
Permitted Debt. Create, incur, guarantee or suffer to exist any Debt, except:


 


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(a)               
the Obligations;


(b)              
Subordinated Debt, including without limitation, the Subordinated Term Debt, provided that such Subordinated Term
Debt is subordinated in right of payment and claim pursuant to the Subordinated Term Debt Intercreditor Agreement;


(c)               
Permitted Purchase Money Debt;


(d)              
Borrowed Money (other than the Obligations, Subordinated Debt and Permitted Purchase Money Debt), but only to the extent
outstanding on the Closing Date and not satisfied with proceeds of the initial Loans;


(e)               
Bank Product Debt;


(f)               
Debt that is in existence when a Person becomes a Subsidiary or that is secured by an asset when acquired by Borrower or
Subsidiary, as long as such Debt was not incurred in contemplation of such Person becoming a Subsidiary or such acquisition, and
does not exceed $100,000 in the aggregate at any time;


(g)               
Permitted Contingent Obligations;


(h)              
Refinancing Debt as long as each Refinancing Condition is satisfied; and


(i)                
Debt that is not included in any of the preceding clauses of this Section, is not secured by a Lien and does not exceed
$100,000 in the aggregate at any time.


12.2.2   
Permitted Liens. Create or suffer to exist any Lien upon any of its Property, except the following (collectively,
"Permitted Liens"):


(a)               
Liens in favor of Lender;


(b)              
Purchase Money Liens securing Permitted Purchase Money Debt;


(c)               
Liens for Taxes not yet due or being Properly Contested;


(d)              
statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in the Ordinary Course of Business, but only
if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested, and (ii) such Liens do not materially
impair the value or use of the Property or materially impair operation of the business of Borrower or Subsidiary;


(e)               
Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of tenders, bids, leases, contracts
(except those relating to Borrowed Money), statutory obligations and other similar obligations, or arising as a result of progress
payments under government contracts, as long as such Liens are at all times junior to Lender's Liens;


(f)               
Liens arising in the Ordinary Course of Business that are subject to Lien Waivers;


(g)               
Liens arising by virtue of a judgment or judicial order against Borrower or Subsidiary, or any Property of Borrower or Subsidiary,
as long as such Liens are (i) in existence for less than 20 consecutive days or being Properly Contested, and (ii) at all times
junior to Lender's Liens;


 


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(h)              
easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or encumbrances
on Real Estate, that do not secure any monetary obligation and do not interfere with the Ordinary Course of Business;


(i)                
normal and customary rights of setoff upon deposits in favor of depository institutions, and Liens of a collecting bank
on Payment Items in the course of collection;


(j)                
existing Liens shown on Schedule 10.2.2; and


(k)              
Liens securing the Subordinated Term Debt, provided, that such Liens are subordinated to Lender's Liens under the
Loan Documents pursuant to the Subordinated Term Debt Intercreditor Agreement.


12.2.3   
Capital Expenditures. Make Capital Expenditures in excess of $625,000 in the aggregate during any Fiscal Year.


12.2.4   
Distributions; Upstream Payments. Declare or make any Distributions, except Upstream Payments or Permitted Distributions;
or create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Upstream Payment, except
for restrictions under the Loan Documents, under Applicable Law or in effect on the Closing Date as shown on Schedule 9.1.15.


12.2.5   
Restricted Investments. Make any Restricted Investment.


12.2.6   
Disposition of Assets. Make any Asset Disposition, except a Permitted Asset Disposition, a disposition of Equipment
under Section 8.4.2, or a transfer of Property by a Subsidiary or Obligor to Borrower.


12.2.7   
Loans. Make any loans or other advances of money to any Person, except (a) advances to an officer or employee for
salary, travel expenses, commissions and similar items in the Ordinary Course of Business; (b) prepaid expenses and extensions
of trade credit made in the Ordinary Course of Business; and (c) deposits with financial institutions permitted hereunder


12.2.8   
Restrictions on Payment of Certain Debt. Make any payments (whether voluntary or mandatory, or a prepayment, redemption,
retirement, defeasance or acquisition) with respect to any (a) Subordinated Debt, except regularly scheduled payments of principal,
interest and fees, but only to the extent permitted under any subordination agreement relating to such Debt (and a Senior Officer
of Borrower shall certify to Lender, not less than five Business Days prior to the date of payment, that all conditions under such
agreement have been satisfied); or (b) Borrowed Money (other than the Obligations) prior to its due date under the agreements evidencing
such Debt as in effect on the Closing Date (or as amended thereafter with the consent of Lender).


12.2.9   
Fundamental Changes. Merge, combine or consolidate with any Person, or liquidate, wind up its affairs or dissolve
itself, in each case whether in a single transaction or in a series of related transactions, except for mergers or consolidations
of a wholly-owned Subsidiary with another wholly-owned Subsidiary or into Borrower; change its name or conduct business under any
fictitious name; change its tax, charter or other organizational identification number; or change its form or state of organization.


12.2.10                       
Subsidiaries.  Form or acquire any Subsidiary after the Closing Date, except in accordance with Sections
10.1.9 and 10.2.5; or permit any existing Subsidiary to issue any additional Equity Interests except director's qualifying
shares.


 


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12.2.11                       
Organic Documents. Amend, modify or otherwise change any of its Organic Documents as in effect on the Closing Date.


12.2.12                       
Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other than
Borrower and Subsidiaries.


12.2.13                       
Accounting Changes. Make any material change in accounting treatment or reporting practices, except as required by
GAAP and in accordance with Section 1.2; or change its Fiscal Year.


12.2.14                       
Restrictive Agreements. Become a party to any Restrictive Agreement, except a Restrictive Agreement (a) in effect
on the Closing Date; (b) relating to secured Debt permitted hereunder, as long as the restrictions apply only to collateral for
such Debt; or (c) constituting customary restrictions on assignment in leases and other contracts.


12.2.15                       
Hedging Agreements. Enter into any Hedging Agreement, except to hedge risks arising in the Ordinary Course of Business
and not for speculative purposes.


12.2.16                       
Conduct of Business. Engage in any business, other than its business as conducted on the Closing Date and any activities
incidental thereto.


12.2.17                       
Affiliate Transactions. Enter into or be party to any transaction with an Affiliate, except (a) transactions contemplated
by the Loan Documents; (b) payment of reasonable compensation to officers and employees for services actually rendered, and loans
and advances permitted by Section 10.2.7; (c) payment of customary directors' fees and indemnities; (d) transactions
with Affiliates that were consummated prior to May 3, 2013, as shown on Schedule 10.2.17; and (e) transactions with Affiliates
in the Ordinary Course of Business, upon fair and reasonable terms fully disclosed to Lender and no less favorable than would be
obtained in a comparable arm's-length transaction with a non-Affiliate.


12.2.18                       
Plans. Become party to any Multiemployer Plan or Foreign Plan, other than any in existence on the Closing Date.


12.2.19                       
Amendments to Subordinated Debt. Amend, supplement or otherwise modify any document, instrument or agreement relating
to any Subordinated Debt, if such modification (a) increases the principal balance of such Debt, or increases any required payment
of principal or interest; (b) accelerates the date on which any installment of principal or any interest is due, or adds any additional
redemption, put or prepayment provisions; (c) shortens the final maturity date or otherwise accelerates amortization; (d) increases
the interest rate; (e) increases or adds any fees or charges; (f) modifies any covenant in a manner or adds any representation,
covenant or default that is more onerous or restrictive in any material respect for Borrower or Subsidiary, or that is otherwise
materially adverse to Borrower, any Subsidiary or Lender; or (g) results in the Obligations not being fully benefited by the subordination
provisions thereof.


12.3.       
Financial Covenants. As long as any Commitment or Obligations are outstanding, Borrower shall:


12.3.1   
Minimum EBITDA (March 2012). Achieve EBITDA, for the period March 1, 2012
through March 31, 2012, of at least deficit $125,000 (<$125,000>).


 


 


 


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12.3.2   
Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio equal to at least 1.00, tested monthly as of
the last day of each calendar month beginning on September 30, 2012 and continuing thereafter (a) with respect to any such test
date on or before June 30, 2013, for the period July 1, 2012 through such test date, and (b) thereafter, for the
most recently completed twelve calendar months.


 


SECTION
13.  EVENTS OF DEFAULT; REMEDIES ON DEFAULT


13.1.       
Events of Default. Each of the following shall be an "Event of Default" hereunder, if the same shall
occur for any reason whatsoever, whether voluntary or involuntary, by operation of law or otherwise:


(a)               
Borrower fails to pay any Obligations when due (whether at stated maturity, on demand, upon acceleration or otherwise);


(b)              
Any representation, warranty or other written statement of an Obligor made in connection with any Loan Documents or transactions
contemplated thereby is incorrect or misleading in any material respect when given;


(c)               
Borrower breaches or fails to perform any covenant contained in Section 7.2, 7.4,
7.6, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1, 10.1.2, 10.2 or 10.3;


(d)              
An Obligor breaches or fails to perform any other covenant contained in any Loan Documents, and such breach or failure is
not cured within 15 days after a Senior Officer of such Obligor has knowledge thereof or receives notice thereof from Lender, whichever
is sooner; provided, however, that such notice and opportunity to cure shall not apply if the breach or failure to
perform is not capable of being cured within such period or is a willful breach by an Obligor;


(e)               
A Guarantor repudiates, revokes or attempts to revoke its Guaranty; an Obligor or third party denies or contests the validity
or enforceability of any Loan Documents or Obligations, or the perfection or priority of any Lien granted to Lender; or any Loan
Document ceases to be in full force or effect for any reason (other than a waiver or release by Lender);


(f)               
Any breach or default of an Obligor occurs under any document, instrument or agreement to which it is a party or by which
it or any of its Properties is bound, relating to (i) the Subordinated Term Debt or (ii) any other Debt (other than the Obligations)
in excess of $100,000, if (in either such case) the maturity of or any payment with respect to such Debt may be accelerated or
demanded due to such breach;


(g)               
Any judgment or order for the payment of money is entered against an Obligor in an amount that exceeds, individually or
cumulatively with all unsatisfied judgments or orders against all Obligors, $50,000 (net of any insurance coverage therefor acknowledged
in writing by the insurer), unless a stay of enforcement of such judgment or order is in effect, by reason of a pending appeal
or otherwise;


(h)              
A loss, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by insurance exceeds
$100,000;


 


 


 


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(i)                
An Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any material part
of its business; an Obligor suffers the loss, revocation or termination of any material license, permit, lease or agreement necessary
to its business; there is a cessation of any material part of an Obligor's business for a material period of time; any material
Collateral or Property of an Obligor is taken or impaired through condemnation; an Obligor agrees to or commences any liquidation,
dissolution or winding up of its affairs; or an Obligor is not Solvent;


(j)                
An Insolvency Proceeding is commenced by an Obligor; an Obligor makes an offer of settlement, extension or composition to
its unsecured creditors generally; a trustee is appointed to take possession of any substantial Property of or to operate any of
the business of an Obligor; or an Insolvency Proceeding is commenced against an Obligor and: the Obligor consents to institution
of the proceeding, the petition commencing the proceeding is not timely contested by the Obligor, the petition is not dismissed
within 30 days after filing, or an order for relief is entered in the proceeding;


(k)              
An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan that has resulted or could reasonably be expected
to result in liability of an Obligor to a Pension Plan, Multiemployer Plan or PBGC, or that constitutes grounds for appointment
of a trustee for or termination by the PBGC of any Pension Plan or Multiemployer Plan; an Obligor or ERISA Affiliate fails to pay
when due any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan;
or any event similar to the foregoing occurs or exists with respect to a Foreign Plan;


(l)                
An Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a felony committed in the conduct of
the Obligor's business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering Control
Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property or any Collateral;
or


(m)            
A Change of Control occurs.


13.2.       
Remedies upon Default.


13.2.1   
If an Event of Default described in Section 11.1(j) occurs with respect to Borrower, then to the extent permitted
by Applicable Law, all Obligations shall become automatically due and payable and all Commitments shall terminate, without any
action by Lender or notice of any kind.


13.2.2   
If an Event of Default described in Section 11.1(j) occurs with respect to Guarantor Richard J. Kurtz or if an Event
of Default described in Section 11.1(e) occurs as a result of action by Guarantor Richard J. Kurtz or in the event of the
death of Guarantor Richard J. Kurtz, then, in any such event, Lender may in its discretion declare the Term Loan and all Obligations
relating to the Term Loan to be immediately due and payable, whereupon the Term Loan and all such related Obligations shall be
due and payable without diligence, presentment, demand, protest or notice of any kind, all of which are hereby waived by Borrower
to the fullest extent permitted by law;


13.2.3   
Without limiting Section 11.2.1 or Section 11.2.2, if any Event of Default exists, Lender may in its discretion
do any one or more of the following from time to time:


(a)               
declare any Obligations immediately due and payable, whereupon they shall be due and payable without diligence, presentment,
demand, protest or notice of any kind, all of which are hereby waived by Borrower to the fullest extent permitted by law;


(b)              
terminate, reduce or condition any Commitment, or make any adjustment to the Borrowing Base;


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(c)               
require Obligors to Cash Collateralize LC Obligations, Bank Product Debt and other Obligations that are contingent or not
yet due and payable, and, if Obligors fail promptly to deposit such Cash Collateral, Lender may advance the required Cash Collateral
as Revolver Loans (whether or not an Overadvance exists or is created thereby, or the conditions in Section 6 are satisfied);
and


(d)              
exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including the rights
and remedies of a secured party under the UCC. Such rights and remedies include the rights to (i) take possession of any Collateral;
(ii) require Borrower to assemble Collateral, at Borrower's expense, and make it available to Lender at a place designated by Lender;
(iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are
owned or leased by Borrower, Borrower agrees not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral
in its then condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as
may be required by Applicable Law, in lots or in bulk, at such locations, all as Lender, in its discretion, deems advisable. Borrower
agrees that 10 days notice of any proposed sale or other disposition of Collateral by Lender shall be reasonable. Lender shall
have the right to conduct such sales on any Obligor's premises, without charge, and such sales may be adjourned from time to time
in accordance with Applicable Law. Lender shall have the right to sell, lease or otherwise dispose of any Collateral for cash,
credit or any combination thereof, and Lender may purchase any Collateral at public or, if permitted by law, private sale and,
in lieu of actual payment of the purchase price, may set off the amount of such price against the Obligations.


13.3.       
License. Lender is hereby granted an irrevocable, non-exclusive license or other right to use, license or sub-license
(without payment of royalty or other compensation to any Person) any or all Intellectual Property of Borrower, computer hardware
and software, trade secrets, brochures, customer lists, promotional and advertising materials, labels, packaging materials and
other Property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any
rights or remedies with respect to, any Collateral. Borrower's rights and interests under Intellectual Property shall inure to
Lender's benefit.


13.4.       
Setoff. At any time during an Event of Default, Lender and its Affiliates are authorized, to the fullest extent
permitted by Applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final,
in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by Lender or such Affiliate
to or for the credit or the account of an Obligor against any Obligations, irrespective of whether or not Lender or such Affiliate
shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured
or are owed to a branch or office of Lender or such Affiliate different from the branch or office holding such deposit or obligated
on such indebtedness. The rights of Lender and each such Affiliate under this Section are in addition to other rights and remedies
(including other rights of setoff) that such Person may have.


13.5.       
Remedies Cumulative; No Waiver.


13.5.1   
Cumulative Rights. All agreements, warranties, guaranties, indemnities and other undertakings of Borrower under the
Loan Documents are cumulative and not in derogation of each other. The rights and remedies of Lender are cumulative, may be exercised
at any time and from time to time, concurrently or in any order, and are not exclusive of any other rights or remedies available
by agreement, by law, at equity or otherwise. All such rights and remedies shall continue in full force and effect until Full Payment
of all Obligations.


 


 


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13.5.2   
Waivers. No waiver or course of dealing shall be established by (a) the failure or delay of Lender to require strict
performance by Borrower with any terms of the Loan Documents, or to exercise any rights or remedies with respect to Collateral
or otherwise; (b) the making of any Loan or issuance of any Letter of Credit during a Default, Event of Default or other failure
to satisfy any conditions precedent; or (c) acceptance by Lender of any payment or performance by an Obligor under any Loan Documents
in a manner other than that specified therein. It is expressly acknowledged by Borrower that any failure to satisfy a financial
covenant on a measurement date shall not be cured or remedied by satisfaction of such covenant on a subsequent date.


SECTION
14.  MISCELLANEOUS


14.1.       
Consents, Amendments and Waivers.


14.1.1   
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Borrower, Lender, and their
respective successors and assigns, except that Borrower shall not have the right to assign its rights or delegate its obligations
under any Loan Documents.


14.1.2   
Amendments and Other Modifications. No modification of any Loan Document, including any extension or amendment of
a Loan Document or any waiver of a Default or Event of Default, shall be effective without the prior written agreement of Lender
and each Obligor party to such Loan Document; provided, however, that only the consent of the parties to a Bank Product agreement
shall be required for any modification of such agreement. Any waiver or consent granted by Lender shall be effective only if in
writing, and only for the matter specified.


14.2.       
Indemnity. BORROWER SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE INCURRED
BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE. In no event shall any
party to a Loan Document have any obligation thereunder to indemnify or hold harmless an Indemnitee with respect to a Claim that
is determined in a final, non-appealable judgment by a court of competent jurisdiction to result from the gross negligence or willful
misconduct of such Indemnitee.


14.3.       
Notices and Communications.


14.3.1   
Notice Address. Subject to Section 4.1.3, all notices and other communications by or to a party hereto shall
be in writing and shall be given to Borrower, at Borrower's address shown on the signature pages hereof, and to any other Person
at its address shown on the signature pages hereof, or at such other address as a party may hereafter specify by notice in accordance
with this Section 12.3. Each such notice or other communication shall be effective only (a) if given by facsimile transmission,
when transmitted to the applicable facsimile number, if confirmation of receipt is received; (b) if given by mail, three Business
Days after deposit in the U.S. mail, with first-class postage pre-paid, addressed to the applicable address; or (c) if given by
personal delivery, when duly delivered to the notice address with receipt acknowledged. Notwithstanding the foregoing, no notice
to Lender pursuant to Section 2.1.3, 2.3, 3.1.2, 4.1.1 or 5.3.3
shall be effective until actually received by the individual to whose attention at Lender such notice is required to be sent. Any
written notice or other communication that is not sent in conformity with the foregoing provisions shall nevertheless be effective
on the date actually received by the noticed party.


 


 


 


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14.3.2   
Electronic Communications; Voice Mail. Electronic mail and internet websites may be used only for routine communications,
such as financial statements, Borrowing Base Certificates and other information required by Section 10.1.2, administrative
matters, distribution of Loan Documents for execution, and matters permitted under Section 4.1.3. Lender make no assurances
as to the privacy and security of electronic communications. Electronic and voice mail may not be used as effective notice under
the Loan Documents.


14.3.3   
Non-Conforming Communications. Lender may rely upon any notices purportedly given by or on behalf of Borrower even
if such notices were not made in a manner specified herein, were incomplete or were not confirmed, or if the terms thereof, as
understood by the recipient, varied from a later confirmation. Borrower shall indemnify and hold harmless each Indemnitee from
any liabilities, losses, costs and expenses arising from any telephonic communication purportedly given by or on behalf of Borrower.


14.4.       
Performance of Borrower's Obligations. Lender may, in its discretion at any time and from time to time, at Borrower's
expense, pay any amount or do any act required of Borrower under any Loan Documents or otherwise lawfully requested by Lender to
(a) enforce any Loan Documents or collect any Obligations; (b) protect, insure, maintain or realize upon any Collateral; or (c)
defend or maintain the validity or priority of Lender's Liens in any Collateral, including any payment of a judgment, insurance
premium, warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a Lien. All payments, costs and
expenses (including Extraordinary Expenses) of Lender under this Section shall be reimbursed by Borrower, on demand, with
interest from the date incurred to the date of payment thereof at the Default Rate applicable to Base Rate Revolver Loans. Any
payment made or action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default
or to exercise any other rights or remedies under the Loan Documents.


14.5.       
Credit Inquiries. Borrower hereby authorizes Lender (but it shall have no obligation) to respond to usual and
customary credit inquiries from third parties concerning Borrower or Subsidiary.


14.6.       
Severability. Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as
to be valid under Applicable Law. If any provision is found to be invalid under Applicable Law, it shall be ineffective only to
the extent of such invalidity and the remaining provisions of the Loan Documents shall remain in full force and effect.


14.7.       
Cumulative Effect; Conflict of Terms. The provisions of the Loan Documents are cumulative. The parties acknowledge
that the Loan Documents may use several limitations, tests or measurements to regulate similar matters, and they agree that these
are cumulative and that each must be performed as provided. Except as otherwise provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision
in another Loan Document, the provision herein shall govern and control.


14.8.       
Counterparts. Any Loan Document may be executed in counterparts, each of which shall constitute an original,
but all of which when taken together shall constitute a single contract. This Agreement shall become effective when Lender has
received counterparts bearing the signatures of all parties hereto. Delivery of a signature page of any Loan Document by telecopy
or other electronic means shall be effective as delivery of a manually executed counterpart of such agreement.


14.9.       
Entire Agreement. Time is of the essence of the Loan Documents. The Loan Documents constitute the entire contract
among the parties relating to the subject matter hereof, and supersede any and all previous agreements and understandings, oral
or written, relating to the subject matter hereof.


 


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14.10.   
No Control; No Advisory or Fiduciary Responsibility. Nothing in any Loan Document and no action of Lender pursuant
to any Loan Document shall be deemed to constitute control of any Obligor by Lender. In connection with all aspects of each transaction
contemplated by any Loan Document, Borrower acknowledges and agree that (a)(i) this credit facility and all related services by
Lender or its Affiliates are arm's-length commercial transactions between Borrower and such Person; (ii) Borrower has consulted
its own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate; and (iii) Borrower is capable
of evaluating and understanding, and do understand and accept, the terms, risks and conditions of the transactions contemplated
by the Loan Documents; (b) each of Lender and its Affiliates is and has been acting solely as a principal in connection with this
credit facility, is not the financial advisor, agent or fiduciary for Borrower, any of its Affiliates or any other Person, and
has no obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and
(c) Lender and its Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of
Borrower and its Affiliates, and have no obligation to disclose any of such interests to Borrower or its Affiliates. To the fullest
extent permitted by Applicable Law, Borrower hereby waives and releases any claims that it may have against Lender and its Affiliates
with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated
by a Loan Document.


14.11.   
Confidentiality. Lender agrees to maintain the confidentiality of all Information (as defined below), except
that Information may be disclosed (a) to its Affiliates, and its and their partners, directors, officers, employees, agents, advisors
and representatives (provided such Persons are informed of the confidential nature of the Information and instructed to keep it
confidential); (b) to the extent requested by any governmental, regulatory or self-regulatory authority purporting to have jurisdiction
over it or its Affiliates; (c) to the extent required by Applicable Law or by any subpoena or other legal process; (d) to any other
party hereto; (e) in connection with any action or proceeding, or other exercise of rights or remedies, relating to any Loan Documents
or Obligations; (f) subject to an agreement containing provisions substantially the same as this Section, to any potential or actual
transferee of any interest in a Loan Document or any actual or prospective party (or its advisors) to any Bank Product; (g) with
the consent of Borrower; or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach
of this Section or (ii) is available to Lender or its Affiliates on a nonconfidential basis from a source other than Borrower.
Notwithstanding the foregoing, Lender may publish or disseminate general information describing this credit facility, including
the names and addresses of Borrower and a general description of Borrower's businesses, and may use Borrower's logos, trademarks
or product photographs in advertising materials. As used herein, "Information" means all information received from an
Obligor or Subsidiary relating to it or its business, that is identified as confidential when delivered. Any Person required to
maintain the confidentiality of Information pursuant to this Section shall be deemed to have complied if it exercises the same
degree of care that it accords its own confidential information. Lender acknowledges that (i) Information may include material
non-public information concerning an Obligor or Subsidiary; (ii) it has developed compliance procedures regarding the use of material
non-public information; and (iii) it will handle such material non-public information in accordance with Applicable Law, including
federal and state securities laws.


14.12.   
Reserved.


14.13.   
GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO FEDERAL LAWS RELATING
TO NATIONAL BANKS).


 


 


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14.14.   
Consent to Forum.


14.14.1                       
Forum. BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN OR
WITH JURISDICTION OVER DALLAS COUNTY, TEXAS, IN ANY PROCEEDING OR DISPUTE RELATING IN ANY WAY TO ANY LOAN DOCUMENTS, AND AGREES
THAT ANY SUCH PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT. BORROWER IRREVOCABLY WAIVES ALL CLAIMS, OBJECTIONS AND
DEFENSES THAT IT MAY HAVE REGARDING SUCH COURT'S PERSONAL OR SUBJECT MATTER JURISDICTION, VENUE OR INCONVENIENT FORUM. EACH PARTY
HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 12.3.1. Nothing herein shall
limit the right of Lender to bring proceedings against any Obligor in any other court, nor limit the right of any party to serve
process in any other manner permitted by Applicable Law. Nothing in this Agreement shall be deemed to preclude enforcement by Lender
of any judgment or order obtained in any forum or jurisdiction.


14.15.   
Waivers by Borrower. To the fullest extent permitted by Applicable Law, Borrower waives (a) the right to trial by
jury (which Lender hereby also waives) in any proceeding or dispute of any kind relating in any way to any Loan Documents, Obligations
or Collateral; (b) presentment, demand, protest, notice of presentment, default, non-payment, maturity, release, compromise, settlement,
extension or renewal of any commercial paper, accounts, documents, instruments, chattel paper and guaranties at any time held by
Lender on which Borrower may in any way be liable, and hereby ratifies anything Lender may do in this regard; (c) notice prior
to taking possession or control of any Collateral; (d) any bond or security that might be required by a court prior to allowing
Lender to exercise any rights or remedies; (e) the benefit of all valuation, appraisement and exemption laws; (f) any claim against
Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive damages (as opposed to direct or
actual damages) in any way relating to any Enforcement Action, Obligations, Loan Documents or transactions relating thereto; and
(g) notice of acceptance hereof. Borrower acknowledges that the foregoing
waivers are a material inducement to Lender entering into this Agreement and that Lender is relying upon the foregoing in its dealings
with Borrower. Borrower has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its
jury trial and other rights following consultation with legal counsel. In the event of litigation, this Agreement may be filed
as a written consent to a trial by the court.


14.16.   
Patriot Act Notice. Lender hereby notifies Borrower that pursuant to the requirements of the Patriot Act, Lender
is required to obtain, verify and record information that identifies Borrower, including its legal name, address, tax ID number
and other information that will allow Lender to identify it in accordance with the Patriot Act. Lender will also require information
regarding each personal guarantor, if any, and may require information regarding Borrower's management and owners, such as legal
name, address, social security number and date of birth.


14.17.   
NO ORAL AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE
NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.


[Remainder of page intentionally left
blank; signatures begin on following page]


 


 


59








     

     

    

IN WITNESS WHEREOF,
this Agreement has been executed and delivered as of the date set forth above.


	 	
        LENDER:

        BANK OF AMERICA, N.A.

        By: /s/ H. Michael Wills, SVP

        H. Michael Wills, Senior
        Vice President

        Address:

        901 Main Street, 11th
        Floor

        Dallas, Texas 75202

        TX1-492-11-23

        Attention: H. Michael Wills

        Senior Vice
        President

        Telecopy: (214) 209-4766

         

	 	
         

        BORROWER:

        LAPOLLA INDUSTRIES, INC.

        By: /s/ Michael T. Adams, EVP

        Michael T. Adams, Executive
        Vice President

        Address:

        Lapolla Industries, Inc.

        15402 Vantage Parkway
        East

        Suite 322

        Houston, Texas  77032

        Attention: Michael T. Adams

        Executive Vice President

        Telecopy: (281) 219-4710

         

	 	 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


60








     

     

    



SCHEDULE
8.5


to


Loan and Security Agreement


DEPOSIT ACCOUNTS


 


	Depository Bank	Type of Account	Account Number
	Bank of America, N.A.	US Dominion Account	**
	Bank of America, N.A.	US Dominion Account	**
	Bank of America, N.A.	Operating Account	**
	Bank of America, N.A.	Controlled Disbursement Account	**
	Bank of America, N.A., acting through its Canada branch	Canadian Dominion Account	**
	Bank of America, N.A., acting through its Canada branch	Canadian Disbursement Account	**


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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SCHEDULE
8.6.1


to


Loan and Security Agreement


BUSINESS LOCATIONS


		1.	Borrower currently has the following business locations, and no others:



Chief Executive Office:Lapolla Industries,
Inc. - Houston Office (Headquarters)


15402 Vantage Parkway East


Suite 322


Houston, Texas 77032


 


Other Locations:Lapolla Industries, Inc.
- New Jersey Office


270 Sylvan Avenue


Suite 3


Englewood Cliffs, New Jersey 07632


 


		2.	In the five years preceding the Closing Date, Borrower has had no office or place of business located in any county other than
as set forth above, except:



 


Lapolla Industries, Inc.-Canada Registered
Office (Closed 2012)


6707 Goreway Drive


Unit 8


Mississauga, Ontario L4V 1P7


 


Lapolla Industries, Inc. - Georgia Office
(Closed 2011)


145 Newborn Road


Rutledge, Georgia 30663


 


Lapolla Industries, Inc. - Florida Sales
Office (Closed 2011)


1280 Northwest 22nd Street


Pompano Beach, Florida 33069 


 


Lapolla Industries, Inc. - Arizona Office (Closed 2008) 


441 West Geneva Drive 


Tempe, Arizona 85282 


 


Lapolla Industries, Inc. - Florida Office (Old Headquarters) 


718 South Military Trail 


Deerfield Beach, Florida 33442 



 









 


		3.	Each Subsidiary currently has the following business locations, and no others: (Not Applicable)



Chief Executive Office: N/AOther
Locations: N/A


		4.	The following bailees, warehouseman, similar parties and consignees hold inventory of Borrower or Subsidiary:



 


	Name and Address of Party	Nature of
 Relationship
	 	Amount of Inventory	 	Owner of Inventory	 	 
	**	(All Bonded Warehouses)	 	TBD	 	Borrower	 	 



 


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SCHEDULE
9.1.4


to


Loan and Security Agreement


NAMES AND CAPITAL STRUCTURE


		1.	The corporate names, jurisdictions of incorporation, and authorized and issued Equity Interests of Borrower and Subsidiary
are as follows:



			Borrower:



			Lapolla Industries, Inc.



			Incorporated in Delaware



 


			Authorized Shares:



 


Preferred Stock, par value $1.00
per share: 2,000,000 shares authorized


Common Stock, par value $.01: 140,000,000
shares authorized


 


			Issued Shares:




Preferred Stock: None


			Common Stock: 110,487,177 shares (as of March 31, 2013)



 


			Subsidiary:



			None



 


		2.	The record holders of Equity Interests of Borrower and Subsidiary are as follows: Borrower is a
publicly traded company with approximately 2,350 shareholders. The following is an extract of information disclosed in the Borrower's
Annual Report on Form 10-K for the year ended December 31, 2012 with respect to the ownership of Equity Interests by the Borrower's
officers, directors and holders of at least five percent (5%) of the Borrower's outstanding common stock:



Directors and Executive Officers


 


The
following table sets forth information as of March 10, 2013, regarding the beneficial ownership of common stock by (i) each
director, (ii) CEO and President, CGO and Executive Vice President, CFO and Treasurer, and COO, and (iii) all of our
directors, named executive officers and executive officers as a group. Beneficial ownership is determined under the rules
of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply,
we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock
shown as beneficially owned by the stockholder. Shares of common stock subject to vesting or options that are currently exercisable
or exercisable within 60 days of March 10, 2013 are considered outstanding and beneficially owned by the person granted the shares
or holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.


 


 


 


 


 


 


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SECURITY OWNERSHIP OF MANAGEMENT TABLE


 


	 	 	Shares of	 	Rights to	 	Total Shares	 	 
	 	 	Common Stock	 	Acquire Shares of	 	of Common Stock	 	Percent
	Beneficial Owner	 	Owned	 	Common Stock (1)	 	Beneficially Owned	 	of Class (2)
	Directors:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Richard J. Kurtz, Chairman	 	 	80,656,188	 	 	 	1,555,251	 	 	 	82,211,439	 	 	 	69.8	%
	   Nine Duck Pond Road, Alpine, NJ 07620	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Jay C. Nadel, Vice Chairman	 	 	5,239,425	 	 	 	1,032,254	 	 	 	6,271,679	 	 	 	6.8	%
	Lt. Gen. Arthur J. Gregg, US Army (Ret)	 	 	60,000	 	 	 	225,000	 	 	 	285,000	 	 	 	0.2	%
	Augustus J. Larson	 	 	60,000	 	 	 	135,000	 	 	 	195,000	 	 	 	0.2	%
	Howard L. Brown	 	 	60,000	 	 	 	500,000	 	 	 	560,000	 	 	 	0.5	%
	Douglas J. Kramer (3)	 	 	—  	 	 	 	2,312,500	 	 	 	2,312,500	 	 	 	2.0	%
	Michael T. Adams (4)	 	 	—  	 	 	 	80,000	 	 	 	80,000	 	 	 	0.1	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Executive Officers:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Charles A. Zajaczkowski, CFO and Treasurer	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 
	Harvey L. Schnitzer, COO	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	All Directors and Executive Officers as a Group	 	 	86,075,613	 	 	 	5,840,005	 	 	 	91,915,618	 	 	 	79.6	%
	(1) Represents common stock which the person has the right to acquire within 60 days after March 10, 2013. For executive officers: (a) Mr. Kramer has 2,500,000 vested stock options, of which 2,312,500 are exercisable, and (b) Mr. Adams has 80,000 vested and exercisable stock options; and directors: (a) Mr. Kurtz has 733,333 vested and exercisable stock options and 821,918 shares of restricted common stock pursuant to his guaranty agreement, (b) Mr. Nadel has 450,000 vested and exercisable stock options and 582,254 shares of restricted common stock pursuant to his advisory and consultant agreement (includes anti-dilution aspects), (c) Mr. Gregg as 225,000 vested and exercisable stock options, (d) Mr. Larson has 135,000 vested and exercisable stock options, and (e) Mr. Brown has 500,000 vested and exercisable stock options. Refer to Item 11 – Executive and Director Compensation for more information.
	(2) Based on 117,729,715 shares of our common stock outstanding at March 10, 2013 (Includes those shares in the "Rights to Acquire Shares of Common Stock" column in this table and the Security Ownership of Certain Beneficial Owners Table below).
	(3) Mr. Kramer is also our CEO and President.
	(4) Mr. Adams is also our CGO, EVP and Secretary.



 


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS TABLE


 


Except as set forth
in the above and below tables, our management knows of no person who is the beneficial owner of more than 5% of our issued and
outstanding common stock.


 


	 	Shares of	Rights to	Total Shares of	 
	 	Common Stock	Acquire Shares of	Common Stock	Percent
	Name and Address of Beneficial Owners (1)	Owned	Common Stock (1) (2)	Beneficially Owned	of Class (3)
	ComVest Capital LLC	—	2,500,000	2,500,000	2.1 %
	ComVest Capital Management LLC	 	 	 	 
	ComVest Group Holdings, LLC	 	 	 	 
	Michael S. Falk	 	 	 	 
	One North Clematis, Suite 300	 	 	 	 
	West Palm Beach, Florida  33401	 	 	 	 
	(1) Based on the information provided pursuant to a joint statement on a Schedule 13G filed with SEC on February 26, 2007, the name of the Reporting Person is ComVest Capital LLC, a Delaware limited liability company ("ComVest"). ComVest is a private investment company. The managing member of ComVest is ComVest Capital Management LLC, a Delaware limited liability company, the managing member of which is ComVest Group Holdings, LLC, a Delaware limited liability company ("CGH"). Michael Falk ("Falk") is the Chairman and principal member of CGH. Falk is a citizen of the United States of America. The group of beneficial owners share the same principal business address provided in this table.
	(2) Based on 117,729,715 shares of our common stock outstanding at March 10, 2013 (Includes those shares in the "Rights to Acquire Shares of Common Stock" column in this table and the Security Ownership of Management Table above).
	(3) The Company issued certain detachable warrants and registered the underlying shares pursuant to a mezzanine financing with ComVest on February 21, 2007. The warrants are for the purchase of an aggregate of 2,500,000 shares of common stock, of which 1,500,000 are exercisable at an adjusted price of $.53 per share and 1,000,000 are exercisable at an adjusted price of $.65 per share, and expire June 30, 2013.


 


 


 


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		3.	All agreements binding on holders of Equity Interests of Borrower and Subsidiaries with respect
to such interests are as follows: None known.



 


		4.	In the five years preceding the Closing Date, Borrower has not acquired any substantial assets
from any other Person nor been the surviving entity in a merger or combination, except: On July 1, 2008, Borrower made an
asset acquisition. Below are excerpts from the Borrower's Form 10-K for the year ended December 31, 2001 filed with the SEC:



 


Air-Tight Marketing and Distribution,
Inc.


 


On July 1, 2008, Lapolla entered
into and closed an Amended and Restated Asset Purchase Agreement ("Asset Purchase Agreement") with Air-Tight Marketing
and Distribution, Inc., a Georgia corporation ("AirTight") and its stockholders, Larry P. Medford and Ted J. Medford
("Shareholders"), wherein the Company agreed to pay $1,500,000 in cash, issue 2,000,000 shares of restricted common stock,
par value $.01, valued at $1,480,000 (calculated from the number of shares times the Lapolla closing price per share of $.74 on
the date of closing), and forgive an outstanding trade receivable balance of $1,419,649 due from AirTight on the date of the closing,
in exchange for certain assets and liabilities of AirTight. The Company paid $100,000 in cash at closing and issued a promissory
note totaling $1,400,000 to AirTight and the AirTight Shareholders, payable in installments on the last day of each calendar year
until paid in full by December 31, 2012. A contingency payment of $150,000 is included in the promissory note which is payable
if certain AirTight sales goals are met during the period ended December 31, 2012. Lapolla undertook efforts to audit the financial
statements of AirTight in accordance with SEC rules and prior to completion of the audit determined based on the preliminary findings
that certain adjustments needed to be made to the AirTight financial statements as originally presented to Lapolla. Lapolla notified
the AirTight Shareholders of the adjustments and recorded a purchase price reduction equal to the amount due under the promissory
note in accordance with the Asset Purchase Agreement and promissory note as of December 31, 2008. During 2009, Lapolla and the
AirTight Shareholders settled their differences with respect to the purchase price reduction and Lapolla added back $270,258 under
the promissory note, of which $90,086 was paid in December 2009, leaving a balance due of $180,172 under the promissory note. The
$150,000 contingency will be recorded when it is more likely than not that the agreed upon AirTight sales goals will be met. Lapolla
purchased AirTight's customer base which includes commercial and residential spray foam insulation contractors. The basic assets
purchased from AirTight include, but are not limited to, trademarks, customer list, Shareholder non-competes, inventories, equipment,
accounts receivable, and goodwill. The results of AirTight's operations have been included in Lapolla's financial statements since
July 1, 2008. The following table summarizes the components of the adjusted AirTight purchase:


 


	Cash	 	$	100,000	 
	Promissory Note	 	 	1,250,000	 
	Purchase Price Reduction	 	 	(979,742	)
	Restricted Common Stock	 	 	1,480,000	 
	Forgiven Lapolla Accounts Receivable	 	 	1,419,649	 
	 Subtotal	 	$	3,269,907	 
	Sales Goal Contingency Payment	 	 	150,000	 
	Purchase Price Reduction	 	 	—  	 
	 Total	 	$	3,419,907	 



 


 


 


 


3 of 4








     

     

    



The AirTight purchase price was
allocated to tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition
date. The excess of the purchase price over the fair value of net assets acquired was allocated to goodwill. The goodwill acquired
in the AirTight acquisition is not deductible for federal income tax purposes. The Company believes the fair values assigned to
the AirTight assets acquired and liabilities assumed were based on reasonable assumptions. The following table summarizes the estimated
fair values of the assets acquired and liabilities assumed:


 


	Current Assets	 	$	1,113,823	 
	Property, Plant and Equipment	 	 	363,934	 
	Identifiable Intangible Assets	 	 	1,700,000	 
	Goodwill	 	 	2,283,827	 
	Current Liabilities	 	 	(1,862,525	)
	Other Liabilities	 	 	(329,152	)
	Total	 	$	3,269,907	 



 


			The $150,000 contingency under the promissory note is not included in the above table and will
be recorded when it is more likely than not that the agreed upon AirTight sales goals will be met. In connection with the allocation
of the adjusted purchase price by Lapolla, $1,700,000 was attributed to Other Intangible Assets, of which $700,000 was assigned
to trade names (15 year useful lives), $790,000 was assigned to the customer list (5 year useful life), and $210,000 was assigned
to the Shareholder and sales force non-competes (5 year useful lives). The $2,283,827 of goodwill was assigned to the Foam segment.



 


 


 


 


 


 


 


 


 


 


 


 


 


 


4 of 4








     

     

    



SCHEDULE
9.1.11


to


Loan and Security Agreement


PATENTS, TRADEMARKS, COPYRIGHTS
AND LICENSES


		1.	Borrower's and Subsidiaries' patents: None



 


		2.	Borrower's and Subsidiaries' trademarks:



 


	Trademark	Owner	Status in
 Trademark Office
	Federal
 Registration No.
		Registration
     Date    
	 
	AIRTIGHT SPRAY FOAM INSULATION (logo)	Borrower	Registered	U.S. Registration No. 4139386	 	May 18, 2012	 
	AIRTIGHT SPRAYFOAM (logo)	Borrower	Registered	U.S. Registration No. 3888459	 	December 14, 2010	 
	AIRTIGHT SPRAYFOAM (wording only)	Borrower	Registered	U.S. Registration No. 3888458	 	December 14, 2010	 
	AIRTIGHT (wording only)	Borrower	Registered	U.S. Registration No. 3888457	 	December 14, 2010	 
	THERMO-FLEX (wording only)	Borrower	Pending	U.S. Application Serial No. 77/626,768	 	Filed December 4, 2008	 
	THERM-O-FLEX (wording only)	Borrower	Pending	U.S. Application Serial No. 77/626,778	 	Filed December 4, 2008	 
	AirTight Insulation, Inc. (logo)	Borrower	Registered	State of South Carolina Only	 	Registration – Renewed until December 15, 2013	 
	AirTight SprayFoam (logo)	Borrower	Registered	State of South Carolina Only	 	Registration – Renewed until December 15, 2013	 
	AirTight Spray Foam Insulation MFG BY LAPOLLA (design and wording)	Borrower	Pending	U.S. Application Serial No. 85636809	 	Filed May 29, 2012	 
	LAPOLLA (design and wording)	Borrower	Registered	US Registration No. 4104322	 	February 28, 2012	 
	LAPOLLA (wording only)	Borrower	Registered	US Registration No. 4104321	 	February 28, 2012	 



 


		3.	Borrower's and Subsidiaries' copyrights: None.



 


		4.	Borrower's and Subsidiaries' licenses (other than routine business licenses, authorizing them to
transact business in local jurisdictions): None



 


 


 


 


 


 


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SCHEDULE
9.1.14


to


Loan and Security Agreement


ENVIRONMENTAL MATTERS


None


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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SCHEDULE
9.1.15


to


Loan and Security Agreement


RESTRICTIVE AGREEMENTS


None


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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SCHEDULE
9.1.16


to


Loan and Security Agreement


LITIGATION


1.The following is an extract of information
disclosed in the Borrower's Annual Report on Form 10-K for the year ended December 31, 2012 with respect to outstanding material
litigation:


 


(a)Neil and Kristine Markey, et al., Plaintiffs v. Lapolla
Industries, Inc., Delfino Insulation, et al, Defendants


 


A complaint entitled Neil
and Kristine Markey, individually, and on behalf of all others similarly situated, Plaintiffs, vs. Lapolla industries, Inc., a
Delaware corporation; Lapolla International, Inc., a Delaware corporation; and Delfino Insulation Company, Inc., a New York Corporation,
Defendants, was filed in the United States District Court for the Eastern District of New York and served on or about October 10,
2012 and amended on February 20, 2013. Plaintiffs bring this lawsuit individually and on behalf of a nationwide class as well as
two New York subclasses. The complaint alleges, among other things, that Lapolla designs, labels, distributes, and manufactures
spray polyurethane foam insulation, which creates a highly toxic compound when applied as insulation resulting in exposure to harmful
gases. Plaintiffs are seeking: (i) an order certifying the lawsuit as a class action and certifying the class and sub-classes of
Plaintiffs; (ii) actual, compensatory, and punitive damages; (iii) injunctive relief; and (iv) attorney fees. Lapolla considers
the allegations to be without merit and has mounted a vigorous defense against the class action, as well as all other allegations.
The outcome of this litigation cannot be determined at this time.


 


2.The following is an extract of information
disclosed in the Borrower's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 with respect to outstanding
material litigation:


 


(a)Robert and Cynthia Gibson, et al., Plaintiffs v. Lapolla
Industries, Inc. and Air Tight Insulation of Mid-Florida, LLC, Defendants


 


A complaint entitled Robert
and Cynthia Gibson, individually and on behalf of others similarly situated, Plaintiffs v. Lapolla Industries, Inc., a Delaware
corporation, and Air Tight Insulation of Mid-Florida, LLC, Defendants, was filed in the United States District Court for the Middle
District of Florida on April 22, 2003 and served on or about April 23, 2013. The Plaintiffs bring this lawsuit individually and
on behalf of a nationwide class against the Defendants as well as two Florida subclasses. The complaint alleges, among other things,
negligence in connection with the design, manufacture, distribution, and installation of Lapolla's spray polyurethane foam insulation,
resulting in exposure to harmful gases, breach of express and implied warranties, and violation of various state statutes. Plaintiffs
are seeking, among other things: (i) an order certifying the lawsuit as a class action and certifying the class and sub-classes
of Plaintiffs; (ii) actual, compensatory, statutory, and punitive damages; (iii) injunctive relief; and (iv) attorney fees. Lapolla
considers the allegations to be without merit and shall mount a vigorous defense against the proposed class action, as well as
all other allegations. The outcome of this litigation cannot be determined at this time.


 


Important Note: Each of the litigation
matters referred to in items 1 and 2 of this Schedule 9.1.16 above is disclosed by Borrower to Lender for informational purposes
only. Borrower and Lender hereby agree that, notwithstanding anything to the contrary contained in the Agreement to which this
Schedule is attached, (a) Borrower does not believe that either of such litigation matters referred to in item 1 or item 2
above could reasonably be expected to have a Material Adverse Effect and (b) Borrower acknowledges and agrees that the disclosure
of such litigation matters on this Schedule does not in any way constitute or result in a waiver or modification of any term or
provision of this Agreement or any right or remedy that Lender may have as a result of any such litigation matter or any Material
Adverse Effect that may result therefrom.


1 of 1








     

     

    



SCHEDULE
9.1.18


to


Loan and Security Agreement


PENSION PLAN DISCLOSURES


None.


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


  


1 of 1








     

     

    



SCHEDULE
10.2.2


to


Loan and Security Agreement


EXISTING LIENS


None.


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


1 of 1








     

     

    



SCHEDULE
10.2.17


to


Loan and Security Agreement


EXISTING AFFILIATE TRANSACTIONS


The following is an extract of information
disclosed in the Borrower's Annual Report on Form 10-K for the year ended December 31, 2012 with respect to existing affiliate
transactions:


 


Note 12.Related Party Transactions.


 


(a)On January 20, 2012, the Company
received a $300,000 prepayment from a customer in which the Chairman of the Board has an ownership interest, for the purchase of
foam products. The prepayment was converted into a promissory note due and payable from the Company to the customer prior to any
order being delivered to the customer.  See Item (f) below.


 


(b)On February 28, 2012, a non-affiliated
third party financing company owned and operated by a relative of the Company's Chairman of the Board, advanced $500,000 to the
Company to build spray rigs. The advance was converted into a promissory note due and payable from the Company to the financing
company prior to any spray rigs being built and delivered to customers. See Item (g) below.


 


(c)On April 2, 2012, the Chairman of
the Board advanced $500,000 to the Company for working capital purposes. Prior to paying back the advance, the advance was converted
into a promissory note due and payable from the Company to the Chairman. See also Item (h) below.


 


(d)On April 5, 2012, the Company entered
into an Executive Employment Agreement with Harvey L. Schnitzer, as Chief Operating Officer, good until December 31, 2014, with
an annual base salary of $200,000. Mr. Schnitzer is eligible for a varying EBITDA based annual bonus if the Company's Budgeted
Earnings are achieved during any given year. He is also entitled to a change in control bonus equal to 50% of his annual base salary
if the change in control occurs during his first 12 months of employment or 100% of his annual base salary if it occurs after the
first 12 months during his Term or 6 months after the end of his Term.


 


(e)On April 13, 2012, the Chairman
of the Board advanced $265,000 to the Company for a specific liability and the Company repaid the Chairman back on said date.


 


(f)On April 16, 2012, the $300,000
promissory note between the Company and a customer in which the Chairman of the Board has an ownership interest was assigned to
the Chairman of the Board. Refer to Item (a) above and See also (h) below.


 


(g)On April 16, 2012, the $500,000
promissory note between the Company and a non-affiliated third party financing company owned and operated by a relative of the
Chairman of the Board was assigned to the Chairman of the Board. Refer to Item (b) above and See also
(h) below.


 


(h)On April 16, 2012, the Company consolidated
the promissory notes described in Items (c), (f) and (g) above into one $1,300,000 promissory note, bearing interest at 5% per
annum, due, including accrued interest, on October 31, 2013, as part of a negotiation with the Bank to cure a default at December
31, 2011 in the Loan Agreement, and entered into a subordination agreement with the Bank. At December 31, 2012, the Company has
accrued interest of $47,038 relating to this promissory note. See also Item (j) below.


 


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(i)On June 29, 2012, in connection
with the Note Purchase Agreement (described in Note 9 – Financing Instruments, Item (b)), the Chairman of the Board and majority
stockholder of the Company, entered into a Guaranty Agreement of even date with Enhanced Texas Fund, as agent under the Note Purchase
Agreement, to secure the Company's performance under the Note Purchase Agreement. The Company, in exchange for Guarantor's personal
guarantee of the obligations under the Note Purchase Agreement, issued Guarantor 5 Million shares of restricted common stock, par
value $.01, which vests monthly on a pro rata basis over the two year term of the Note Purchase Agreement. The Shares were valued
at $.27 per share, which was the closing price of the Company common stock as quoted on the OTC Markets on the day preceding (June
28, 2012) the closing date of June 29, 2012, for an aggregate amount of $1,350,000. The aggregate value of the shares is being
classified as interest expense – related party. At December 31, 2012, an aggregate of 1,273,973 shares have vested and interest
expense – related party recorded was $343,884.


 


(j)On June 29, 2012, in connection
with the Note Purchase Agreement (described in Note 9 – Financing Instruments, Item (b)), the Chairman of the Board and majority
stockholder of the Company was required to extend the maturity date on his $1,300,000 promissory note (described in Item (h) above)
to October 1, 2014 and further subordinate it to the Enhanced Notes.


 


(k)Effective July 1, 2012, the Company
and the CEO and President entered into a third amendment to that certain Executive Employment Agreement dated May 5, 2008, as amended,
changing his annual base salary from $400,000 per annum to $350,000 per annum and including eligibility for an additional discretionary
cash bonus as approved by the Compensation Committee of the Board of Directors on an annual basis.


 


(l)Effective July 1, 2012, the Company
and CGO, EVP, and Secretary entered into a fourth amendment to that certain Executive Employment Agreement dated May 18, 2009,
as amended, changing his annual base salary from $200,000 per annum to $180,000 per annum and including eligibility for an additional
discretionary cash bonus as approved by the Compensation Committee of the Board of Directors on an annual basis.


 


(m)Effective July 1, 2012, the Company
and the CFO and Treasurer, entered into a second amendment to that certain Executive Employment Agreement dated May 10, 2010, as
amended, changing his annual base salary from $185,000 per annum to $166,500 per annum and including eligibility for an additional
discretionary cash bonus as approved by the Compensation Committee of the Board of Directors on an annual basis.


 


(n)Effective July 1, 2012, the Company
and the Vice Chairman entered into an first amendment to that certain Advisory and Consulting Agreement dated February 22, 2011,
changing his monthly fee from $16,667 to $13,333 ($200,000 per annum to $180,000 per annum). On February 22, 2011, the Company
entered into an Advisory and Consulting Agreement wherein Mr. Nadel, a non-employee director became an advisor and consultant and
the Vice Chairman of the Board for a 3 year period. In addition to any other compensation the Vice Chairman is currently receiving
from the Company, he was granted 5,000,000 shares of restricted common stock, which vest monthly over 3 years, and $200,000 in
cash fees per year. See also Item (t) below.


 


(o)Effective July 9, 2012, the COO,
received an increase in his annual base salary to $250,000 per annum. See also Item (d) above.


 


(p)Effective December 31, 2012, the
Company amended the CFO and Treasurer's Executive Employment Agreement to extend the Term for an additional year to expire on December
31, 2013.


 


 


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(q)The Company extended the 2,000,000
vested 6-year stock options originally granted to the CEO and President on July 12, 2005, at an exercise price of $.67 per share,
(expiring December 31, 2012), for an additional 3 years (now expiring December 31, 2015). The closing price of the Company's common
stock as traded on the OTCBB on December 31, 2012, the date of the approval of the extension, was $.18 per share. There was no
incremental cost associated with the modification.


 


(r)On December 31, 2012, the Company
vested an additional 160,000 shares of the restricted common stock under the Board adopted Non-Employee Director Restricted Stock
Plan, of which 100,000 shares were for Mr. Nadel, and 20,000 shares were for Mr. Gregg, Mr. Brown, and Mr. Larson, respectively,
and paid an aggregate of $40,000 in cash to non-employee directors during 2012. The Director Plan, effective July 1, 2010, provides
for the grant of an aggregate of 800,000 shares of restricted common stock with each outside director receiving a stock grant of
100,000 shares (Mr. Gregg, Mr. Brown, and Mr. Larson), and Mr. Nadel who will receive a stock grant of 500,000 shares (Mr. Nadel
was an outside director at the time of approval of the Director Plan), and each outside director will receive cash payments of
$2,500 each quarter, payable at the end of each quarter. All stock grants will vest over a four and half year period, with one
fifth vesting at the end of each calendar year beginning in 2010; provided, however, if there is a change in the control of the
Company, all stock grants, which have not vested, will vest immediately upon the change in control. As of December 31, 2012, a
total of 480,000 shares of restricted common stock have vested with a corresponding share based compensation expense of $312,000,
of which $104,000 was for 2012, 2011, and 2010, respectively.


 


(s)The Company accepts funds in for
the purchase of certain spray rigs by customers from non-affiliated third party financing companies, including a financing company
owned and operated by a relative of the Chairman of the Board (not part of the Chairman's immediate family nor does the relative
reside with the Chairman). The relative's third party financing is provided based on competitive bidding. The total aggregate of
funds received in connection with the financing of spray rigs from the relative's company during the 2012 year was approximately
$65,000.


 


(t)During 2012, the Company vested
an aggregate of 1,731,805 shares of restricted common stock, par value $.01 per share, to a director for advisory and consulting
services, which transactions were valued and recorded in the aggregate at $963,894.


 


Note 9. Financing Instruments


 


(b)Note Purchase Agreement.
On June 29, 2012, the Company and Enhanced Jobs for Texas Fund, LLC ("Enhanced Jobs for Texas") and Enhanced Capital
Texas Fund, LP ("Enhanced Texas Fund"), entered into a Note Purchase Agreement for $4.4 Million Subordinated Secured
Variable Rate Notes due June 29, 2014 ("Note Purchase Agreement"), of which $2.2 Million was with Enhanced Jobs for Texas
and $2.2 Million was with Enhanced Texas Fund (collectively, the "Enhanced Notes"). Repayment of the principal amount
of the Enhanced Notes is at the rate of $53,333 per month from October 31, 2012 through June 30, 2013, $150,000 per month from
July 2013 through May 31, 2014, and $2,270,000 on June 30, 2014. Interest on the Enhanced Notes is at a rate equal to 10.0% per
annum from June 29, 2012 until December 31, 2012, 10.75% per annum from January 1, 2013 until March 31, 2013, and at a rate 0.75%
higher each quarter thereafter until June 29, 2014, and an additional rate of 2.0% per annum from June 29, 2012 through June 29,
2014 on the principal balance of the Enhanced Notes on each monthly payment date, with the default interest rate 6% higher. The
Company is required in the event of a liquidity event, to prepay any outstanding balance under the Enhanced Notes, plus accrued
interest, the net proceeds arising from a casualty event, the net proceeds arising from an asset disposition, and the amounts paid
to the Company pursuant to the issuance of capital stock (other than permitted issuances) or indebtedness (other than permitted
indebtedness) following June 29, 2012. The Company has the right to prepay the Enhanced Notes without premium or penalty. The Company
also entered into a security


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agreement with the Note Purchase Agreement
providing for a second lien on all assets of the corporation after the Bank, which has a first lien on all asset of the corporation.
The debt covenants agreed upon by the Company under the Note Purchase agreement consist of a minimum EBITDA which cannot for the
three (3) months ending on the last day of each month set forth in a schedule be less than the corresponding amount set forth in
the schedule for such period. In addition, if liquidity (a) is less than $1,250,000 on any 3 consecutive days or (b) is less than
$1,000,000 on any day, then, as of the last day of the preceding calendar month and as of the last day of each calendar month thereafter,
the Company is required maintain a FCCR, tested monthly as of the last day of the calendar month for the most recently completed
twelve calendar months, of at least 1.0 to 1.0. The Company is required to maintain minimum liquidity of $500,000 on any given
day. The Note Purchase Agreement was personally guaranteed by the Chairman of the Board and majority stockholder of the Company
("Guarantor"), in exchange for the Company issuing the Guarantor 5 Million shares of restricted common stock, par value
$.01, which vests monthly on a pro rata basis over the two year term of the Note Purchase Agreement. The shares of restricted common
stock were valued at $.27 per share (closing price of the Company's common stock as quoted on the OTC Markets on the day preceding
the closing) for an aggregate amount of $1,350,000, and which amount is being recorded as interest expense – related party,
thereby increasing the effective interest rate on the Enhanced Notes. The Company and Enhanced entered an amendment dated November
15, 2012 to the Note Purchase Agreement, wherein the minimum EBITDA schedule which cannot for the three (3) months ending on the
last day of each month set forth in a schedule be less than the corresponding amount set forth in the schedule for such period
was revised, the liquidity range mechanism triggering testing of the FCCR on a monthly basis was deleted, a mechanism was put into
place to maintain an FCCR equal to at least 1.00 tested monthly as of the last day of each calendar month beginning on September
30, 2012 and continuing thereafter with respect to any such test date, and thereafter, for the most recently completed twelve calendar
months. At December 31, 2012, the balance outstanding on the Enhanced Notes was $4,337,334 and the weighted-average interest rate
was 10.0%. The Company was in compliance with its Note Purchase Agreement debt covenants at December 31, 2012.


The following is an extract of information
disclosed in the Borrower's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 with respect to with respect
to existing affiliate transactions:


 


Note 12. Related Party Transactions.


 


(a)The Company vested an aggregate
of 464,348 shares of restricted common stock, par value $.01 per share, to a director for advisory and consulting services, which
transactions were valued and recorded in the aggregate at $248,231.


 


(b)The Company vested an aggregate
of 616,438 shares of restricted common stock, par value $.01 per share, to the Chairman of the Board and majority stockholder in
connection with his personal guaranty for a Note Purchase Agreement, which transactions were valued and recorded in the aggregate
at $166,526, and classified as interest expense – related party.  See also Note 9 – Financing Instruments, Item
(b) – Note Purchase Agreement, for more information.


 


(c)The Company issued an aggregate
of 34,125 shares of restricted common stock, par value $.01 per share, for consulting fees relating to capital raising efforts,
which transactions were valued and recorded in the aggregate at $10,000.


 


(d)The Company accrued an aggregate
of $16,676 in interest relating to the Note Payable – Related Party. See also Note 9 – Financing Instruments,
Item (c) – Note Payable – Related Party, for more information.


 


 


 


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Note 9. Financing Instruments


 


(b)Note Purchase
Agreement. On June 29, 2012, the Company and Enhanced Jobs for Texas Fund, LLC ("Enhanced Jobs for Texas") and Enhanced
Capital Texas Fund, LP ("Enhanced Texas Fund"), entered into a Note Purchase Agreement for $4.4 Million Subordinated
Secured Variable Rate Notes due June 29, 2014 ("Note Purchase Agreement"), of which $2.2 Million was with Enhanced Jobs
for Texas and $2.2 Million was with Enhanced Texas Fund (collectively, the "Enhanced Notes"). Repayment of the principal
amount of the Enhanced Notes is at the rate of $53,333 per month from October 31, 2012 through June 30, 2013, $150,000 per month
from July 2013 through May 31, 2014, and $2,270,000 on June 30, 2014. Interest on the Enhanced Notes is at a rate equal to 10.0%
per annum from June 29, 2012 until December 31, 2012, 10.75% per annum from January 1, 2013 until March 31, 2013, and at a rate
0.75% higher each quarter thereafter until June 29, 2014, and an additional rate of 2.0% per annum from June 29, 2012 through June
29, 2014 on the principal balance of the Enhanced Notes on each monthly payment date, with the default interest rate 6% higher.
The Company is required in the event of a liquidity event, to prepay any outstanding balance under the Enhanced Notes, plus accrued
interest, the net proceeds arising from a casualty event, the net proceeds arising from an asset disposition, and the amounts paid
to the Company pursuant to the issuance of capital stock (other than permitted issuances) or indebtedness (other than permitted
indebtedness) following June 29, 2012. The Company has the right to prepay the Enhanced Notes without premium or penalty. The Company
also entered into a security agreement with the Note Purchase Agreement providing for a second lien on all assets of the corporation
after the Bank, which has a first lien on all asset of the corporation. The debt covenants agreed upon by the Company under the
Note Purchase agreement consist of a minimum EBITDA which cannot for the three (3) months ending on the last day of each month
set forth in a schedule be less than the corresponding amount set forth in the schedule for such period. The minimum EBITDA targets
for the three month periods ended January 31, February 28, and March 31, 2013, were $254,742, $232,294, and $242,601, respectively.
The Note Purchase Agreement was personally guaranteed by the Chairman of the Board and majority stockholder of the Company ("Guarantor"),
in exchange for the Company issuing the Guarantor 5 Million shares of restricted common stock, par value $.01, which vests monthly
on a pro rata basis over the two year term of the Note Purchase Agreement. The shares of restricted common stock were valued at
$.27 per share for an aggregate amount of $1,350,000, and which amount is being recorded as interest expense – related party,
thereby increasing the effective interest rate on the Enhanced Notes. At March 31, 2013, the balance outstanding on the Enhanced
Notes was $4,177,335 and the weighted-average effective interest rate was approximately 26.6%. The Company was in compliance with
its Note Purchase Agreement debt covenants at March 31, 2013.


 


(c)Note Payable – Related
Party. On April 16, 2012, the Company entered into a consolidated $1,300,000 promissory note, bearing interest at 5% per annum,
due, including interest, on October 31, 2013, and entered into a subordination agreement with the Bank. On June 29, 2012, in connection
with the Note Purchase Agreement (described in Item (b) above), the maturity date of the promissory note was extended to October
1, 2014 and further subordinated to the Enhanced Notes. At March 31, 2013, the Company had accrued interest of $63,714 relating
to this promissory note.


 


 


 


 


 


 


 


 


 


 


 


 


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