Document:

Exhibit 10.19

    
      
        

      

       

    

    @ROAD,
      INC.

    2000
      STOCK OPTION PLAN

    (as
      amended May 16, 2000)

    

    

    1.    Purposes
      of the Plan.
      The
      purposes of this 2000 Stock
      Option Plan are to attract and retain the best available personnel for positions
      of substantial responsibility, to provide additional incentive to Employees
      and
      Consultants and to promote the success of the Company’s business. Options
      granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
      Options, as determined by the Administrator at the time of grant of an option
      and subject to the applicable provisions of Section 422 of the Code and the
      regulations promulgated thereunder.

    

    2.    Definitions.
      As used
      herein, the following definitions shall apply:

    

    (a)    “Administrator”
      means
      the Board or its Committee appointed pursuant to Section 4 of the
      Plan.

    

    (b)    “Affiliate”
      means an
      entity other than a Subsidiary (as defined below) which, together with the
      Company, is under common control of a third person or entity.

    

    (c)    “Applicable
      Laws”
      means
      the legal requirements relating to the administration of stock option and
      restricted stock purchase plans under applicable U.S. state corporate laws,
      U.S.
      federal and applicable state securities laws, the Code, any Stock Exchange
      rules
      or regulations and the applicable laws of any other country or jurisdiction
      where Options are granted under the Plan, as such laws, rules, regulations
      and
      requirements shall be in place from time to time.

    

    (d)    “Board”
      means
      the Board of Directors of the Company.

    

    (e)    “Change
      of Control”
      means a
      sale of all or substantially all of the Company’s assets, or any merger or
      consolidation of the Company with or into another corporation other than a
      merger or consolidation in which the holders of more than 50% of the shares
      of
      capital stock of the Company outstanding immediately prior to such transaction
      continue to hold (either by the voting securities remaining outstanding or
      by
      their being converted into voting securities of the surviving entity) more
      than
      50% of the total voting power represented by the voting securities of the
      Company, or such surviving entity, outstanding immediately after such
      transaction.

    

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

    

    (g)    “Committee”
      means
      one or more committees or subcommittees of the Board appointed by the Board
      to
      administer the Plan in accordance with Section 4 below.

    

    (h)    “Common
      Stock”
      means
      the Common Stock of the Company.

    

    (i)    “Company”
      means
      @Road, Inc., a [California] corporation.

    

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    (j)    “Consultant”
      means
      any person, including an advisor, who is engaged by the Company or any Parent,
      Subsidiary or Affiliate to render services and is compensated for such services,
      and any director of the Company whether compensated for such services or
      not.

    

    (k)    “Continuous
      Service Status”
      means
      the absence of any interruption or termination of service as an Employee or
      Consultant. Continuous Service Status as an Employee or Consultant shall not
      be
      considered interrupted in the case of: (i) sick leave; (ii) military
      leave; (iii) any other leave of absence approved by the Administrator,
      provided that such leave is for a period of not more than ninety (90) days,
      unless reemployment upon the expiration of such leave is guaranteed by contract
      or statute, or unless provided otherwise pursuant to Company policy adopted
      from
      time to time; or (iv) in the case of transfers between locations of the
      Company or between the Company, its Parents, Subsidiaries, Affiliates or their
      respective successors. A change in status from an Employee to a Consultant
      or
      from a Consultant to an Employee will not constitute an interruption of
      Continuous Service Status.

    

    (l)    “Corporate
      Transaction”
      means a
      sale of all or substantially all of the Company’s assets, or a merger,
      consolidation or other capital reorganization of the Company with or into
      another corporation and includes a Change of Control.

    

    (m)    “Director”
      means
      a
      member of the Board.

    

    (n)    “Employee”
      means
      any person employed by the Company or any Parent, Subsidiary or Affiliate,
      with
      the status of employment determined based upon such factors as are deemed
      appropriate by the Administrator in its discretion, subject to any requirements
      of the Code or the Applicable Laws. The payment by the Company of a director’s
      fee to a Director shall not be sufficient to constitute “employment” of such
      Director by the Company.

    

    (o)    “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended.

    

    (p)    “Fair
      Market Value”
      means,
      as of any date, the fair market value of the Common Stock, as determined by
      the
      Administrator in good faith on such basis as it deems appropriate and applied
      consistently with respect to Participants. Whenever possible, the determination
      of Fair Market Value shall be based upon the closing price for the Shares as
      reported in the Wall
      Street Journal
      for the
      applicable date. 

    

    (q)    “Incentive
      Stock Option”
      means an
      Option intended to qualify as an incentive stock option within the meaning
      of
      Section 422 of the Code, as designated in the applicable Option
      Agreement.

    

    (r)    “Listed
      Security”
means
      any security of the Company that is listed or approved for listing on a national
      securities exchange or designated or approved for designation as a national
      market system security on an interdealer quotation system by the National
      Association of Securities Dealers, Inc.

    

    (s)    “Named
      Executive”
      means
      any
      individual who, on the last day of the Company’s fiscal year, is the chief
      executive officer of the Company (or is acting in such capacity) or among the
      four most highly compensated officers of the Company (other than the chief
      executive officer). Such officer status shall be determined pursuant to the
      executive compensation disclosure rules under the Exchange Act.

    

    
      
        
          
          

        

        
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    (t)    “Nonstatutory
      Stock Option”
      means an
      Option not intended to qualify as an Incentive Stock Option, as designated
      in
      the applicable Option Agreement.

    

    (u)    “Option”
      means a
      stock option granted pursuant to the Plan.

    

    (v)    “Option
      Agreement”
      means a
      written document, the form(s) of which shall be approved from time to time
      by
      the Administrator, reflecting the terms of an Option granted under the Plan
      and
      includes any documents attached to or incorporated into such Option Agreement,
      including, but not limited to, a notice of stock option grant and a form of
      exercise notice.

    

    (w)    “Option
      Exchange Program”
      means a
      program approved by the Administrator whereby outstanding Options are exchanged
      for Options with a lower exercise price or are amended to decrease the exercise
      price as a result of a decline in the Fair Market Value of the Common
      Stock.

    

    (x)    “Optioned
      Stock”
      means
      the Common Stock subject to an Option.

    

    (y)    “Optionee”
      means an
      Employee or Consultant who receives an Option.

    

    (z)    “Parent”
      means a
“parent corporation,” whether now or hereafter existing, as defined in
      Section 424(e) of the Code, or any successor provision.

    

    (aa)    “Participant”
      means
      any holder of one or more Options, or the Shares issuable or issued upon
      exercise of such Options, under the Plan.

    

    (bb)    “Plan”
      means
      this 2000 Stock Option Plan.

    

    (cc)    “Reporting
      Person”
      means an
      officer, Director, or greater than ten percent stockholder of the Company within
      the meaning of Rule 16a-2 under the Exchange Act, who is required to file
      reports pursuant to Rule 16a-3 under the Exchange Act.

    

    (dd)    “Rule
      16b-3”
      means
      Rule 16b-3 promulgated under the Exchange Act, as amended from time to time,
      or
      any successor provision.

    

    (ee)    “Share”
      means a
      share of the Common Stock, as adjusted in accordance with Section 13 of the
      Plan.

    

    (ff)    “Stock
      Exchange”
      means
      any stock exchange or consolidated stock price reporting system on which prices
      for the Common Stock are quoted at any given time.

    

    (gg)    “Subsidiary”
      means a
“subsidiary corporation,” whether now or hereafter existing, as defined in
      Section 424(f) of the Code, or any successor provision.

    

    
      
        
          
          

        

        
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    (hh)    “Ten
      Percent Holder”
      means a
      person who owns stock representing more than ten percent (10%) of the voting
      power of all classes of stock of the Company or any Parent or
      Subsidiary.

    

    3.    Stock
      Subject to the Plan.
      Subject
      to the provisions of Section 13 of the Plan, the maximum aggregate number of
      Shares that may be sold under the Plan is 2,000,000
      Shares
      of
      Common Stock, plus (i) up to an aggregate of 9,825,000
      Shares
      that (a) are reserved and available for issuance under the Company’s 1996 Stock
      Option Plan, (b) return to the 1996 Stock Option Plan upon cancellation of
      outstanding options issued under that plan and (c) were Shares issued under
      the
      1996 Stock Option Plan that the Company repurchases when the holder thereof
      terminates his or her service relationship with the Company and (ii) an annual
      increase on the first day of each of the Company’s fiscal years beginning in
      2001 and ending in 2010 equal to the lesser of (a) 2,500,000
      Shares,
      (b) four
      (4%)
      percent
      of the Shares outstanding on the last day of the immediately preceding fiscal
      year, or (c) such lesser number of Shares as the Board shall determine.
      Notwithstanding the above, the maximum aggregate number of Shares that may
      be
      sold under the Plan during its term (as set forth in Section 6 below) is
      36,825,000.

    

    The
      Shares may be authorized, but unissued, or reacquired Common Stock. If an award
      should expire or become unexercisable for any reason without having been
      exercised in full, or is surrendered pursuant to an Option Exchange Program,
      the
      unpurchased Shares that were subject thereto shall, unless the Plan shall have
      been terminated, become available for future grant under the Plan. In addition,
      any Shares of Common Stock which are retained by the Company upon exercise
      of an
      award in order to satisfy the exercise or purchase price for such award or
      any
      withholding taxes due with respect to such exercise or purchase shall be treated
      as not issued and shall continue to be available under the Plan. Shares issued
      under the Plan and later repurchased by the Company pursuant to any repurchase
      right which the Company may have shall not be available for future grant under
      the Plan.

    

    4.    Administration
      of the Plan.

    

    (a)    General.
      The Plan
      shall be administered by the Board or a Committee, or a combination thereof,
      as
      determined by the Board. The Plan may be administered by different
      administrative bodies with respect to different classes of Participants and,
      if
      permitted by the Applicable Laws, the Board may authorize one or more officers
      to make awards under the Plan.

    

    (b)    Committee
      Composition.
      If
      a
      Committee has been appointed pursuant to this Section 4, such Committee shall
      continue to serve in its designated capacity until otherwise directed by the
      Board. From time to time the Board may increase the size of any Committee and
      appoint additional members thereof, remove members (with or without cause)
      and
      appoint new members in substitution therefor, fill vacancies (however caused)
      and remove all members of a Committee and thereafter directly administer the
      Plan, all to the extent permitted by the Applicable Laws and, in the case of
      a
      Committee administering the Plan in accordance with the requirements of Rule
      16b-3 or Section 162(m) of the Code, to the extent permitted or required by
      such
      provisions.

    

    
      
        
          
          

        

        
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    (c)    Powers
      of the Administrator.
      Subject
      to the provisions of the Plan and in the case of a Committee, the specific
      duties delegated by the Board to such Committee, the Administrator shall have
      the authority, in its discretion:

    

    (i)    to
      determine the Fair Market Value of the Common Stock, in accordance with Section
      2(p) of the Plan, provided that such determination shall be applied consistently
      with respect to Participants under the Plan;

    

    (ii)    to
      select
      the Employees and Consultants to whom Options may from time to time be
      granted;

    

    (iii)    to
      determine whether and to what extent Options are granted;

    

    (iv)    to
      determine the number of Shares of Common Stock to be covered by each award
      granted;

    

    (v)    to
      approve the form(s) of agreement(s) used under the Plan;

    

    (vi)    to
      determine the terms and conditions, not inconsistent with the terms of the
      Plan,
      of any award granted hereunder, which terms and conditions include but are
      not
      limited to the exercise or purchase price, the time or times when awards may
      be
      exercised (which may be based on performance criteria), any vesting acceleration
      or waiver of forfeiture restrictions, and any restriction or limitation
      regarding any Option, Optioned Stock or restricted stock issued upon exercise
      of
      an Option, based in each case on such factors as the Administrator, in its
      sole
      discretion, shall determine;

    

    (vii)    to
      determine whether and under what circumstances an Option may be settled in
      cash
      under Section 10(c) instead of Common Stock;

    

    (viii)    to
      implement an Option Exchange Program on such terms and conditions as the
      Administrator in its discretion deems appropriate, provided that no amendment
      or
      adjustment to an Option that would materially and adversely affect the rights
      of
      any Optionee shall be made without the prior written consent of the
      Optionee;

    

    (ix)    to
      adjust
      the vesting of an Option held by an Employee or Consultant as a result of a
      change in the terms or conditions under which such person is providing services
      to the Company;

    

    (x)    to
      construe and interpret the terms of the Plan and awards granted under the Plan,
      which constructions, interpretations and decisions shall be final and binding
      on
      all Participants; 

    

    (xi)    to
      make
      any adjustment or amendment to the Plan or to an outstanding award with or
      without a Participant’s consent if such adjustment or amendment is necessary to
      avoid the Company’s incurring adverse accounting charges; and

     

    
      
        
          
          

        

        
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      (xii)    in
        order
        to fulfill the purposes of the Plan and without amending the Plan, to modify
        grants of Options to Participants who are foreign nationals or employed outside
        of the United States in order to recognize differences in local law, tax
        policies or customs.

       

    

    5.    Eligibility.

    

    (a)    Recipients
      of Grants.
      Nonstatutory Stock Options may be granted to Employees and Consultants.
      Incentive Stock Options may be granted only to Employees, provided that
      Employees of Affiliates shall not be eligible to receive Incentive Stock
      Options.

    

    (b)    Type
      of Option.
      Each
      Option shall be designated in the Option Agreement as either an Incentive Stock
      Option or a Nonstatutory Stock Option.

    

    (c)    ISO
      $100,000 Limitation.
      Notwithstanding
      any designation under Section 5(b), to the extent that the aggregate Fair Market
      Value of Shares with respect to which Options designated as Incentive Stock
      Options are exercisable for the first time by any Optionee during any calendar
      year (under all plans of the Company or any Parent or Subsidiary) exceeds
      $100,000, such excess Options shall be treated as Nonstatutory Stock Options.
      For purposes of this Section 5(c), Incentive Stock Options shall be taken
      into account in the order in which they were granted, and the Fair Market Value
      of the Shares subject to an Incentive Stock Option shall be determined as of
      the
      date of the grant of such Option.

    

    (d)    No
      Employment Rights.
      The
      Plan
      shall not confer upon any Participant any right with respect to continuation
      of
      an employment or consulting relationship with the Company, nor shall it
      interfere in any way with such Participant’s right or the Company’s right to
      terminate his or her employment or consulting relationship at any time, with
      or
      without Cause.

    

    6.    Term
      of Plan.
      The Plan
      shall become effective upon its adoption by the Board of Directors. It shall
      continue in effect for a term of ten (10) years unless sooner terminated under
      Section 15 of the Plan.

    

    7.    Term
      of Option.
      The term
      of each Option shall be the term stated in the Option Agreement; provided that
      the term shall be no more than ten years from the date of grant thereof or
      such shorter term as may be provided in the Option Agreement and provided
      further that, in the case of an Incentive Stock Option granted to a person
      who
      at the time of such grant is a Ten Percent Holder, the term of the Option shall
      be five years from the date of grant thereof or such shorter term as may be
      provided in the Option Agreement.

    

    8.    Limitation
      on Grants to Employees.
      Subject
      to adjustment as provided in Section 13 below, the maximum number of Shares
      that
      may be subject to Options granted to any one Employee under this Plan for any
      fiscal year of the Company shall be 2,500,000,
      provided that this Section 8 shall apply only after such time, if any, as the
      Common Stock becomes a Listed Security. 

    

    
      
        
          
          

        

        
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    9.    Option
      Exercise Price and Consideration.

    

    (a)    Exercise
      Price.
      The per
      Share exercise price for the Shares to be issued pursuant to exercise of an
      Option shall be such price as is determined by the Administrator and set forth
      in the Option Agreement, but shall be subject to the following:

    

    (i)    In
      the
      case of an Incentive Stock Option

    

    (A)    granted
      to an Employee who at the time of grant is a Ten Percent Holder, the per Share
      exercise price shall be no less than 110% of the Fair Market Value per Share
      on
      the date of grant; or

    

    (B)    granted
      to any other Employee, the per Share exercise price shall be no less than 100%
      of the Fair Market Value per Share on the date of grant.

    

    (ii)    In
      the
      case of a Nonstatutory Stock Option

    

    (A)    granted
      prior to the date, if any, on which the Common Stock becomes a Listed Security
      to a person who is at the time of grant is a Ten Percent Holder, the per Share
      exercise price shall be no less than 110% of the Fair Market Value per Share
      on
      the date of grant if required by the Applicable Laws and, if not so required,
      shall be such price as is determined by the Administrator;

    

    (B)    granted
      prior to the date, if any, on which the Common Stock becomes a Listed Security
      to any other eligible person, the per Share exercise price shall be no less
      than
      85% of the Fair Market Value per Share on the date of grant if required by
      the
      Applicable Laws and, if not so required, shall be such price as is determined
      by
      the Administrator.

    

    (C)    granted
      on or after the date, if any, on which the Common Stock becomes a Listed
      Security to any eligible person, the per share Exercise Price shall be such
      price as determined by the Administrator provided that if such eligible person
      is, at the time of the grant of such Option, a Named Executive of the Company,
      the per share Exercise Price shall be no less than 100% of the Fair Market
      Value
      on the date of grant if such Option is intended to qualify as performance-based
      compensation under Section 162(m) of the Code.

    

    (iii)    Notwithstanding
      the foregoing, Options may be granted with a per Share exercise price other
      than
      as required above pursuant to a merger or other corporate
      transaction.

    

    

    (b)    Permissible
      Consideration.
      The
      consideration to be paid for the Shares to be issued upon exercise of an Option,
      including the method of payment, shall be determined by the Administrator (and,
      in the case of an Incentive Stock Option, shall be determined at the time of
      grant) and may consist entirely of (1) cash; (2) check;
      (3) delivery of Optionee’s promissory note with such recourse, interest,
      security and redemption provisions as the Administrator determines to be
      appropriate (subject to the provisions of Section 153 of the Delaware General
      Corporation Law); (4) cancellation of indebtedness; (5) other Shares that
      have a Fair Market Value on the date of surrender equal to the aggregate
      exercise price of the Shares as to which the Option is exercised, provided
      that
      in the case of Shares acquired, directly or indirectly, from the Company, such
      Shares must have been owned by the Optionee for more than six months on the
      date
      of surrender (or such other period as may be required to avoid the Company’s
      incurring an adverse accounting charge); (6) delivery of a properly
      executed exercise notice together with such other documentation as the
      Administrator and a securities broker approved by the Company shall require
      to
      effect exercise of the Option and prompt delivery to the Company of the sale
      or
      loan proceeds required to pay the exercise price and any applicable withholding
      taxes; (7) any combination of the foregoing methods of payment; or (8) such
      other consideration and method of payment for the issuance of Shares to the
      extent permitted under the Applicable Laws. In making its determination as
      to
      the type of consideration to accept, the Administrator shall consider if
      acceptance of such consideration may be reasonably expected to benefit the
      Company and the Administrator may, in its sole discretion, refuse to accept
      a
      particular form of consideration at the time of any Option
      exercise.

    

    
      
        
          
          

        

        
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    10.    Exercise
      of Option.

    

    (a)    General.
      

    

    (i)    Exercisability.
      Any
      Option granted hereunder shall be exercisable at such times and under such
      conditions as determined by the Administrator, consistent with the term of
      the
      Plan and reflected in the Option Agreement, including vesting requirements
      and/or performance criteria with respect to the Company and/or the Optionee;
      provided however that, if required by the Applicable Laws, any Option granted
      prior to the date, if any, upon which the Common Stock becomes a Listed Security
      shall become exercisable at the rate of at least 20% per year over
      five years from the date the Option is granted. In the event that any of
      the Shares issued upon exercise of an Option (which exercise occurs prior to
      the
      date, if any, upon which the Common Stock becomes a Listed Security) should
      be
      subject to a right of repurchase in the Company’s favor, such repurchase right
      shall, if required by the Applicable Laws, lapse at the rate of at least 20%
      per
      year over five years from the date the Option is granted. Notwithstanding the
      above, in the case of an Option granted to an officer, Director or Consultant
      of
      the Company or any Parent, Subsidiary or Affiliate of the Company, the Option
      may become fully exercisable, or a repurchase right, if any, in favor of the
      Company shall lapse, at any time or during any period established by the
      Administrator. The Administrator shall have the discretion to determine whether
      and to what extent the vesting of Options shall be tolled during any unpaid
      leave of absence; provided, however, that in the absence of such determination,
      vesting of Options shall be tolled during any such leave.

    

    (ii)    Minimum
      Exercise Requirements.
      An
      Option
      may not be exercised for a fraction of a Share. The Administrator may require
      that an Option be exercised as to a minimum number of Shares, provided that
      such
      requirement shall not prevent an Optionee from exercising the full number of
      Shares as to which the Option is then exercisable.

    

    (iii)    Procedures
      for and Results of Exercise.
      An
      Option
      shall be deemed exercised when written notice of such exercise has been given
      to
      the Company in accordance with the terms of the Option by the person entitled
      to
      exercise the Option and the Company has received full payment for the Shares
      with respect to which the Option is exercised. Full payment may, as authorized
      by the Administrator, consist of any consideration and method of payment
      allowable under Section 9(b) of the Plan, provided that the Administrator
      may, in its sole discretion, refuse to accept any form of consideration at
      the
      time of any Option exercise.

    

    
      
        
          
          

        

        
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    Exercise
      of an Option in any manner shall result in a decrease in the number of Shares
      that thereafter may be available, both for purposes of the Plan and for sale
      under the Option, by the number of Shares as to which the Option is
      exercised.

    

    (iv)    Rights
      as Stockholder.
      Until
      the
      issuance of the Shares (as evidenced by the appropriate entry on the books
      of
      the Company or of a duly authorized transfer agent of the Company), no right
      to
      vote or receive dividends or any other rights as a stockholder shall exist
      with
      respect to the Optioned Stock, notwithstanding the exercise of the Option.
      No
      adjustment will be made for a dividend or other right for which the record
      date
      is prior to the date the stock certificate is issued, except as provided in
      Section 13 of the Plan.

    

    (b)    Termination
      of Employment or Consulting Relationship.
      Except
      as otherwise set forth in this Section 10(b), the Administrator shall establish
      and set forth in the applicable Option Agreement the terms and conditions upon
      which an Option shall remain exercisable, if at all, following termination
      of an
      Optionee’s Continuous Service Status, which provisions may be waived or modified
      by the Administrator at any time. To the extent that the Optionee is not
      entitled to exercise an Option at the date of his or her termination of
      Continuous Service Status, or if the Optionee (or other person entitled to
      exercise the Option) does not exercise the Option to the extent so entitled
      within the time specified in the Option Agreement or below (as applicable),
      the
      Option shall terminate and the Optioned Stock underlying the unexercised portion
      of the Option shall revert to the Plan. In no event may any Option be exercised
      after the expiration of the Option term as set forth in the Option Agreement
      (and subject to Section 7). 

    

    The
      following provisions (1) shall apply to the extent an Option Agreement does
      not
      specify the terms and conditions upon which an Option shall terminate upon
      termination of an Optionee’s Continuous Service Status, and (2) establish the
      minimum post-termination exercise periods that may be set forth in an Option
      Agreement:

    

    (i)    Termination
      other than Upon Disability or Death or for Cause.
      In
      the
      event of termination of an Optionee’s Continuous Service Status, such Optionee
      may exercise an Option for 30 days following such termination to the extent
      the
      Optionee was entitled to exercise it at the date of such termination. No
      termination shall be deemed to occur and this Section 10(b)(i) shall not apply
      if (i) the Optionee is a Consultant who becomes an Employee, or (ii) the
      Optionee is an Employee who becomes a Consultant.

    

    (ii)    Disability
      of Optionee.
      In
      the
      event of termination of an Optionee’s Continuous Service Status as a result of
      his or her disability (including a disability within the meaning of Section
      22(e)(3) of the Code), such Optionee may exercise an Option at any time within
      six (6) months following such termination to the extent the Optionee was
      entitled to exercise it at the date of such termination. 

    

    
      
        
          
          

        

        
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    (iii)    Death
      of Optionee.
      In the
      event of the death of an Optionee during the period of Continuous Service Status
      since the date of grant of the Option, or within thirty (30) days following
      termination of Optionee’s Continuous Service Status, the Option may be exercised
      by Optionee’s estate or by a person who acquired the right to exercise the
      Option by bequest or inheritance at any time within twelve months following
      the
      date of death, but only to the extent of the right to exercise that had accrued
      at the date of death or, if earlier, the date the Optionee’s Continuous Service
      Status terminated.

    

    (c)    Buyout
      Provisions.
      The
      Administrator may at any time offer to buy out for a payment in cash or Shares
      an Option previously granted under the Plan based on such terms and conditions
      as the Administrator shall establish and communicate to the Optionee at the
      time
      that such offer is made.

    

    11.    Taxes.

    

    (a)    As
      a
      condition of the exercise of an Option granted under the Plan, the Participant
      (or in the case of the Participant’s death, the person exercising the Option)
      shall make such arrangements as the Administrator may require for the
      satisfaction of any applicable federal, state, local or foreign withholding
      tax
      obligations that may arise in connection with the exercise of the Option and
      the
      issuance of Shares. The Company shall not be required to issue any Shares under
      the Plan until such obligations are satisfied. If the Administrator allows
      the
      withholding or surrender of Shares to satisfy a Participant’s tax withholding
      obligations under this Section 11 (whether pursuant to Section 11(c), (d) or
      (e), or otherwise), the Administrator shall not allow Shares to be withheld
      in
      an amount that exceeds the minimum statutory withholding rates for federal
      and
      state tax purposes, including payroll taxes.

    

    (b)    In
      the
      case of an Employee and in the absence of any other arrangement, the Employee
      shall be deemed to have directed the Company to withhold or collect from his
      or
      her compensation an amount sufficient to satisfy such tax obligations from
      the
      next payroll payment otherwise payable after the date of an exercise of the
      Option. 

    

    (c)    This
      Section 11(c) shall apply only after the date, if any, upon which the Common
      Stock becomes a Listed Security. In the case of Participant other than an
      Employee (or in the case of an Employee where the next payroll payment is not
      sufficient to satisfy such tax obligations, with respect to any remaining tax
      obligations), in the absence of any other arrangement and to the extent
      permitted under the Applicable Laws, the Participant shall be deemed to have
      elected to have the Company withhold from the Shares to be issued upon exercise
      of the Option that number of Shares having a Fair Market Value determined as
      of
      the applicable Tax Date (as defined below) equal to the amount required to
      be
      withheld. For purposes of this Section 11, the Fair Market Value of the Shares
      to be withheld shall be determined on the date that the amount of tax to be
      withheld is to be determined under the Applicable Laws (the “Tax
      Date”).

    

    (d)    If
      permitted by the Administrator, in its discretion, a Participant may satisfy
      his
      or her tax withholding obligations upon exercise of an Option by surrendering
      to
      the Company Shares that have a Fair Market Value determined as of the applicable
      Tax Date equal to the amount required to be withheld. In the case of shares
      previously acquired from the Company that are surrendered under this Section
      11(d), such Shares must have been owned by the Participant for more than six
      (6)
      months on the date of surrender (or such other period of time as is required
      for
      the Company to avoid adverse accounting charges).

    

    
      
        
          
          

        

        
          -
            10
            -

          
            

          

        

        
          
          

        

      

    

     

    (e)    Any
      election or deemed election by a Participant
      to
      have
      Shares withheld to satisfy tax withholding obligations under Section 11(c)
      or
      (d) above shall be irrevocable as to the particular Shares as to which the
      election is made and shall be subject to the consent or disapproval of the
      Administrator. Any election by a Participant
      under
      Section 11(d) above must be made on or prior to the applicable Tax
      Date.

    

    (f)    In
      the
      event an election to have Shares withheld is made by a Participant and the
      Tax
      Date is deferred under Section 83 of the Code because no election is filed
      under
      Section 83(b) of the Code, the Participant shall receive the full number of
      Shares with respect to which the Option is exercised but such Participant shall
      be unconditionally obligated to tender back to the Company the proper number
      of
      Shares on the Tax Date.

    

    12.    Non-Transferability
      of Options. 

    

    (a)    General.
      Except
      as set forth in this Section 12, Options may not be sold, pledged, assigned,
      hypothecated, transferred or disposed of in any manner other than by will or
      by
      the laws of descent or distribution. The designation of a beneficiary by an
      Optionee will not constitute a transfer. An Option may be exercised, during
      the
      lifetime of the holder of an Option, only by such holder or a transferee
      permitted by this Section 12.

    

    (b)    Limited
      Transferability Rights.
      Notwithstanding
      anything else in this Section 12, prior to the date, if any, on which the Common
      Stock becomes a Listed Security, the Administrator may in its discretion grant
      Nonstatutory Stock Options that may be transferred by instrument to an inter
      vivos or testamentary trust in which the Options are to be passed to
      beneficiaries upon the death of the trustor (settlor) or by gift to “Immediate
      Family” (as defined below), on such terms and conditions as the Administrator
      deems appropriate. Following the date, if any, on which the Common Stock becomes
      a Listed Security, the Administrator may in its discretion grant transferable
      Nonstatutory Stock Options pursuant to Option Agreements specifying the manner
      in which such Nonstatutory Stock Options are transferable. “Immediate
      Family”
means
      any
      child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
      mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
      or
      sister-in-law, and shall include adoptive relationships.

    

    13.    Adjustments
      Upon Changes in Capitalization, Merger or Certain Other
      Transactions.

    

    (a)    Changes
      in Capitalization.
      Subject
      to any required action by the stockholders of the Company, the number of Shares
      of Common Stock covered by each outstanding Option, the numbers of Shares set
      forth in Sections 3(a) and 8 above, and the number of Shares of Common Stock
      that have been authorized for issuance under the Plan but as to which no Options
      have yet been granted or that have been returned to the Plan upon cancellation
      or expiration of an Option, as well as the price per Share of Common Stock
      covered by each such outstanding Option, shall be proportionately adjusted
      for
      any increase or decrease in the number of issued Shares of Common Stock
      resulting from a stock split, reverse stock split, stock dividend, combination,
      recapitalization or reclassification of the Common Stock, or any other increase
      or decrease in the number of issued Shares of Common Stock effected without
      receipt of consideration by the Company; provided, however, that conversion
      of
      any convertible securities of the Company shall not be deemed to have been
      “effected without receipt of consideration.” Such adjustment shall be made by
      the Administrator, whose determination in that respect shall be final, binding
      and conclusive. Except as expressly provided herein, no issuance by the Company
      of shares of stock of any class, or securities convertible into shares of stock
      of any class, shall affect, and no adjustment by reason thereof shall be made
      with respect to, the number or price of Shares of Common Stock subject to an
      Option.

    

    
      
        
          
          

        

        
          -
            11
            -

          
            

          

        

        
          
          

        

      

    

     

    (b)    Dissolution
      or Liquidation.
      In the
      event of the dissolution or liquidation of the Company, each Option will
      terminate immediately prior to the consummation of such action, unless otherwise
      determined by the Administrator.

    

    (c)    Corporate
      Transaction.
      In the
      event of a Corporate Transaction, each outstanding Option shall be assumed
      or an
      equivalent option or right shall be substituted by such successor corporation
      or
      a parent or subsidiary of such successor corporation (the “Successor
      Corporation”),
      unless the Successor Corporation does not agree to assume the award or to
      substitute an equivalent option or right, in which case such Option shall
      terminate upon the consummation of the transaction.

    

    For
      purposes of this Section 13(c), an Option shall be considered assumed, without
      limitation, if, at the time of issuance of the stock or other consideration
      upon
      a Corporate Transaction or a Change of Control, as the case may be, each holder
      of an Option would be entitled to receive upon exercise of the award the same
      number and kind of shares of stock or the same amount of property, cash or
      securities as such holder would have been entitled to receive upon the
      occurrence of the transaction if the holder had been, immediately prior to
      such
      transaction, the holder of the number of Shares of Common Stock covered by
      the
      award at such time (after giving effect to any adjustments in the number of
      Shares covered by the Option as provided for in this Section 13); provided
      that if such consideration received in the transaction is not solely common
      stock of the Successor Corporation, the Administrator may, with the consent
      of
      the Successor Corporation, provide for the consideration to be received upon
      exercise of the award to be solely common stock of the Successor Corporation
      equal to the Fair Market Value of the per Share consideration received by
      holders of Common Stock in the transaction.

    

    (d)    Certain
      Distributions.
      In the
      event of any distribution to the Company’s stockholders of securities of any
      other entity or other assets (other than dividends payable in cash or stock
      of
      the Company) without receipt of consideration by the Company, the Administrator
      may, in its discretion, appropriately adjust the price per Share of Common
      Stock
      covered by each outstanding Option to reflect the effect of such
      distribution.

    

    
      
        
          
          

        

        
          -
            12
            -

          
            

          

        

        
          
          

        

      

    

     

    14.    Time
      of Granting Options.
      The date
      of grant of an Option shall, for all purposes, be the date on which the
      Administrator makes the determination granting such Option, or such other date
      as is determined by the Administrator, provided that in the case of any
      Incentive Stock Option, the grant date shall be the later of the date on which
      the Administrator makes the determination granting such Incentive Stock Option
      or the date of commencement of the Optionee’s employment relationship with the
      Company. Notice of the determination shall be given to each Employee or
      Consultant to whom an Option is so granted within a reasonable time after the
      date of such grant.

    

    15.    Amendment
      and Termination of the Plan.

    

    (a)    Authority
      to Amend or Terminate.
      The
      Board may at any time amend, alter, suspend or discontinue the Plan, but no
      amendment, alteration, suspension or discontinuation (other than an adjustment
      pursuant to Section 13 above) shall be made that would materially and adversely
      affect the rights of any Optionee under any outstanding grant, without his
      or
      her consent. In addition, to the extent necessary and desirable to comply with
      the Applicable Laws, the Company shall obtain stockholder approval of any Plan
      amendment in such a manner and to such a degree as required.

    

    (b)    Effect
      of Amendment or Termination.
      No
      amendment or termination of the Plan shall materially and adversely affect
      Options already granted, unless mutually agreed otherwise between the Optionee
      and the Administrator, which agreement must be in writing and signed by the
      Optionee or holder and the Company.

    

    (c)    Accounting
      Issues.
      Notwithstanding anything else to the contrary in this Section 15, the
      Administrator may at any time amend or adjust the Plan or an outstanding award
      issued under the Plan without the consent of the affected Participant(s) if
      such
      amendment or adjustment is necessary to avoid the Company’s incurring adverse
      accounting charges.

    

    16.    Conditions
      Upon Issuance of Shares.
      Notwithstanding any other provision of the Plan or any agreement entered into
      by
      the Company pursuant to the Plan, the Company shall not be obligated, and shall
      have no liability for failure, to issue or deliver any Shares under the Plan
      unless such issuance or delivery would comply with the Applicable Laws, with
      such compliance determined by the Company in consultation with its legal
      counsel. As a condition to the exercise of an Option, the Company may require
      the person exercising the award to represent and warrant at the time of any
      such
      exercise that the Shares are being purchased only for investment and without
      any
      present intention to sell or distribute such Shares if, in the opinion of
      counsel for the Company, such a representation is required by law.

    

    17.    Reservation
      of Shares.
      The
      Company, during the term of this Plan, will at all times reserve and keep
      available such number of Shares as shall be sufficient to satisfy the
      requirements of the Plan.

    

    18.    Agreements.
      Options
      shall be evidenced by Option Agreements in such form(s) as the Administrator
      shall from time to time approve.

    

    19.    Stockholder
      Approval.
      If
      required by the Applicable Laws, continuance of the Plan shall be subject to
      approval by the stockholders of the Company within twelve (12) months before
      or
      after the date the Plan is adopted. Such stockholder approval shall be obtained
      in the manner and to the degree required under the Applicable Laws.

    

    
      
        
          
          

        

        
          -
            13
            -

          
            

          

        

        
          
          

        

      

    

     

    20.    Information
      and Documents to Optionees and Purchasers.
      Prior to
      the date, if any, upon which the Common Stock becomes a Listed Security and
      if
      required by the Applicable Laws, the Company shall provide financial statements
      at least annually to each Optionee and to each individual who acquired Shares
      pursuant to the Plan, during the period such Optionee or purchaser has one
      or
      more Options outstanding, and in the case of an individual who acquired Shares
      pursuant to the Plan, during the period such individual owns such Shares. The
      Company shall not be required to provide such information if the issuance of
      Options under the Plan is limited to key employees whose duties in connection
      with the Company assure their access to equivalent information.

     

     

    -
      14
      -EXHIBIT
      10.1

     

    REVOLVING
      CREDIT AND TERM LOAN AGREEMENT

     

    AGREEMENT
      (this
“Agreement”)
      is
      made and entered into as of the 21st
      day of
      February, 2007, by and between COMVEST
      CAPITAL, LLC,
      a
      Delaware limited liability company (the “Lender”),
      and
LAPOLLA
      INDUSTRIES, INC.,
      a
      Delaware corporation (the “Borrower”).

     

    W
      I T N E S S E T H :

     

    WHEREAS,
      the
      Borrower is engaged in the business of manufacturing and distributing coatings,
      foam, paints, sealants, adhesives, equipment and other goods targeting
      commercial, industrial and residential applications in the roofing, construction
      and paint industries (collectively, the “Business
      Operations”);
      and

     

    WHEREAS,
      in
      order to provide funds for the repayment and retirement of the Borrower’s
      existing line of credit facility and certain other Indebtedness and for the
      Borrower’s working capital and other general corporate purposes, the Borrower
      has requested the Lender to extend to the Borrower a revolving credit facility
      and a term loan on the terms and conditions of this Agreement; and

     

    WHEREAS,
      the
      Lender is willing and able to provide such revolving credit facility and make
      such term loan to the Borrower on the terms and conditions of this
      Agreement;

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants herein contained, the
      parties hereby agree as follows:

     

    
      	
              I.

            	
              DEFINITIONS

            

    

     

    Section
      1.01. Defined Terms.
      In
      addition to the other terms defined elsewhere in this Agreement, as used herein,
      the following terms shall have the following meanings:

     

    “Accounts”
shall
      mean “accounts” (as defined in the UCC) of the Borrower and its Domestic
      Subsidiaries from time to time.

     

    “Account
      Debtor”
shall
      mean any Person who is obligated on an Account.

     

    “Act”
shall
      mean the Securities Act of 1933, as amended, and the rules and regulations
      thereunder.

     

    “Advances”
shall
      mean the principal amounts loaned to the Borrower from time to time pursuant
      to
      Section 2.01 below.

     

    “Affiliate”
shall
      mean, with respect to any Person, any other Person in Control of, Controlled
      by,
      or under common Control with the first Person, and any other Person who has
      a
      substantial interest, direct or indirect, in the first Person or any of its
      Affiliates, including, without limitation, any officer or director of the first
      Person or any of its Affiliates; provided,
      however,
      that
      neither the Lender nor any of its Affiliates shall be deemed an “Affiliate” of
      the Borrower for any purposes of this Agreement. For the purpose of this
      definition, a “substantial interest” shall mean the direct or indirect legal or
      beneficial ownership of more than ten (10%) percent of any class of stock or
      similar interest.

     

    “Agreement”
shall
      mean this Revolving Credit and Term Loan Agreement as it may from time to time
      be amended, modified, supplemented and/or restated.

     

    “Applicable
      Law”
shall
      mean all applicable provisions of all (a) constitutions, statutes, ordinances,
      rules, regulations and orders of all governmental and/or quasi-governmental
      bodies, (b) Government Approvals, and (c) order, judgments and decrees of all
      courts and arbitrators.

     

    “Availability”
shall
      mean the amount (if any) by which, at the time of determination, (a) the
      Revolving Credit Commitment exceeds (b) the outstanding principal amount of
      Advances.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    “Borrowing
      Base”
shall
      mean an amount, determined in accordance with the most recent borrowing base
      report provided to the Lender under Section 5.04(e) hereof, equal to (a) 80%
      of
      Eligible Accounts, minus
      (b) such
      reserves as the Lender may establish from time to time in its Permitted
      Discretion (including, without limitation, to account for concentration and
      other risks of collection). In the event that the Borrower has not timely
      delivered a current Borrowing Base report in accordance with Section 5.04(e)
      below, then the applicable Borrowing Base shall be such amount as is established
      by the Lender, until such time as the Borrower has delivered a current Borrowing
      Base report. 

     

    “Borrowing
      Date”
means
      the Business Day on which the Lender makes a Loan hereunder.

     

    “Business
      Day”
shall
      mean a day other than (a) a Saturday, (b) a Sunday, or (c) a day on which
      banking institutions in either the State of Florida or the State of Texas are
      authorized or required by law or executive order to close.

     

    “Capital
      Expenditures”
shall
      mean with respect to any Person, all expenditures of such Person for tangible
      assets which are capitalized, and the fair value of any tangible assets leased
      by such Person under any lease which would be a Capitalized Lease, determined
      in
      accordance with GAAP, including all amounts paid or accrued by such Person
      in
      connection with the purchase (whether on a cash or deferred payment basis)
      or
      lease (including Capitalized Lease Obligations) of any machinery, equipment,
      real property, improvements to real property (including leasehold improvements),
      or any other tangible asset of such Person which is required, in accordance
      with
      GAAP, to be treated as a fixed asset on the consolidated balance sheet of such
      Person.

     

    “Capitalized
      Lease”
shall
      mean any lease which is or should be capitalized on the balance sheet of the
      lessee thereunder in accordance with GAAP.

     

    “Capitalized
      Lease Obligation”
shall
      mean with respect to any Person, the amount of the liability which reflects
      the
      amount of future payments under all Capitalized Leases of such Person as at
      any
      date, determined in accordance with GAAP.

     

    “Cash
      Equivalents”
shall
      mean (a) marketable securities issued, or directly and fully guaranteed or
      insured, by the United States of America or any agency or instrumentality
      thereof (provided that the full faith and credit of the United States of America
      is pledged in support thereof) having maturities of not more than twelve (12)
      months from the date of acquisition; (b) time deposits, demand deposits,
      certificates of deposit, acceptances or prime commercial paper issued by, or
      repurchase obligations for underlying securities of the types described in
      clause (a) entered into with any commercial bank having a short-term deposit
      rating of at least A-2 or the equivalent thereof by Standard & Poor’s
      Corporation or at least P-2 or the equivalent thereof by Moody’s Investors
      Service, Inc.; (c) commercial paper with a rating of A-I or A-2 or the
      equivalent thereof by Standard & Poor’s Corporation or P-1 or P-2 or the
      equivalent thereof by Moody’s Investors Service, Inc. and in each case maturing
      within twelve (12) months after the date of acquisition; (d) marketable direct
      obligations issued by any state in the United States or any agency or
      instrumentality thereof maturing within twelve (12) months from the date of
      acquisition thereof and, at the time of acquisition, have one of the two highest
      ratings generally obtainable from either Standard & Poor’s Corporation or
      Moody’s Investors Services, Inc.; (e) tax-exempt commercial paper of United
      States municipal, state or local governments rated at least A-2 or the
      equivalent thereof by Standard & Poor’s Corporation or at least P-2 or the
      equivalent thereof by Moody’s Investors Services, Inc. and maturing within
      twelve (12) months after the date of acquisition thereof; (f) any other items
      selected by the Borrower and approved by the Lender (which approval shall not
      be
      unreasonably withheld or delayed); or (g) any mutual fund or other pooled
      investment vehicle which invests principally in the foregoing
      obligations.

     

    “Closing
      Date”
shall
      mean the date of this Agreement, simultaneously with the funding of the Term
      Loan.

     

    “Closing
      Fee”
shall
      mean the sum of $115,000, which shall be payable in accordance with Section
      2.03(a) below.

     

    “Code”
shall
      mean the Internal Revenue Code of 1986, and the rules and regulations
      promulgated thereunder, as in effect from time to time.

     

    “Collateral”
shall
      mean all collateral pledged by the Borrower and/or any of the Subsidiaries
      as
      security for the payment and performance of the Obligations, whether pursuant
      to
      the Collateral Agreement or any other Security Document.

     

    “Collateral
      Agreement”
shall
      mean the Collateral Agreement, dated as of the Closing Date, by and between
      the
      Borrower and the Lender, as same may be amended, modified, supplemented and/or
      restated from time to time.

     

    “Common
      Stock”
shall
      mean the authorized common stock of the Company, $.01 par value per
      share.

     

    “Confidential
      Information”
shall
      mean information that the Borrower furnishes to the Lender pursuant to any
      Loan
      Document, but does not include any such information once such information has
      become, or if such information is, generally available to the public or
      available to the Lender from a source other than the Borrower which is not,
      to
      the Lender’s knowledge, bound by any confidentiality agreement in respect
      thereof. 

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Contract”
shall
      mean any indenture, agreement (other than this Agreement), other contractual
      restriction, lease in which the Borrower or any Subsidiary is a lessor or
      lessee, license or instrument.

     

    “Control”
shall
      mean 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
      ownership of voting securities, by contract or otherwise, and the terms
“Controlling”
and
      “Controlled”
shall
      have meanings correlative thereto.

     

    “Control
      Agreement”
shall
      mean, with respect to each bank account and/or securities account maintained
      by
      or in the name of the Borrower or any Domestic Subsidiary, an agreement executed
      and delivered by the Borrower (or the subject Domestic Subsidiary, as
      applicable) and the account intermediary, whereby the account intermediary
      acknowledges the Lender’s Lien on such account and all funds or property
      therein, and “control” (within the meaning of the UCC) over such account is
      established in favor of the Lender.

     

    “Default”
shall
      mean any of the events specified in Article VII hereof, whether or not any
      requirement for the giving of notice, the lapse of time, or both, or any other
      condition, has been satisfied.

     

    “Disclosure
      Schedule”
shall
      mean the disclosure schedule, dated as of the Closing Date, executed and
      delivered by the Borrower to the Lender, the section numbers of which correspond
      to the Section numbers of this Agreement.

     

    “Dollars”
or
      “$”
shall
      mean United States Dollars, lawful currency for the payment of public and
      private debts.

     

    “Domestic
      Subsidiary”
shall
      mean any Subsidiary which is incorporated or formed under the laws of the United
      States, any State or Commonwealth in the United States, or the District of
      Columbia.

     

    “EBITDA”
shall
      mean, for the subject twelve (12) month period, for the Borrower and its
      Subsidiaries on a consolidated basis, the sum of (a) Net Income, plus
      (b)
      Interest Expense deducted in the calculation of such Net Income, plus
      (c)
      taxes on income, whether paid, payable or accrued, deducted in the calculation
      of such Net Income, plus
      (d)
      depreciation expense deducted in the calculation of such Net Income,
plus
      (e)
      amortization expense deducted in the calculation of such Net Income,
plus
      (f) all
      other non-cash charges and expenses deducted in the calculation of such Net
      Income, excluding accruals for cash expenses made in the ordinary course of
      business, plus
      (g)
      losses deducted in the calculation of such Net Income from any sales of assets,
      other than sales in the ordinary course of business, minus
      (h)
      gains added in the calculation of such Net Income from any sales of assets,
      other than sales in the ordinary course of business, plus
      (i)
      other extraordinary or non-recurring non-cash losses deducted in the calculation
      of such Net Income, minus
      (j)
      other extraordinary or non-recurring non-cash gains added in the calculation
      of
      such Net Income, all determined in accordance with GAAP.

     

    “Eligible
      Account”
shall
      mean the face amount of each trade Account of the Borrower or a Domestic
      Subsidiary (if same has executed a Guaranty Agreement and become a party to
      the
      Collateral Agreement) for services rendered or goods and products sold in the
      ordinary course of the Business Operations which the Lender, in its Permitted
      Discretion, deems to be an Eligible Account; provided,
      however,
      that an
      Account shall not be deemed an Eligible Account unless it meets all of the
      following conditions:

     

    (a)    the
      subject services or products and goods have been rendered, shipped or delivered
      on an absolute sale basis to an Account Debtor which is not an Affiliate, vendor
      or supplier of the Borrower or a Subsidiary, with an invoice date
      contemporaneous with or within thirty (30) calendar days after the date of
      shipment or service, and which does not constitute a consignment sale,
      bill-and-hold sale, sale-and-return or other such arrangement and is not subject
      to any other repurchase, return or offset agreement binding upon the Borrower
      or
      a Domestic Subsidiary; the subject services or products and goods have been
      rendered, shipped and delivered (or shipped f.o.b.) to such Account Debtor
      on an
      open account basis (or with payment guaranteed by a domestic letter of credit,
      drawn on or by a domestic financial institution, acceptable to the Lender in
      all
      respects), and no part of the subject services, products or goods has been
      returned, rejected, lost or damaged; the Account is not evidenced by chattel
      paper or an instrument of any kind; and such Account Debtor, unless pre-approved
      in writing by the Lender, is not insolvent or the subject of any bankruptcy
      or
      insolvency proceeding of any kind in any jurisdiction;

     

    (b)    if
      the
      Account Debtor is located outside the continental United States and (i)
      the subject Account is greater than $25,000, or (ii) all earlier-dated
      invoices to Account Debtors located outside the continental United States
      represent (in the aggregate) 15% or more of the total Eligible Accounts at
      the
      date of determination, then
      the
      payment for the subject services or goods shall be secured by an irrevocable
      letter of credit, which letter of credit shall have been confirmed by a
      financial institutional reasonably acceptable to the Lender payable in the
      full
      amount of the face value of the Account in lawful currency of the United States;
      provided,
      however,
      that
      the Lender may, from time to time, in its sole and absolute discretion, waive
      any of the requirements of this subsection (b);

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    (c)    it
      is a
      valid, legally enforceable obligation of the Account Debtor thereunder payable
      in Dollars and is not subject to any recoupment, offset or other defense or
      any
      discount or chargeback on the part of such Account Debtor (provided that prompt
      payment discounts granted in the ordinary course of business shall not cause
      an
      Account to be disqualified hereunder, so long as only the discounted amount
      of
      such Account, if not otherwise disqualified, is included in the calculation
      of
      the Borrowing Base) or to any claim on the part of such Account Debtor denying
      liability thereunder (provided that the undisputed portion may be considered
      to
      be an Eligible Account);

     

    (d)    it
      is
      subject to no Lien whatsoever, except for the Lien of the Lender;

     

    (e)    it
      has
      not remained unpaid in whole or in part for a period exceeding ninety (90)
      days
      after the original invoice date;

     

    (f)    
it
      does
      not arise out of a transaction (whether direct or indirect) with an employee,
      officer, agent, director or Affiliate of the Borrower or any Subsidiary or
      with
      any entity controlled by any employee, officer, agent or director of the
      Borrower or any Subsidiary;

     

    (g)    it
      is not
      subject to any contract retainage or other withholding of any portion of
      payments on amounts invoiced, whether to secure the Borrower’s or any
      Subsidiary’s performance or otherwise; 

     

    (h)    it
      does
      not represent the unpaid portion of an Account any portion of which was
      previously paid or agreed to be paid through the issuance or delivery of equity
      securities or other non-cash consideration; 

     

    (i)    
if
      the
      Account Debtor is the United States, any State or Commonwealth therein, or
      any
      department, agency or instrumentality thereof, the Borrower or the applicable
      Domestic Subsidiary has duly assigned its rights to payment of such Account
      to
      the Lender pursuant to the federal Assignment of Claims Act and any comparable
      state statutes;

     

    (j)    
the
      Lender has a perfected first priority Lien in such Account;

     

    (k)    such
      Account is not payable by any person other than the Account Debtor (such as
      a
      beneficiary, recipient or subscriber individually), provided that the portion
      thereof which is payable by the Account Debtor may be considered to be an
      Eligible Domestic Account;

     

    (l)    
at
      least
      sixty (60%) percent in dollar amount of the total Accounts owed by such Account
      Debtor and/or its Affiliates constitute Eligible Domestic Accounts;

     

    (m)          
      the
      total
      Accounts owed by the subject Account Debtor and/or its Affiliates constitute
      less than ten (10%) percent of the net collectible dollar value of all Eligible
      Accounts (provided that only the excess over ten (10%) percent shall be
      disqualified under this clause (m), unless the Lender has otherwise consented
      in
      writing to the inclusion of all or any portion of such excess);

     

    (n)    such
      Account is payable solely to the Borrower or a Domestic Subsidiary, and the
      Borrower or such Domestic Subsidiary is not aware of any dispute by the Account
      Debtor with respect to such Account; and

     

    (o)    it
      is not
      otherwise determined by the Lender, in the Lender’s Permitted Discretion, to be
      difficult to collect, uncollectible or otherwise unacceptable for any
      reason.

     

    “ERISA”
shall
      mean the Employee Retirement Income Security Act of 1974, as in effect from
      time
      to time.

     

    “ERISA
      Affiliate”
shall
      mean, with respect to any Person, any other Person which is under common control
      with the first Person within the meaning of Section 414(b) or 414(c) of the
      Code; provided,
      however,
      that
      with respect to the Borrower, no Person which is an Affiliate of the Lender
      (other than the Borrower and its Subsidiaries) shall be deemed an ERISA
      Affiliate for purposes of this Agreement

     

    “Event
      of Default”
has
      the
      meaning set forth in Article VII below.

     

    “Exchange
      Act”
shall
      mean the Securities Exchange Act of 1934, as amended.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    “Existing
      Lender”
shall
      mean Wachovia Bank, National Association, as the lender under the outstanding
      line of credit facility by and between such lender and the
      Borrower.

     

    “Financial
      Statements”
has
      the
      meaning set forth in Section 3.01(a) below.

     

    “Fiscal
      Year”
shall
      mean the fiscal year of the Borrower which ends on December 31 of each
      year.

     

    “Foreign
      Subsidiary”
shall
      mean any Subsidiary which is not a Domestic Subsidiary.

     

    “GAAP”
shall
      mean generally accepted accounting principles in the United States of America,
      consistently applied, unless the context otherwise requires, with respect to
      any
      financial terms contained herein, as then in effect with respect to the
      preparation of financial statements.

     

    “Government
      Approval”
shall
      mean an authorization, consent, non-action, approval, license or exemption
      of,
      registration or filing with, or report to, any governmental or
      quasi-governmental department, agency, body or other unit.

     

    “Guaranty”,
      “Guaranteed”
or
      to
“Guarantee”,
      as
      applied to any Indebtedness, liability or other obligation, shall mean (a)
      a
      guaranty, directly or indirectly, in any manner, including by way of endorsement
      (other than endorsements of negotiable instruments for collection in the
      ordinary course of business), of any part or all of such obligation, and (b)
      an
      agreement, contingent or otherwise, and whether or not constituting a guaranty,
      assuring, or intended to assure, the payment or performance (or payment of
      damages in the event of non-performance) of any part or all of such obligation
      by any means (including, without limitation, the purchase of securities or
      obligations, the purchase or sale of property or services, or the supplying
      of
      funds). 

     

    “Guaranty
      Agreement”
shall
      mean a guaranty agreement, in form and substance satisfactory to the Lender,
      to
      be executed by each Domestic Subsidiary in favor of the Lender, pursuant to
      which such Domestic Subsidiary will guaranty the full and timely payment and
      performance of all of the Obligations.

     

    “Indebtedness”
shall
      mean (without
      duplication), with respect to any Person, (a) all obligations or liabilities,
      contingent or otherwise, for borrowed money, (b) any and all obligations
      represented by promissory notes, bonds, debentures or the like, or on which
      interest charges are customarily paid, (c) any liability secured by any
      mortgage, pledge, lien or security interest on property owned or acquired,
      whether or not such liability shall have been assumed, (d) obligations of such
      Person under conditional sale or other title retention agreements relating
      to
      property or assets purchased by such Person, (e) all obligations of such Person
      issued or assumed as the deferred purchase price of property or services
      (excluding trade payables and accrued obligations incurred in the ordinary
      course of business), (f) any obligations (contingent or otherwise) of such
      Person as an account party or applicant in respect of letters of credit and/or
      bankers’ acceptances, or in respect of financial or other hedging obligations,
      and (g) Guarantees, endorsements (other than for collection in the ordinary
      course of business) and other contingent obligations in respect of the
      obligations of others.

     

    “Interest
      Expense”
shall
      mean, for the relevant period, total interest expense (including interest
      attributable to Capitalized Leases in accordance with GAAP) and fees with
      respect to outstanding Indebtedness.

     

    “Investment”,
      as
      applied to the Borrower or any Subsidiary, shall mean: (a) any shares of capital
      stock, evidence of Indebtedness or other security issued by any other Person
      to
      the Borrower or any Subsidiary, (b) any loan, advance or extension of credit
      to,
      or contribution to the capital of, any other Person, other than credit terms
      extended to customers in the ordinary course of business, (c) any other
      investment by the Borrower or any Subsidiary in any assets or securities of
      any
      other Person, and (d) any commitment to make any Investment.

     

    “Knowledge”
      or “Known”
or
      words of similar import shall mean, with respect to the Borrower and/or any
      Subsidiary, the actual knowledge of Douglas J. Kramer, Michael T. Adams and
      John
      A. Campbell (and/or their respective successors as officers of the Borrower)
      after reasonable inquiry of the appropriate employees of the Borrower and the
      Subsidiaries.

     

    “Liabilities
      and Contingencies”
has
      the
      meaning set forth in Section 3.01(c) below.

     

    “Lien”,
      as
      applied to the property or assets (or the income or profits therefrom) of the
      Borrower or any Subsidiary, shall mean (in each case, whether the same is
      consensual or nonconsensual or arises by contract, operation of law, legal
      process or otherwise): (a) any mortgage, lien, pledge, hypothecation,
      attachment, assignment, deposit arrangement, encumbrance, charge, lease
      constituting a Capitalized Lease Obligation, conditional sale or other title
      retention agreement, or other security interest or encumbrance of any kind
      in
      respect of any property (including, without limitation, stock of any Subsidiary)
      of the Borrower or any Subsidiary, or upon the income or profits therefrom;
      (b)
      any arrangement under which any property of the Borrower or any Subsidiary
      is
      transferred, sequestered or otherwise identified for the purpose of subjecting
      or making available the same for the payment of Indebtedness or the performance
      of any other liability in priority to the payment of the general, unsecured
      creditors of the Borrower or any Subsidiary; (c) any Indebtedness or liability
      which remains unpaid after the same shall become due and payable and which,
      if
      unpaid, by law or otherwise is given any priority whatsoever over the general
      unsecured creditors of the Borrower or any Subsidiary; and (d) any agreement
      (other than this Agreement) or other arrangement which, directly or indirectly,
      prohibits the Borrower or any Subsidiary from creating or incurring any lien
      on
      any of its properties or assets or which conditions the ability to do so on
      the
      security, on a pro rata
      or other
      basis, of Indebtedness other than Indebtedness outstanding under this
      Agreement.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    “Loan
      Documents”
shall
      mean the collective reference to this Agreement, the Notes, the Security
      Documents, the Warrants, the Registration Rights Agreement, and any and all
      other agreements, instruments, certificates and other documents as may be
      executed and delivered by the Borrower and/or any of the Subsidiaries pursuant
      hereto or thereto.

     

    “Loans”
shall
      mean, collectively, the Advances and the Term Loan.

     

    “Material
      Adverse Effect”
shall
      mean any event, act, omission, condition or circumstance which has or would
      reasonably be expected to have a material adverse effect on (a) the business,
      operations, properties, assets or condition, financial or otherwise, of the
      Borrower and the Subsidiaries, taken as a whole, (b) the ability of the Borrower
      or any Subsidiary to perform any of its obligations under any of the Loan
      Documents, or (c) the validity or enforceability of, or the Lender’s rights and
      remedies under, any of the Loan Documents, other than due to the acts or
      omissions of the Lender or any of its Affiliates.

     

    “Maturity
      Date”
shall
      mean the Revolver Maturity Date and/or the Term Loan Maturity Date, as the
      case
      may be.

     

    “Monitoring
      Fee”
shall
      mean the fees payable to the Lender pursuant to Section 2.03(b)
      below.

     

    “Net
      Income”
shall
      mean the consolidated net income (or loss) of the Borrower and its Subsidiaries
      for the twelve (12) month period in question, after giving effect to deduction
      of or provision for all operating expenses, all taxes and reserves (including
      reserves for deferred taxes) and all other proper deductions, all determined
      in
      accordance with GAAP; provided
      that,
      for purposes of calculating Net Income, there shall be excluded and no effect
      shall be given to:

     

    (a)    any
      restoration of any contingency reserve, except to the extent that provision
      for
      such reserve was made out of income for the subject period;

     

    (b)    any
      net
      gain arising from the collection of the proceeds of any insurance policy or
      policies or the sale or disposition of any fixed assets outside of the ordinary
      course of business; 

     

    (c)    any
      expenses associated with any equity incentive plan of the Borrower; and

     

    (d)    any
      Net
      Income attributable to any Subsidiary to the extent that the Borrower is
      prohibited (by law, by Contract or otherwise) from receiving a distribution
      of
      such Net Income from such Subsidiary.

     

    “Notes”
shall
      mean, collectively, the Revolving Credit Note and the Term Note.

     

    “Obligations”
shall
      mean the collective reference to all Indebtedness and other liabilities and
      obligations of every kind and description owed by the Borrower to the Lender
      from time to time under or pursuant to this Agreement, the Notes, the Security
      Documents and the other Loan Documents (excluding the Warrant and Registration
      Rights Agreement, other than amounts payable from time to time pursuant to
      Section 2(c) of the Registration Rights Agreement), and/or otherwise in respect
      of the Loans, however evidenced, created or incurred, fixed or contingent,
      now
      or hereafter existing, due or to become due.

     

    “Organic
      Documents”
shall
      mean, with respect to any Person, the certificate of incorporation, articles
      of
      incorporation, certificate of formation, certificate of limited partnership,
      by-laws, operating agreement, limited partnership agreement or other such
      document of such Person.

     

    “Permitted
      Discretion”
shall
      mean a determination or judgment made by the Lender in good faith in the
      exercise of reasonable business judgment from the perspective of a secured
      lender.

     

    “Permitted
      Indebtedness”
shall
      mean any and all Indebtedness expressly permitted pursuant to Section 6.01
      below.

     

    “Permitted
      Liens”
shall
      mean those Liens expressly permitted pursuant to Section 6.02
      below.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    “Person”
shall
      mean any individual, partnership, corporation, limited liability company,
      banking association, business trust, joint stock company, trust, unincorporated
      association, joint venture, governmental authority or other entity of whatever
      nature.

     

    “Pro
      Forma Operating Cash Flow”
shall
      mean, for the twelve (12) month period ended most recently prior to the date
      of
      determination, (a) EBITDA for such twelve (12) month period, minus
      (b) the
      sum of (i) Capital Expenditures paid or payable in cash during such twelve
      (12)
      month period, plus (ii) Interest Expense to the extent paid or payable in cash
      during such twelve (12) month period, plus (iii) all scheduled payments of
      principal and interest required to be paid under the Term Note during the next
      succeeding twelve (12) month period. 

     

    “Qualified
      Proceeds”
shall
      mean any and all net proceeds received by the Borrower from time to time from
      the issuance and/or sale of any capital stock of the Borrower or any security
      or
      Indebtedness convertible into or exchangeable for capital stock of the Borrower,
      except to the extent that such proceeds are, within thirty (30) days after
      the
      receipt thereof, applied to pay the purchase price and/or directly associated
      expenses of the Borrower’s acquisition (directly or through a Wholly-Owned
      Subsidiary) of another business (whether through merger, consolidation, share
      exchange, stock purchase, or purchase of all or substantially all of the assets
      of the target company or an operating division or unit thereof), in each case
      effected subject to and in accordance with the requirements of this Agreement.
      In determining the amount of net proceeds for purposes of this definition,
      there
      shall be deducted from gross proceeds only those reasonable expenses incurred
      by
      the Borrower directly related to the subject issuance or sale, exclusive of
      any
      fees or commissions paid to any officer, director or other Affiliate of the
      Borrower or any Affiliate of any of the foregoing.

     

    “Real
      Properties”
shall
      mean, collectively, any real properties (land, buildings and/or improvements)
      now owned or leased or occupied by the Borrower or any of the Subsidiaries,
      and,
      during the period of the Borrower’s and/or Subsidiary’s occupancy thereof, any
      other real properties heretofore owned or leased by the Borrower or any
      Subsidiary (provided that, with respect to leased properties, the “Real
      Property” shall refer only to the portion of the subject property (excluding
      common areas) leased by the Borrower or a Subsidiary). 

     

    “Registration
      Rights Agreement”
shall
      mean the Registration Rights Agreement, to be dated as of the Closing Date,
      made
      by the Borrower for the benefit of the Lender and any subsequent Holders (as
      such term is defined in the Registration Rights Agreement), as same may be
      amended, modified, supplemented and/or restated from time to time.

     

    “Revolving
      Credit Commitment”
shall
      mean the Lender’s agreement to make Advances to the Borrower within the
      limitations set forth in Section 2.01 below.

     

    “Revolving
      Credit Note”
shall
      mean the promissory note of the Borrower issued to the Lender to represent
      the
      Advances and interest thereon, as described in Section 2.01(f)
      below.

     

    “Revolving
      Maturity Date”
shall
      mean February 28, 2009, subject to extension in accordance with Section 2.01(e)
      below.

     

    “Sale”
shall
      mean any transaction or series of related transactions (a) whereby Control
      of
      the Borrower is held by a Person (or group of Persons acting in concert) other
      than the management of the Borrower on the date of this Agreement (or Affiliates
      of such management), (b) in which the Borrower is a constituent party to any
      merger, consolidation or share exchange and as a result thereof (i) the holders
      of the outstanding capital stock of the Borrower which ordinarily has voting
      power for the election of directors (including preferred stock counted on an
“as
      converted” basis into common stock) immediately prior to such merger or
      consolidation cease to own a majority of the outstanding capital stock of the
      Borrower which ordinarily has voting power for the election of directors
      (including preferred stock counted on an “as converted” basis into common
      stock), or (ii) the Borrower is not the surviving corporation, or (c) whereby
      all or any material portion of the assets of the Borrower or any Subsidiary
      are
      sold, assigned or transferred.

     

    “SEC”
shall
      mean the United States Securities and Exchange Commission, and any successor
      agency performing the functions thereof.

     

    “SEC
      Reports”
shall
      mean the periodic and current reports, registration statements, proxy statements
      and other reports filed or required to be filed by the Borrower with the SEC
      pursuant to the Act and/or the Exchange Act, and any amendments or supplements
      thereto filed with the SEC.

     

    “Security
      Documents”
shall
      mean the Collateral Agreement, any collateral assignments, control agreements,
      financing statements or other such agreements or documents pursuant thereto,
      any
      Guaranty Agreements, and any other agreements or instruments securing or
      creating or evidencing Liens securing the Obligations.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    “Series
      D Dividends”
shall
      mean dividends payable from time to time on the Series D preferred stock of
      the
      Borrower which is outstanding on the date of this Agreement, payable at the
      rate
      and at the times provided in the certificate of designations respecting such
      Series D preferred stock as in effect on the date of this
      Agreement.

     

    “Subordinated
      Debt”
shall
      mean all Indebtedness for money borrowed and other liabilities of the Borrower,
      whether or not evidenced by promissory notes, which is contractually
      subordinated in right of payment, in a manner satisfactory to the Lender (as
      evidenced by the Lender’s prior written approval thereof), to all Obligations of
      the Borrower to the Lender.

     

    “Subsidiary”
or
      “Subsidiaries”
shall
      mean the individual or collective reference to any corporation, limited
      liability company or other entity of which 50% or more of the outstanding shares
      of stock or other equity interests of each class having ordinary voting power
      and/or rights to profits (other than stock having such power only by reason
      of
      the happening of a contingency) is at the time owned by the Borrower, directly
      or indirectly through one or more Subsidiaries of the Borrower.

     

    “Term
      Loan”
shall
      mean the term loan in the principal amount of $2,000,000 to be made pursuant
      to
      Section 2.02(a) below.

     

    “Term
      Loan Maturity Date”
shall
      mean February 28, 2010.

     

    “Term
      Note”
shall
      mean the promissory note of the Borrower issued to the Lender as described
      in
      Section 2.02(d) below.

     

    “UCC”
means
      the Uniform Commercial Code as in effect in the State of New York on the date
      hereof and hereafter from time to time.

     

    “Warrants”
shall
      mean the warrants to purchase shares of Common Stock (such warrants covering
      an
      aggregate of 1,500,000 shares of Common Stock, subject to adjustment) to be
      issued by the Borrower to the Lender on the Closing Date.

     

    “Wholly-Owned
      Subsidiary”
shall
      mean each Domestic Subsidiary of which all of the outstanding equity securities
      (other than directors’ qualifying shares) are owned by the Borrower or another
      such Wholly-Owned Subsidiary.

     

    Section
      1.02. Use of Defined Terms.
      All
      terms defined in this Agreement shall have their defined meanings when used
      in
      the Notes, the Security Documents, the other Loan Documents, and all
      certificates, reports or other documents made or delivered pursuant to this
      Agreement, unless otherwise defined therein or unless the specific context
      shall
      otherwise require.

     

    Section
      1.03. Accounting Terms.
      All
      accounting terms not specifically defined herein shall be construed in
      accordance with GAAP.

     

    Section
      1.04. Other Definitional Provisions.
      The
      words “hereof,” “herein”, “hereto” and “hereunder” and words of similar import
      when used in this Agreement shall refer to this Agreement as a whole and not
      to
      any particular provision of this Agreement, and Section references are to this
      Agreement unless otherwise specified. The meanings given to terms defined herein
      shall be equally applicable to both the singular and plural forms of such terms.
      The word “including” and words of similar import when used in this Agreement
      shall mean “including, without limitation,” unless otherwise
      specified.

     

    
      	
              II.

            	
              GENERAL
                TERMS

            

    

     

    Section
      2.01.   Revolving Credit Loans.

     

    (a)    Subject
      at all times to all of the terms and conditions of this Agreement, the Lender
      hereby agrees to extend to the Borrower a secured revolving credit facility,
      from the Closing Date to the Primary Maturity Date, in an aggregate principal
      amount not to exceed, at any time outstanding, the lesser of (i) the Borrowing
      Base at the subject time, or (ii) $3,500,000 (the "Revolving
      Credit Commitment").

     

    (b)    Such
      revolving credit loans are herein sometimes referred to individually as an
      "Advance"
      and
      collectively as the "Advances."
      Subject at all times to all of the terms and conditions of this Agreement,
      from
      the Closing Date to the Revolver Maturity Date and within the limits of the
      Revolving Credit Commitment, the Lender shall lend, and the Borrower may borrow,
      prepay (without premium or penalty) and reborrow under this Section 2.01. Each
      request for an Advance (i) shall be irrevocable, (ii) shall be deemed to
      constitute an express affirmation that all conditions precedent set forth in
      part B of Article IV hereof are satisfied on the date of such request and will
      be satisfied on the requested Borrowing Date, and (iii) shall be made to the
      Lender in writing, not later than three (3) Business Days prior to the requested
      Borrowing Date, by an authorized officer of the Borrower or by telephonic
      communication by such authorized officer to the Lender, which shall be confirmed
      by written notice to the Lender to be delivered to the Lender by the Business
      Day next following the subject request. In no event shall the Borrower request,
      or shall the Lender be required to honor, (A) any request for an Advance in
      an
      amount greater than the Availability at such time, (B) any request for an
      Advance in an amount less than $100,000, or (C) more than one request for the
      borrowing of Advances in any seven (7) calendar day period.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (c)    The
      Borrower shall pay the Lender interest on all Advances at the rate(s) per annum
      as in effect from time to time in accordance with the Revolving Credit Note.
      Such interest shall be payable monthly in arrears on the last day of each
      calendar month and on the Revolver Maturity Date, and shall be computed on
      the
      daily unpaid balance of all Advances made under the Borrower's revolving credit
      loan accounts with the Lender, based on a three hundred sixty (360) day year,
      counting the actual number of days elapsed. The Borrower hereby authorizes
      the
      Lender to charge the Borrower's revolving credit loan accounts for all such
      interest; provided,
      however,
      that
      the Lender shall be under no obligation to make any such charge to the
      Borrower’s revolving credit loan accounts (including, without limitation, if
      there is insufficient Availability at the time such interest is due and
      payable).

     

    (d)    In
      the
      event and to the extent that, at any time, the outstanding principal amount
      of
      Advances exceeds the Revolving Credit Commitment then in effect, then the
      Borrower shall immediately, without notice or demand, make a payment to the
      Lender in respect of the Advances in an amount sufficient to cause the
      outstanding principal amount of Advances to be equal to or less than the
      Revolving Credit Commitment then in effect.

     

    (e)    Unless
      sooner due and payable by reason of an Event of Default or Sale having occurred,
      the Borrower shall pay in full all of the Obligations to the Lender in respect
      of all Advances on or prior to the Revolver Maturity Date; provided,
      however,
      that
      upon written request of the Borrower made not more than sixty (60) days or
      less
      than thirty (30) days prior to the Revolver Maturity Date, the Lender shall
      extend the Revolver Maturity Date to the Term Loan Maturity Date, provided
      and
      on condition that, on the date of such extension request and on the scheduled
      Revolver Maturity Date, no Default or Event of Default shall have occurred.
      Anything elsewhere contained herein to the contrary notwithstanding, in the
      event that and at such time as the Term Loan shall be repaid in full, the
      Revolving Credit Commitment shall thereupon terminate and all outstanding
      Advances, all accrued interest thereon and all other outstanding Obligations
      shall be immediately due and payable, without requirement of any notice or
      demand.

     

    (f)    
All
      Advances shall be evidenced by a secured Revolving Credit Note of the Borrower
      payable to the order of the Lender.

     

    (g)    The
      Borrower may, at its option, terminate the Revolving Credit Commitment at any
      time upon ten (10) Business Days’ prior written notice, and paying to the
      Lender, on the date fixed for termination, an amount equal to the sum of all
      outstanding principal and accrued interest of the Advances.

     

    Section
      2.02.   Term Loan.

     

    (a)    Subject
      at all times to all of the terms and conditions of this Agreement, the Lender
      hereby agrees to extend to the Borrower a Term Loan in the principal amount
      of
      $2,000,000. The Term Loan shall be borrowed in a single borrowing on the Closing
      Date, and any principal amounts repaid in respect of the Term Loan may not
      be
      reborrowed.

     

    (b)    The
      Term
      Loan shall be repayable in installments, in accordance with the schedules of
      payments set forth in the Term Note. The Borrower shall be required to prepay
      the Term Loan (i) in full upon the consummation of any Sale, and (ii) in whole
      or in part from time to time in the event and to the extent of 50% of any
      Qualified Proceeds received by the Borrower from time to time. Any prepayment
      required under the foregoing clause (ii) shall be due and payable as and when
      the amount of Qualified Proceeds is determined (i.e., upon receipt of such
      Qualified Proceeds in the event that no acquisition transaction is then pending,
      or thirty (30) days after receipt of such Qualified Proceeds to the extent
      that
      such Qualified Proceeds are not applied to the purchase price and/or related
      expenses of a consummated business acquisition). 

     

    (c)    The
      Borrower shall pay the Lender interest on the principal balance of the Term
      Loan
      at the rate(s) per annum as in effect from time to time in accordance with
      the
      Term Note. Such interest shall be payable monthly in arrears on the last day
      of
      each calendar month and on the Term Loan Maturity Date, and shall be computed
      on
      the daily unpaid balance of the Term Loan, based on a three hundred sixty (360)
      day year, counting the actual number of days elapsed. The Borrower hereby
      authorizes the Lender to charge the Borrower’s revolving credit loan accounts
      for all such interest and/or for any or all principal amounts due and payable
      in
      respect of the Term Loans; provided,
      however,
      that
      the Lender shall be under no obligation to make any such charge to the
      Borrower’s revolving credit loan accounts (including, without limitation, if
      there is insufficient Availability at the time such interest and/or principal
      is
      due and payable). 

     

    (d)    The
      Term
      Loan shall be evidenced by a secured Convertible Term Note of the Borrower
      payable to the order of the Lender.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    Section
      2.03.   Fees and Premiums.

     

    (a)    The
      Borrower shall pay the Closing Fee to the Lender simultaneously with the
      execution and delivery of this Agreement. The Closing Fee shall be deemed fully
      earned upon the parties’ execution and delivery of this Agreement, and shall not
      be refundable in whole or in part and shall not be subject to reduction or
      set-off under any circumstances.

     

    (b)    The
      Borrower shall further pay to the Lender, in advance on the Closing Date and
      on
      the first (1st)
      Business Day of each calendar month prior to the Revolver Maturity Date or
      the
      earlier termination of the Revolving Credit Commitment and payment of the
      Obligations thereon in accordance with this Agreement, a collateral monitoring,
      availability and administrative fee in the amount of $1,750 per month or portion
      thereof.

     

    (c)    In
      the
      event of any prepayment of all or any portion of the Term Loan, in addition
      to
      the payment of the subject principal amount and all unpaid accrued interest
      thereon, the Borrower shall be required to pay to the Lender a prepayment
      premium in an amount equal to (i) two (2%) percent of the principal amount
      being
      prepaid if such prepayment is made or required to be made on or before the
      first
      (1st)
      anniversary of the Closing Date, or (ii) one (1%) percent of the principal
      amount being prepaid if such prepayment is made or required to be made
      subsequent to the first (1st)
      anniversary of the Closing Date; provided,
      however,
      that no
      such prepayment premium shall be required with respect to any required
      prepayment out of Qualified Proceeds unless and to the extent that such
      Qualified Proceeds were received from or on behalf of any current holder of
      Common Stock or any current or future holder of Series D preferred stock of
      the
      Borrower.

     

    (d)    Payments
      received in respect of the Obligations after 12:00 Noon on any day shall be
      deemed to be received on the next succeeding Business Day, and if any payment
      is
      received other than by wire transfer of immediately available funds, such
      payment shall be subject to three (3) Business Days’ clearance prior to being
      credited to the Obligations for interest calculation purposes.

     

    (e)    In
      the
      event that the Closing Date has not occurred on or before February 28, 2007
      and
      the Lender was, prior thereto, ready, willing and able to consummate the
      transactions contemplated by this Agreement on substantially the terms hereof,
      then the Lender may, at any time thereafter until the Closing Date, terminate
      this Agreement by written notice to the Borrower, in which event the Borrower
      shall immediately become obligated to pay to the Lender an amount equal to
      the
      sum of (i) $90,000 (the “Breakup
      Fee”),
      plus
      (ii) all out-of-pocket costs, charges and expenses (including, reasonable
      attorneys’ fees and expenses) incurred by the Lender in respect of the
      transactions contemplated by this Agreement (up to a maximum of $35,000). Such
      payment shall be sooner due and payable in the event that and at such time
      as
      the Borrower consummates an alternative financing prior to February 28,
      2007.

     

    Section
      2.04.  Use of Proceeds.
      The
      Borrower shall utilize the proceeds of the Loans solely (a) to repay and retire
      the Borrower’s existing line of credit facility with the Existing Lender, (b) to
      repay and retire approximately $238,000 of outstanding Indebtedness owed by
      the
      Borrower to Commerce Bank, (c) to repay and retire up to $400,000 of outstanding
      Indebtedness owed by the Borrower to Richard J. Kurtz, and (d) for working
      capital and other general corporate purposes of the Borrower.

     

    Section
      2.05.  Further Obligations.
      With
      respect to all Obligations for which the interest rate is not otherwise
      specified herein (whether such Obligations arise hereunder, pursuant to the
      Notes or Security Documents, or otherwise), such Obligations shall bear interest
      at the rate(s) in effect from time to time pursuant to the Revolving Credit
      Note.

     

    Section
      2.06.  Application of Payments.
      All
      amounts paid to or received by the Lender in respect of the Loans from whatever
      source (whether from the Borrower, any Subsidiary pursuant to the Guaranty
      Agreement, any realization upon any Collateral, or otherwise) shall, unless
      otherwise directed by the Borrower with respect to any particular payment
      (unless an Event of Default shall then be continuing, in which event the Lender
      may disregard the Borrower’s direction), be applied (a) first, to reimburse the
      Lender for all out-of-pocket costs and expenses incurred by the Lender which
      are
      reimbursable to the Lender in accordance with this Agreement, the Notes and/or
      any of the other Loan Documents, (b) next, to any accrued but unpaid fees or
      prepayment premiums, and amounts payable under Section 2.2(c) of the
      Registration Rights Agreement, (c) next, to unpaid accrued interest on the
      Term
      Loan, (d) next, to unpaid accrued interest on the Advances, (e) next, to the
      outstanding principal of the Term Loan, to the extent then due and payable,
      (f)
      next, to the outstanding principal of the Advances, and (g) finally, to the
      payment of any other outstanding Obligations; and after payment in full of
      the
      Obligations, any further amounts paid to or received by the Lender in respect
      of
      the Loans shall be paid over to the Borrower or such other Person(s) as may
      be
      legally entitled thereto.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    Section
      2.07.   Sale.
      Anything elsewhere contained in this Agreement and/or the Notes to the contrary
      notwithstanding, the Revolving Credit commitment shall terminate and all
      Obligations shall become immediately due and payable, without requirement of
      any
      notice or demand, upon the consummation of any Sale.

     

    Section
      2.08.   Obligations Unconditional.
      

     

    (a)    The
      payment and performance of all Obligations shall constitute the absolute and
      unconditional obligations of the Borrower, and shall be independent of any
      defense or rights of set-off, recoupment or counterclaim which the Borrower
      might otherwise have against the Lender. All payments required by this Agreement
      and/or the Notes shall be paid free of any deductions or withholdings for any
      taxes or other amounts and without abatement, diminution or set-off. If the
      Borrower is required by law to make such a deduction or withholding from a
      payment hereunder, the Borrower shall pay to the Lender such additional amount
      as is necessary to ensure that, after the making of such deduction or
      withholding, the Lender receives (free from any liability in respect of any
      such
      deduction or withholding) a net sum equal to the sum which it would have
      received and so retained had no such deduction or withholding been made or
      required to be made. The Borrower shall (i) pay the full amount of any deduction
      or withholding, which it is required to make by-law, to the relevant authority
      within the payment period set by the relevant law, and (ii) promptly after
      any
      such payment, deliver to the Lender an original (or certified copy) official
      receipt issued by the relevant authority in respect of the amount withheld
      or
      deducted or, if the relevant authority does not issue such official receipts,
      such other evidence of payment of the amount withheld or deducted as is
      reasonably acceptable to the Lender.

     

    (b)    If,
      at
      any time and from time to time after the Closing Date, (i) any change in any
      existing law, regulation, treaty or directive or in the interpretation or
      application thereof, (ii) any new law, regulation, treaty or directive enacted
      or application thereof, or (iii) compliance by the Lender with any request
      or
      directive (whether or not having the force of law) from any governmental
      authority (A) subjects the Lender to any tax, levy, impost, deduction,
      assessment, charge or withholding of any kind whatsoever with respect to any
      Loan Document, or changes the basis of taxation of payments to the Lender of
      any
      amount payable thereunder (except for net income taxes, or franchise taxes
      imposed in lieu of net income taxes, imposed generally by federal, state or
      local taxing authorities with respect to interest or commitment fees or other
      fees payable hereunder or changes in the rate of tax on the overall net income
      of the Lender or its members), or (B) imposes on the Lender any other condition
      or increased cost in connection with the transactions contemplated thereby
      or
      participations therein, and the result of any of the foregoing is to increase
      the cost to the Lender of making or continuing any Loan or to reduce any amount
      receivable hereunder, then, in any such case, the Borrower shall promptly pay
      to
      the Lender any additional amounts necessary to compensate the Lender, on an
      after-tax basis, for such additional cost or reduced amount as determined by
      the
      Lender. If the Lender becomes entitled to claim any additional amounts pursuant
      to this Section 2.08(b), the Lender shall promptly notify the Borrower of the
      event by reason of which the Lender has become so entitled, and each such notice
      of additional amounts payable pursuant to this Section 2.08(b) submitted by
      the
      Lender to the Borrower shall, absent manifest error, be final, conclusive and
      binding for all purposes.

     

    Section
      2.09.   Reversal of Payments.
      To the
      extent that any payment or payments made to or received by the Lender pursuant
      to this Agreement or any other Loan Document are subsequently invalidated,
      declared to be fraudulent or preferential, set aside, or required to be repaid
      to any trustee, receiver or other person under any state or federal bankruptcy
      or other such law, then, to the extent thereof, such amounts shall be revived
      as
      Obligations and continue in full force and effect hereunder as if such payment
      or payments had not been received by the Lender.

     

    
      	
              III.

            	
              REPRESENTATIONS
                AND WARRANTIES

            

    

     

    As
      of the
      Closing Date and on each Borrowing Date (unless the representation and warranty
      refers to a specific date), the Borrower hereby makes the following
      representations and warranties to the Lender, all of which representations
      and
      warranties shall survive the Closing Date, the delivery of the Notes and the
      making of the Loans, shall be continuing in nature so long as any Obligations
      are outstanding or the Revolving Credit Commitment remains in effect, and are
      as
      follows:

     

    Section
      3.01.   Financial Matters.

     

    (a)    The
      Borrower has heretofore furnished to the Lender (i) the audited financial
      statements (including balance sheets, statements of income and statements of
      cash flows) of the Borrower as at December 31, 2004 and 2005, and for the Fiscal
      Years then ended, and (ii) the unaudited financial statements of the Borrower
      as
      of September 30, 2006 and for the nine (9) months then ended (collectively,
      the
“Financial
      Statements”).

     

    (b)    The
      Financial Statements (i) have been prepared in accordance with GAAP and
      Regulation S-X promulgated under the Act on a consistent basis for all periods
      (subject, in the case of unaudited statements, to the absence of full footnote
      disclosures, and to normal non-material audit adjustments), (ii) are complete
      and correct in all material respects, (iii) fairly present the financial
      condition of the Borrower as of said dates, and the results of its operations
      for the periods stated, (iv) contain and reflect all necessary adjustments
      and
      accruals for a fair presentation of the Borrower’s financial condition and the
      results of its operations as of the dates of and for the periods covered by
      such
      Financial Statements, and (v) make full and adequate provision, subject to
      and
      in accordance with GAAP, for the various assets and liabilities (including,
      without limitation, deferred revenues) of the Borrower, fixed or contingent,
      and
      the results of its operations and transactions in its accounts, as of the dates
      and for the periods referred to therein.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (c)    Except
      as
      set forth in Schedule
      3.01
      of the
      Disclosure Schedule, the Borrower does not have any liabilities, obligations
      or
      commitments of any kind or nature whatsoever, whether absolute, accrued,
      contingent or otherwise (collectively “Liabilities
      and Contingencies”),
      including, without limitation, Liabilities and Contingencies under employment
      agreements and with respect to any “earn-outs”, stock appreciation rights, or
      related compensation obligations, except: (i) Liabilities and Contingencies
      disclosed in the Financial Statements or footnotes thereto, (ii) Liabilities
      and
      Contingencies incurred in the ordinary course of business and consistent with
      past practice since the date of the most recent Financial Statements, or (iii)
      those Liabilities and Contingencies which are not required to be disclosed
      under
      GAAP. The reserves, if any, reflected on the balance sheet of the Borrower
      included in the most recent Financial Statements are appropriate and reasonable.
      The Borrower has not had and presently does not have any Indebtedness for money
      borrowed, outstanding obligations for the purchase price of property, contingent
      obligations or liabilities for taxes, or any unusual forward or long-term
      commitments, except as specifically set forth or provided for in the Financial
      Statements or in Schedule
      3.01
      of the
      Disclosure Schedule.

     

    (d)    Since
      the
      date of the most recent Financial Statements, except as set forth in
Schedule
      3.01 
      of the
      Disclosure Schedule, there has been no material adverse change in the working
      capital, condition (financial or otherwise), assets, liabilities, reserves,
      business, management, operations or prospects of the Borrower or any of its
      Subsidiaries, including, without limitation, the following:

     

    (i)    there
      has
      been no material change in any assumptions underlying, or in any methods of
      calculating, any bad debt, contingency or other reserve relating to the Borrower
      or any Subsidiary;

     

    (ii)   there
      have been (A) no material write-downs in the value of any inventory of, and
      there have been no write-offs as uncollectible of any notes, accounts receivable
      or other receivables of, the Borrower or any Subsidiary other than write-offs
      of
      accounts receivable reserved in full as of the date of the most recent financial
      statements delivered to the Lender, and (B) no reserves established for the
      uncollectibility of any notes, Accounts or other receivables of the Borrower
      or
      any Subsidiary except to the extent that same have been disclosed to the Lender
      in writing and would not, individually or in the aggregate, cause the
      outstanding Advances to exceed the Revolving Credit Commitment;

     

    (iii)         
      no
      debts
      have been cancelled, no claims or rights of substantial value have been waived
      and no properties or assets (real, personal or mixed, tangible or intangible)
      have been sold, transferred, or otherwise disposed of by the Borrower or any
      Subsidiary except in the ordinary course of business and consistent with past
      practice;

     

    (iv)          there
      has
      been no change in any method of accounting or accounting practice utilized
      by
      the Borrower or any Subsidiary;

     

    (v)   no
      material casualty, loss or damage has been suffered by the Borrower or any
      Subsidiary, regardless of whether such casualty, loss or damage is or was
      covered by insurance; 

     

    (vi)         
      Any
      announced changes in the policies or practices of any customer, supplier or
      referral source which would reasonably be expected to have a Material Adverse
      Effect;

     

    (vii)        
      Any
      incurrence of (A) any liability or obligation outside of the ordinary course
      of
      business, or (B) any Indebtedness other than Permitted
      Indebtedness;

     

    (viii)       
      Any
      declaration, setting aside or payment of any dividend or distribution or any
      other payment of any kind by the Borrower to or in respect of any equity
      securities of the Borrower; and

     

    (ix)   No
      action
      described in this Section 3.01(d) has been agreed to be taken by the Borrower
      or
      any Subsidiary.

     

    (e)    The
      Borrower has in place adequate systems of internal controls sufficient to enable
      the Borrower and its management to obtain timely and accurate information
      regarding the Business Operations and all material transactions relating to
      the
      Borrower and the Subsidiaries, and no material deficiency exists with respect
      to
      the Borrower’s systems of internal controls.

     

    (f)    
All
      of
      the SEC Reports, as of the respective dates thereof, complied in all material
      respects, as applicable, with the Act and the Exchange Act.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    Section
      3.02.   Organization; Corporate Existence.

     

    (a)    The
      Borrower (i) is a corporation duly organized, validly existing and in good
      standing under the laws of the State of Delaware, (ii) has all requisite
      corporate power and authority to own its properties and to carry on its business
      as now conducted and as proposed hereafter to be conducted, (iii) is qualified
      to do business as a foreign corporation in each jurisdiction in which the
      failure of the Borrower to be so qualified would have a Material Adverse Effect,
      and (iv) has all requisite corporate power and authority to execute and deliver,
      and perform all of its obligations under, the Loan Documents. True and complete
      copies of the Organic Documents of the Borrower, together with all amendments
      thereto, have been furnished to the Lender.

     

    (b)    On
      the
      date of this Agreement, the outstanding capital stock of the Company, and the
      number and amount of all outstanding options, warrants, convertible securities,
      subscriptions and other rights to acquire capital stock of the Company, are
      as
      set forth in Schedule
      3.02
      of the
      Disclosure Schedule. 

     

    (c)    On
      the
      date of this Agreement, the Borrower has no Subsidiaries.

     

    Section
      3.03.   Authorization.
      

     

    (a)    The
      execution, delivery and performance by the Borrower and the Subsidiaries of
      their respective obligations under the Loan Documents have been duly authorized
      by all requisite corporate and other action and will not, either prior to or
      as
      a result of the consummation of the transactions contemplated by this Agreement:
      (i) violate any provision of Applicable Law, any order of any court or other
      agency of government, any provision of the Organic Documents of the Borrower
      or
      any Subsidiary, or any Contract, indenture, agreement or other instrument to
      which the Borrower or any of the Subsidiaries is a party, or by which the
      Borrower or any of the Subsidiaries or any of its assets or properties are
      bound, or (ii) be in conflict with, result in a breach of, or constitute (after
      the giving of notice or lapse of time or both) a default under, or, except
      as
      may be provided in the Loan Documents, result in the creation or imposition
      of
      any Lien of any nature whatsoever upon any of the property or assets of the
      Borrower or any of the Subsidiaries pursuant to, any such Contract, indenture,
      agreement or other instrument. 

     

    (b)    Neither
      the Borrower nor any of the Subsidiaries is required to obtain any Government
      Approval, consent or authorization from, or to file any declaration or statement
      with, any governmental instrumentality or agency in connection with or as a
      condition to the execution, delivery or performance of any of the Loan
      Documents.

     

    Section
      3.04.  Litigation.
      Except
      as disclosed on Schedule
      3.04
      of the
      Disclosure Schedule, there is no action, suit or proceeding at law or in equity
      or by or before any governmental instrumentality or other agency now pending
      or,
      to the knowledge of the Borrower, threatened against or affecting the Borrower
      or any of the Subsidiaries or any of their respective assets, which, if
      adversely determined, would have a Material Adverse Effect. The Borrower has
      no
      Knowledge of any state of facts, events, conditions or circumstances which
      would
      properly constitute grounds for or the basis of any meritorious suit, action,
      arbitration, proceeding or investigation (including, without limitation, any
      unfair labor practice charges, interference with union organizing activities,
      or
      other labor or employment claims) against or with respect to the Borrower or
      any
      Subsidiary.

     

    Section
      3.05.  Material Contracts.
      Except
      as disclosed on Schedule
      3.05
      of the
      Disclosure Schedule, neither the Borrower nor any of the Subsidiaries is (a)
      a
      party to any Contract, agreement or instrument or subject to any charter or
      other corporate or organizational restriction which has had or could reasonably
      be expected to have a Material Adverse Effect, (b) subject to any liability
      or
      obligation under or relating to any collective bargaining agreement, or (c)
      in
      default in the performance, observance or fulfillment of any of the obligations,
      covenants or conditions contained in any Contract, agreement or instrument
      to
      which it is a party or by which any of its assets or properties is bound, which
      default, individually or in the aggregate, would have or could reasonably be
      expected to have a Material Adverse Effect.

     

    Section
      3.06.  Title to Properties.
      The
      Borrower and each of the Subsidiaries has good title to all of its properties
      and assets, free and clear of all mortgages, security interests, restrictions,
      encumbrances or other Liens of any kind, except for restrictions on the nature
      of use thereof imposed by Applicable Law, and except for Permitted Liens, none
      of which materially interfere with the use and enjoyment of such properties
      and
      assets in the normal course of the Business Operations as presently conducted,
      or materially impair the value of such properties and assets for the purpose
      of
      such business. 

     

    Section
      3.07.  Real Property.
      Schedule
      3.07
      of the
      Disclosure Schedule sets forth a correct and complete list of all Real
      Properties leased or occupied by the Borrower on the date of this Agreement.
      The
      Borrower does not own any Real Properties. The Borrower has a valid lessee’s
      interest in each Real Property currently leased or occupied by the Borrower.
      Neither the Borrower nor, to the Borrower’s Knowledge, any other party thereto,
      is in material breach or violation of any requirements of any such lease; and
      such Real Properties are in good condition (reasonable wear and tear excepted)
      and are adequate for the current and proposed businesses of the Borrower. To
      the
      Borrower’s Knowledge, its use of the Real Properties in the normal conduct of
      the Business Operations does not violate any applicable building, zoning or
      other law, ordinance or regulation affecting such Real Properties, and no
      covenants, easements, rights-of-way or other such conditions of record impair
      the Borrower’s use of the Real Properties in the normal conduct of the Business
      Operations.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    Section
      3.08.   Machinery and Equipment.
      The
      machinery and equipment owned and/or used by the Borrower and the Subsidiaries
      is, as to each individual material item of machinery and equipment, and in
      the
      aggregate as to all such equipment, in good and usable condition and in a state
      of good maintenance and repair (reasonable wear and tear excepted), and adequate
      for its use in the Business Operations.

     

    Section
      3.09.   Capitalization.
      Except
      as set forth in Schedule
      3.02
      of the
      Disclosure Schedule and for new Subsidiaries which may hereafter be formed
      or
      acquired in compliance with this Agreement, the Borrower does not, directly
      or
      indirectly, own any capital stock of or any form of equity interest in any
      other
      Person.

     

    Section
      3.10.  Solvency.
      After
      giving effect to the Loans and the other transactions contemplated hereby,
      the
      borrowings made and/or to be made by the Borrower under this Agreement do not
      and will not render the Borrower insolvent or with unreasonably small capital
      for its business; the fair saleable value of all of the assets and properties
      of
      the Borrower does now, and will, upon the funding of the Loans contemplated
      hereby, exceed the aggregate liabilities and Indebtedness of the Borrower
      (including contingent liabilities); the Borrower is not contemplating either
      the
      filing of a petition under any state or federal bankruptcy or insolvency law,
      or
      the liquidation of all or any substantial portion of its assets or property;
      the
      Borrower has no knowledge of any Person contemplating the filing of any such
      petition against the Borrower; and the Borrower reasonably anticipates that
      it
      will be able to pay its debts as they mature.

     

    Section
      3.11.   No Investment Company.
      The
      Borrower is not an “investment company” or a company “controlled” by an
“investment company” as such terms are defined in the Investment Company Act of
      1940, as amended.

     

    Section
      3.12.   Margin Securities.
      The
      Borrower does not own or have any present intention of acquiring any “margin
      security” or any “margin stock” within the meaning of Regulations G, T, U or X
      of the Board of Governors of the Federal Reserve System (herein called “margin
      security” and “margin stock”). None of the proceeds of the Loans will be used,
      directly or indirectly, for the purpose of purchasing or carrying, or for the
      purpose of reducing or retiring any Indebtedness which was originally incurred
      to purchase or carry, any margin security or margin stock or for any other
      purpose which might constitute the transactions contemplated hereby a “purpose
      credit” within the meaning of said Regulations G, T, U or X, or cause this
      Agreement to violate any other regulation of the Board of Governors of the
      Federal Reserve System or the Exchange Act, or any rules or regulations
      promulgated under such statutes.

     

    Section
      3.13.   Taxes.
      

     

    (a)    All
      federal, state and local tax returns and tax reports required to be filed by
      the
      Borrower and/or any Subsidiary have been timely filed with the appropriate
      governmental agencies in all jurisdictions in which such returns and reports
      are
      required to be filed. All federal, state and local income, franchise, sales,
      use, property, excise, ad valorem, value-added, payroll and other taxes
      (including interest, penalties and additions to tax and including estimated
      tax
      installments where required to be filed and paid) due from or with respect
      to
      the Borrower and the Subsidiaries have been fully paid, and appropriate accruals
      have been made on the Borrower’s books for taxes not yet due and payable. All
      taxes and other assessments and levies which the Borrower and/or any Subsidiary
      is required by law to withhold or to collect have been duly withheld and
      collected, and have been paid over to the proper governmental authorities to
      the
      extent due and payable. Except as set forth in Schedule
      3.13
      of the
      Disclosure Schedule, there are no outstanding or pending claims, deficiencies
      or
      assessments for taxes, interest or penalties with respect to any taxable period
      of the Borrower or any Subsidiary, and no outstanding tax Liens.

     

    (b)    Except
      as
      disclosed in Schedule
      3.13
      of the
      Disclosure Schedule, the Borrower has no Knowledge and has not received notice
      of any pending audit with respect to any federal, state or local tax returns
      of
      the Borrower or any Subsidiary, and no waivers of statutes of limitations have
      been given or requested with respect to any tax years or tax filings of the
      Borrower or any Subsidiary.

     

    Section
      3.14.   ERISA.
      Except
      as set forth in Schedule
      3.14
      of the
      Disclosure Schedule, neither the Borrower nor any ERISA Affiliate of the
      Borrower maintains or has any obligation to make any contributions to any
      pension, profit sharing or other similar plan providing for deferred
      compensation to any employee. With respect to any such plan(s) as may now exist
      or may hereafter be established by the Borrower or any ERISA Affiliate of the
      Borrower, and which constitutes an “employee pension benefit plan” within the
      meaning of Section 3(2) of ERISA, except as set forth on Schedule
      3.14
      of the
      Disclosure Schedule: (a) the Borrower or the subject ERISA Affiliate has paid
      and shall cause to be paid when due all amounts necessary to fund such plan(s)
      in accordance with its terms, (b) except for normal premiums payable by the
      Borrower to the Pension Benefit Guaranty Corporation (“PBGC”),
      the
      Borrower or the subject ERISA Affiliate has not taken and shall not take any
      action which could result in any liability to the PBGC, or any of its successors
      or assigns, (c) the present value of all accrued benefits thereunder shall
      not
      at any time exceed the value of the assets of such plan(s) allocable to such
      accrued benefits, (d) there have not been and there shall not be any
      transactions such as would cause the imposition of any tax or penalty under
      Section 4975 of the Code or under Section 502 of ERISA, which would adversely
      affect the funded benefits attributable to the Borrower or the subject ERISA
      Affiliate, (e) there has not been and there shall not be any termination or
      partial termination thereof (other than a partial termination resulting solely
      from a reduction in the number of employees of the Borrower or an ERISA
      Affiliate of the Borrower, which reduction is not anticipated by the Borrower),
      and there has not been and there shall not be any “reportable event” (as such
      term is defined in Section 4043(b) of ERISA) on or after the effective date
      of
      Section 4043(b) of ERISA with respect to any such plan(s) subject to Title
      IV of
      ERISA, (f) no “accumulated funding deficiency” (as defined in Section 412 of the
      Code) has been or shall be incurred on or after the effective date of Section
      412 of the Code, (g) such plan(s) have been and shall be determined to be
“qualified” within the meaning of Section 401(a) of the Code, and have been and
      shall be duly administered in compliance with ERISA and the Code, and (h) the
      Borrower is not aware of any fact, event, condition or cause which might
      adversely affect the qualified status thereof. As respects any “multi-employer
      plan” (as such term is defined in Section 3(37) of ERISA) to which the Borrower
      or any ERISA Affiliate thereof has heretofore been, is now, or may hereafter
      be
      required to make contributions, the Borrower or such ERISA Affiliate has made
      and shall make all required contributions thereto, and there has not been and
      shall not be any “complete withdrawal” or “partial withdrawal” (as such terms
      are respectively defined in Sections 4203 and 4205 of ERISA) therefrom on the
      part of the Borrower or such ERISA Affiliate.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    Section
      3.15.   Intellectual Property.
      The
      Borrower and the Subsidiaries own or have the valid right to use all material
      patents, trademarks, copyrights, software, computer programs, equipment designs,
      network designs, equipment configurations, technology and other intellectual
      property used, marketed and sold in the Business Operations, and the Borrower
      and the Subsidiaries are in compliance in all material respects with all
      licenses, user agreements and other such agreements regarding the use of
      intellectual property used in the Business Operations; and the Borrower has
      no
      Knowledge that or received notice claiming that any of such intellectual
      property infringes upon or violates the rights of any other Person.

     

    Section
      3.16.   Compliance with Laws.
      The
      Borrower and the Subsidiaries are in compliance with all occupational safety,
      health, wage and hour, employment discrimination, environmental, flammability,
      labeling and other Applicable Law which are material to the Business Operations,
      except where such non-compliance would not, individually or in the aggregate,
      have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is
      aware
      of any state or facts, events, conditions or occurrences which may now or
      hereafter constitute or result in a violation of any Applicable Law, or which
      may give rise to the assertion of any such violation, which could have a
      Material Adverse Effect. Neither the Borrower nor any Subsidiary has received
      written notice of default or violation, nor is the Borrower or any Subsidiary
      in
      default or violation, with respect to any judgment, order, writ, injunction,
      decree, demand or assessment issued by any court or any federal, state, local,
      municipal or other governmental agency, board, commission, bureau,
      instrumentality or department, domestic or foreign, relating to any aspect
      of
      the Borrower’s or any Subsidiaries’ business, affairs, properties or assets.
      Neither the Borrower nor any Subsidiary has received written notice of or been
      charged with, or is, to the Borrower’s Knowledge, under investigation with
      respect to, any violation of any provision of any Applicable Law, which
      violation would have a Material Adverse Effect.

     

    Section
      3.17.   Licenses and Permits.
      The
      Borrower and each Subsidiary has all federal, state and local licenses and
      permits required to be maintained in connection with and material to the
      Business Operations, and all such licenses and permits are valid and in full
      force and effect. The Borrower and each Subsidiary has complied with the
      requirements of such licenses and permits in all material respects, and has
      received no notice of any pending or threatened proceedings for the suspension,
      termination, revocation or limitation thereof. There is no circumstance or
      condition Known to the Borrower that would cause or permit any of such licenses
      or permits to be voided, revoked or withdrawn.

     

    Section
      3.18.   Insurance.
      Schedule
      3.18
      of the
      Disclosure Schedule lists all insurance coverages maintained by the Borrower
      on
      the date of this Agreement, including the names of insurers, policy limits
      and
      deductibles. The Borrower has not received written notice of cancellation or
      intent not to renew any of such policies, and there has not occurred, and there
      does not exist, any condition (other than general industry-wide conditions)
      such
      as would cause any of such insurers to cancel any of such insurance coverages,
      or would be reasonably likely to materially increase the premiums charged to
      the
      Borrower for coverages consistent with the scope and amounts of coverages as
      in
      effect on the date hereof.

     

    Section
      3.19.   Environmental Laws.

     

    (a)    The
      Borrower and each Subsidiary has complied in all material respects with all
      Environmental Laws relating to its business and properties, and to the Knowledge
      of the Borrower there exist no Hazardous Substances in amounts in violation
      of
      applicable Environmental Laws or underground storage tanks on any of the Real
      Properties the existence of which would have a Material Adverse Effect, except
      those that are stored and used in compliance with Applicable Laws. 

     

    (b)    Neither
      the Borrower nor any Subsidiary has received notice of any pending or threatened
      litigation or administrative proceeding which in any instance (i) asserts or
      alleges any violation of applicable Environmental Laws on the part of the
      Borrower or any Subsidiary, (ii) asserts or alleges that the Borrower or any
      Subsidiary is required to clean up, remove or otherwise take remedial or other
      response action due to the disposal, depositing, discharge, leaking or other
      release of any Hazardous Substances or materials, or (iii) asserts or alleges
      that the Borrower or any Subsidiary is required to pay all or any portion of
      the
      costs of any past, present or future cleanup, removal or remedial or other
      response action which arises out of or is related to the disposal, depositing,
      discharge, leaking or other release of any hazardous substances or materials
      by
      the Borrower or any Subsidiary. To the Borrower’s Knowledge, neither the
      Borrower nor any Subsidiary is subject to any judgment, decree, order or
      citation related to or arising out of any Environmental Laws. To the Borrower’s
      Knowledge, neither the Borrower nor any Subsidiary has been named or listed
      as a
      potentially responsible party by any governmental body or agency in any matter
      arising under any Environmental Laws. Neither the Borrower nor any Subsidiary
      is
      a participant in, nor does the Borrower have Knowledge of, any governmental
      investigation involving any of the Real Properties.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    (c)    Neither
      the Borrower or any Subsidiary nor, to the Borrower’s Knowledge, any other
      person, firm, corporation or governmental entity has caused or permitted any
      Hazardous Substances or other materials to be stored, deposited, treated,
      recycled or disposed of on, under or at any of the Real Properties which
      materials, if known to be present, would reasonably be expected to require
      or
      authorize cleanup, removal or other remedial action under any applicable
      Environmental Laws.

     

    (d)    As
      used
      in this Section 3.19 and in Section 5.08 below, the following terms have the
      following meanings:

     

    “Environmental
      Laws”
include
      all federal, state, and local laws, rules, regulations, ordinances, permits,
      orders, and consent decrees agreed to by the Borrower or any Subsidiary,
      relating to health, safety, and environmental matters applicable to the business
      and property of the Borrower or any Subsidiary. Such laws and regulations
      include but are not limited to the Resource Conservation and Recovery Act
      (“RCRA”),
      42
      U.S.C. §6901 et seq., as amended; the Comprehensive Environmental Response,
      Compensation and Liability Act (“CERCLA”),
      42
      U.S.C. §9601 et seq., as amended; the Toxic Substances Control Act
      (“TSCA”),
      15
      U.S.C. §2601 et seq., as amended; and the Clean Water Act, 33 U.S.C. §1331 et
      seq., as amended.

     

    “Hazardous
      Substances”,
      “Release”,
      “Respond”
and
      “Response”
shall
      have the meanings assigned to them in CERCLA, 42 U.S.C. §9601, as
      amended.

     

    “Notice”
means
      any actual summons, citation, directive, information request, notice of
      potential responsibility, notice of violation or deficiency, order, claim,
      complaint, investigation, proceeding, judgment, letter, or other communication,
      written or oral, from the United States Environmental Protection Agency or
      other
      federal, state, or local agency or authority, or any other entity or individual,
      public or private, concerning any intentional or unintentional act or omission
      which involves management of Hazardous Substances in amounts in violation of
      Environmental Laws on or off any Real Properties; the imposition of any lien
      on
      any Real Properties, including but not limited to liens asserted by government
      entities in connection with any Borrower’s or Subsidiary’s response to the
      presence or Release of Hazardous Substances in amounts in violation of
      Environmental Laws; and any alleged violation of or responsibility under any
      Environmental Laws.

     

    Section
      3.20.   Sensitive Payments.
      Neither
      the Borrower nor any Subsidiary has (a) made any contributions, payments or
      gifts to or for the private use of any governmental official, employee or agent
      where either the payment or the purpose of such contribution, payment or gift
      is
      illegal under the laws of the United States or the jurisdiction in which made,
      (b) established or maintained any unrecorded fund or asset for any purpose
      or
      made any false or artificial entries on its books, (c) made any payments to
      any
      person with the intention that any part of such payment was to be used for
      any
      purpose other than that described in the documents supporting the payment,
      or
      (d) engaged in any “trading with the enemy” or other transactions violating any
      rules or regulations of the Office of Foreign Assets Control or any similar
      laws, rules or regulations.

     

    Section
      3.21.   Full Disclosure.
      No
      statement of fact made by the Borrower in this Agreement or any other Loan
      Document, in any SEC Report, or in any information memorandum, business summary,
      agreement, certificate, schedule or other written statement furnished by the
      Borrower or any Subsidiary to the Lender pursuant hereto, contains or will
      contain any untrue statement of a material fact, or omits or will omit to state
      any material fact necessary to make any statements contained herein or therein
      not misleading. Except for matters of a general economic or political nature
      which do not affect the Borrower or any Subsidiary uniquely, there is no fact
      presently known to the Borrower which has not been disclosed to the Lender,
      which has had or would reasonably be expected to have a Material Adverse
      Effect.

     

    Section
      3.22.   Reaffirmation.
      Each
      and every request by the Borrower for Advances shall constitute a reaffirmation
      of the truth and accuracy of the Borrowers’ and each Subsidiary’s
      representations and warranties made in this Agreement and the Security Documents
      on and as of the date of such request.

     

    
      	
              IV.

            	
              CONDITIONS
                OF MAKING THE LOANS

            

    

     

    A.    The
      obligation of the Lender to make the initial Loans hereunder and to consummate
      the other transactions contemplated hereby are subject to the following
      conditions precedent:

     

    
      
         

      

      
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    Section
      4.01.   Representations and Warranties.
      The
      representations and warranties set forth in Article III hereof and in the other
      Loan Documents shall be true and correct on and as of the Closing
      Date.

     

    Section
      4.02.   Loan Documents.
      The
      Borrower and its Subsidiaries (as applicable) shall have duly executed and/or
      delivered to the Lender all of the following:

     

    (a)    The
      Notes;

     

    (b)    The
      Collateral Agreement and any and all other Security Documents required by the
      Lender at the Closing Date (including, without limitation, Control Agreements
      in
      respect of all of the Borrower’s bank accounts, and any landlord and/or
      warehousemen’s waivers or consents required by the Lender);

     

    (c)    The
      Warrants;

     

    (d)    The
      Registration Rights Agreement; 

     

    (e)    A
      certificate or certificates of insurance, with loss payable endorsements,
      evidencing the insurance required by Section 5.01(d) hereof;

     

    (f)    
A
      current
      Borrowing Base report in conformity with Section 5.04(e) hereof, and a written
      request for the borrowing of the Term Loan (and, if applicable, the initial
      Advance);

     

    (g)    A
      certificate of the Secretary or an Assistant Secretary of the Borrower,
      certifying the vote of the Boards of Directors of the Borrower, authorizing
      and
      directing the execution and delivery of the Loan Documents and all further
      agreements, instruments, certificates and other documents pursuant hereto and
      thereto;

     

    (h)    A
      certificate of the Secretary or an Assistant Secretary of the Borrower,
      certifying the names of the officers of the Borrower who are authorized to
      execute and deliver the Loan Documents and all other agreements, instruments,
      certificates and other documents to be delivered pursuant hereto and thereto,
      together with the true signatures of such officers. The Lender may conclusively
      rely on such certificate until the Lender shall receive any further such
      certificate canceling or amending the prior certificate and submitting the
      signatures of the officers named in such further certificate;

     

    (j)    
Certified
      copies of the Organic Documents of the Borrower, and a certificate of the
      Secretary of State or other appropriate official of the jurisdiction of
      incorporation of the Borrower and of each jurisdiction in which the Borrower
      is
      qualified to do business as a foreign corporation, dated reasonably prior to
      the
      Closing Date, stating that the Borrower is duly formed or qualified and in
      good
      standing in such jurisdiction; and

     

    (k)    Such
      other agreements, instruments, documents and certificates (including, without
      limitation, satisfactory lien and judgment searches respecting the Borrower)
      as
      the Lender or its counsel may reasonably request. 

     

    Section
      4.03.   Payoff and Release Letter.
      The
      Borrower shall have received, and shall have delivered to the Lender, a payoff
      and release letter signed by the Existing Lender, in form and substance
      satisfactory to the Lender, (a) confirming the amount required to be paid to
      the
      Existing Lender on the Closing Date in order to pay all of the Borrower’s
      obligations to the Existing Lender under the Borrower’s line of credit facility
      with the Existing Lender, (b) affirming that, upon receipt of such amount on
      the
      Closing Date, all liens, encumbrances and security interests held by the
      Existing Lender in respect of such line of credit facility shall be terminated
      and released, and all collateral therefor shall be released and returned to
      the
      owners thereof, and (c) authorizing the filing, upon receipt of such amount
      on
      the Closing Date, of termination statements in respect of any and all lien
      filings against the Borrower in respect of such liens, encumbrances and security
      interests of the Existing Lender.

     

    Section
      4.04.   Legal Opinion.
      The
      Lender shall have received the favorable written opinion of Sierchio Greco
&
Greco, LLP, counsel for the Borrower, dated the Closing Date, satisfactory
      to
      the Lender and its counsel in scope and substance.

     

    Section
      4.05.    Interest, Fees and Reimbursements.
      The
      Borrower shall have paid to the Lender the Closing Fee and the initial
      Monitoring Fee, and shall have paid or reimbursed the Lender for its reasonable
      out-of-pocket costs, charges and expenses incurred to the Closing Date (up
      to a
      maximum of $35,000); and in connection herewith, the Borrower hereby irrevocably
      authorizes the Lender to charge such amounts as Advances to the Borrower’s
      revolving credit loan account. Failure of the Lender to effect any such charge
      shall not excuse the Borrower from its obligation to pay such
      amounts.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    Section
      4.06.   Further Matters.
      All
      legal matters, and the form and substance of all documents, incident to the
      transactions contemplated hereby shall be satisfactory to counsel for the
      Lender.

     

    Section
      4.07.   No Default.
      No
      Default or Event of Default shall have occurred and be continuing.

     

    B.    The
      obligation of the Lender to make any Advances subsequent to the Closing Date
      is
      subject to (a) the representations and warranties set forth in Article III
      and
      in the other Loan Documents being true and correct in all material respects
      (except that, to the extent that any representation or warranty is already
      qualified by concepts of materiality and/or Material Adverse Effect, then such
      representations and warranties shall be true and correct in all respects) on
      and
      as of the subject Borrowing Date, (b) the Lender’s receipt of a current
      Borrowing Base report in conformity with Section 5.04(e) hereof, (c) the
      execution and delivery of such further Security Documents as the Lender may
      have
      reasonably requested pursuant to the Security Documents theretofore executed
      and
      delivered, and (d) there being no continuing Default or Event of
      Default.

     

    
      	
              V.

            	
              AFFIRMATIVE
                COVENANTS

            

    

     

    The
      Borrower hereby covenants and agrees that, from the date hereof and until all
      Obligations (whether now existing or hereafter arising) have been paid in full
      and the Revolving Credit Commitment has been terminated, unless the Lender
      shall
      otherwise consent in writing, the Borrower shall, and shall cause each of its
      Subsidiaries to:

     

    Section
      5.01.   Corporate and Insurance.
      Do or
      cause to be done all things necessary to at all times (a) preserve, renew and
      keep in full force and effect its corporate or other legal existence, rights,
      licenses, permits and franchises, (b) comply with the Loan Documents and any
      other agreements and instruments executed and delivered hereunder and thereunder
      (to the extent a party thereto), (c) maintain, preserve and protect all of
      its
      franchises and material trade names, and preserve all of its material property
      used or useful in the conduct of its business and keep the same in good repair,
      working order and condition (reasonable wear and tear excepted), and from time
      to time make, or cause to be made, all needed and proper repairs, renewals,
      replacements, betterments and improvements thereto, so that the Business
      Operations carried on in connection therewith may be properly and advantageously
      conducted at all times, (d) maintain insurance in amounts, on such terms
      and against such risks (including fire and other hazards insured against by
      extended coverage, and public liability insurance covering claims for personal
      injury, death or property damage) as are customary for companies of similar
      size
      in the same or similar businesses and operating in the same or similar
      locations, as well as all such other insurance as is required by the Collateral
      Agreement, each of which policies (other than workers compensation) shall be
      issued by a financially sound and reputable insurer reasonably satisfactory
      to
      the Lender and shall name the Lender as loss payee and additional insured as
      its
      interest appears and provide for the Lender to receive written notice thereof
      at
      least thirty (30) days prior to any cancellation of the subject policy, and
      (e)
      comply with all material Contracts and material obligations to which it is
      a
      party or by which it is bound, all benefit plans which it maintains or is
      required to contribute to, and all Applicable Law (including, without
      limitation, Environmental Laws) material to its Business Operations, and all
      requirements of its insurers, whether now in effect or hereafter enacted,
      promulgated or issued. The Borrower will provide to the Lender a certificate
      of
      the foregoing insurance, promptly upon request.

     

    Section
      5.02.   Payment of Taxes.
      File,
      pay and discharge, or cause to be paid and discharged, all material taxes,
      assessments and governmental charges or levies imposed upon the Borrower and/or
      any Subsidiary or upon its income and profits or upon any of its property (real,
      personal or mixed) or upon any part thereof, before the same shall become in
      default, as well as all lawful claims for labor, materials, supplies and
      otherwise, which, if unpaid when due, might become a Lien or charge upon such
      property or any part thereof; provided,
      however,
      that
      neither the Borrower nor any Subsidiary shall be required to pay and discharge
      or cause to be paid and discharged any such tax, assessment, charge, levy or
      claim so long as (a) the validity thereof shall be contested in good faith
      by
      appropriate proceedings and the Borrower or such Subsidiary shall have set
      aside
      on its books adequate reserves with respect to any such tax, assessment, charge,
      levy or claim so contested, and (b) payment with respect to any such tax,
      assessment, charge, levy or claim shall be made before any of the Borrower’s or
      such Subsidiary’s property shall be seized or sold in satisfaction
      thereof.

     

    Section
      5.03.   Notices.
      Give
      prompt written notice to the Lender of (a) the filing by the Borrower of any
      SEC
      Reports, (b) any proceedings instituted against the Borrower or any Subsidiary
      in any federal or state court or before any commission or other regulatory
      body,
      whether federal, state or local, which, if adversely determined, could
      reasonably be expected to have a Material Adverse Effect, and (c) the occurrence
      of any material casualty to any Collateral, any Material Adverse Effect, or
      any
      Default or Event of Default, and the action that the Borrower has taken, is
      taking, or proposes to take with respect thereto.

     

    Section
      5.04.   Periodic Reports.
      Furnish
      to the Lender:

     

    (a)    Within
      ninety (90) calendar days after the end of each Fiscal Year, consolidated
      balance sheets, and consolidated and consolidating statements of income,
      statements of stockholders’ equity, and statements of cash flows of the Borrower
      and its Subsidiaries, together with footnotes and supporting schedules thereto,
      certified (as to the consolidated statements) by independent certified public
      accountants selected by the Borrower and reasonably satisfactory to the Lender,
      showing the financial condition of the Borrower and its Subsidiaries at the
      close of such Fiscal Year and the results of operations of the Borrower and
      its
      Subsidiaries during such Fiscal Year;

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    (b)    Within
      thirty (30) calendar days after the end of each calendar month (forty-five
      (45)
      calendar days in the case of the end of a fiscal quarter), consolidated (and,
      if
      specifically requested by the Lender reasonably in advance, consolidating)
      unaudited balance sheets, statements of income and statements of cash flows
      of
      the Borrower and its Subsidiaries, together with supporting schedules thereto,
      prepared by the Borrower and certified by the Borrower’s Chairman, President,
      Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer,
      such balance sheets to be as of the close of such calendar month and such
      statements of income and statements of cash flows to be for the period from
      the
      beginning of the then-current Fiscal Year to the end of such calendar month,
      together with comparative statements of income and cash flows for the
      corresponding period in the immediately preceding Fiscal Year, in each case
      subject to normal audit and year-end adjustments;

     

    (c)    Concurrently
      with the delivery of each of the financial statements required by Sections
      5.04(a) and 5.04(b) above, a certificate on behalf of the Borrower (signed
      by
      the Chairman, President, Chief Executive Officer, Chief Financial Officer or
      Chief Accounting Officer of the Borrower), certifying that he has examined
      the
      provisions of this Agreement and that no Default or Event of Default has
      occurred and/or is continuing;

     

    (d)    On
      or
      prior to (i) the tenth (10th)
      calendar day of each calendar month, a detailed calculation of the Borrowing
      Base as of a date not earlier than the first (1st)
      day of
      such calendar month, and (ii) the twenty-fifth (25th)
      calendar day of each calendar month, a detailed calculation of the Borrowing
      Base as of a date not earlier than the fifteenth (15th)
      calendar day of such calendar month, in each case in form and substance, and
      with supporting documentation; (including, without limitation, receivables
      and
      payables agings as of the close of the immediately preceding calendar month)
      as
      may reasonably be required by the Lender;

     

    (e)    As
      soon
      as approved by the Borrower’s Board of Directors (but in any event not later
      than thirty (30) days after the beginning of each Fiscal Year), a budget and
      operating plan (on a month-by-month basis) for such Fiscal Year, in such detail
      as may reasonably be required by the Lender;

     

    (f)    
As
      and
      when distributed to the Borrower’s stockholders, copies of all proxy materials,
      reports and other information which the Borrower provides to its stockholders;
      and as and when distributed to any other holders of Indebtedness of the Borrower
      or the Subsidiaries, copies of all reports, statements and other information
      provided to such lenders; and

     

    (g)    Promptly,
      from time to time, such other information (including, without limitation,
      receivables and payables agings, and sales reports) regarding the Borrower’s or
      any Subsidiary’s operations, assets, business, affairs and financial condition,
      as the Lender may reasonably request.

     

    To
      the
      extent that the financial statements required by Sections 5.04(a) and 5.04(b)
      are contained in any SEC Reports filed by the Borrower within the required
      time
      period hereunder for the delivery of such financial statements, then the
      Borrower shall be deemed to have complied with the subject financial statement
      delivery by notifying the Lender of the filing of the subject SEC
      Report.

     

    To
      the
      extent that any report or other delivery required under this Section 5.04 or
      elsewhere in this Agreement will, at the time of anticipated delivery to the
      Lender, contain any material non-public information, the Borrower will notify
      the Lender thereof as promptly as practicable prior to the delivery of such
      report (but without disclosing the specific items of material non-public
      information or the nature thereof), and if so requested by the Lender prior
      to
      the required date of the information delivery hereunder, the Borrower shall
      (x)
      if reasonably practicable, redact such material non-public information from
      the
      subject report prior to the delivery thereof to the Lender, or (y) defer
      delivery of such report until such time as the Borrower has made public
      disclosure of the subject material information or the Lender has affirmatively
      requested delivery of such report. Absent timely request by the Lender as
      aforesaid, the Borrower shall make the required delivery to the Lender on a
      timely basis.

     

    Section
      5.05.   Books and Records; Inspection.
      Maintain centralized books and records regarding all of the Business Operations
      at the Borrower’s principal place of business, and permit agents or
      representatives of the Lender to inspect, at any time during normal business
      hours, upon reasonable notice, and without undue material disruption of the
      Business Operations, all of the Borrower’s and its Subsidiaries’ various books
      and records, to make copies, abstracts and/or reproductions thereof, and to
      discuss the business and affairs of the Borrower and the Subsidiaries with
      the
      management of the Borrower.

     

    Section
      5.06.   Accounting.
      Maintain a standard system of accounting in order to permit the preparation
      of
      financial statements in accordance with GAAP and Regulation S-X promulgated
      under the Act.

     

    Section
      5.07.   Reimbursements.
      Pay or
      reimburse the Lender or other appropriate Persons on demand for all reasonable
      costs, expenses and other charges incurred or payable from time to time in
      connection with the transactions contemplated by this Agreement, any waivers
      or
      amendments in respect of any Loan Documents (whether or not completed or
      executed), and any “workout” or enforcement action (whether or not consummated
      or completed, and regardless of the outcome thereof), including but not limited
      to any and all search fees, recording fees, costs of inspections and legal
      and
      accounting fees.

     

    
      
         

      

      
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    Section
      5.08.   Environmental Response.
      In the
      event of any material discharge, spill, injection, escape, emission, disposal,
      leak or other Release of Hazardous Substances in amounts in violation of
      applicable Environmental Laws by the Borrower or any Subsidiary on any Real
      Property owned or leased by the Borrower or any Subsidiary, which is not
      authorized by a permit or other approval issued by the appropriate governmental
      agencies and which requires notification to or the filing of any report with
      any
      federal or state governmental agency, the Borrower shall promptly: (a) notify
      the Lender; and (b) comply with the notice requirements of the Environmental
      Protection Agency and applicable state agencies, and take all steps necessary
      to
      promptly clean up such discharge, spill, injection, escape, emission, disposal,
      leak or other Release in accordance with all applicable Environmental Laws
      and
      the Federal National Contingency Plan, and, if required, receive a certification
      from all applicable state agencies or the Environmental Protection Agency,
      that
      such Real Property has been cleaned up to the satisfaction of such
      agency(ies).

     

    Section
      5.09.   Management.
      Cause
      Douglas J. Kramer to continue to be employed or to function as the Chief
      Executive Officer and President of the Borrower, and Michael T. Adams to
      continue to be employed or to function as the Chief Compliance Officer,
      Executive Vice President and Secretary of the Borrower, unless a successor
      is
      appointed within sixty (60) days after the termination of such individual’s
      employment, and such successor is reasonably satisfactory to the
      Lender.

     

    Section
      5.10.   Use of Proceeds.
      Cause
      all proceeds of the Loans to be utilized solely in the manner and for the
      purposes set forth in Section 2.04 above.

     

    Section
      5.11.   Future Subsidiaries.
      At any
      time and from time to time when the Borrower or any of its Domestic Subsidiaries
      proposes to form or acquire any Domestic Subsidiary subsequent to the Closing
      Date, the Borrower shall give written notice thereof to the Lender reasonably
      in
      advance of (and in no event less than fifteen (15) days prior to) the formation
      or acquisition of such Domestic Subsidiary, accompanied by true and complete
      copies of the Organic Documents of such Domestic Subsidiary and stating, with
      respect to such Domestic Subsidiary, (a) its proper legal name, (b) its
      jurisdiction of incorporation or formation, (c) the jurisdictions (if any)
      in
      which it is qualified or is required to be qualified to do business as a foreign
      entity, (d) the number of shares of capital stock or ownership interests
      outstanding, and (e) the record owners of such outstanding capital stock or
      other ownership interests; and contemporaneously with the formation or
      acquisition of such new Domestic Subsidiary, such new Domestic Subsidiary shall
      be deemed to have made and joined in all of the representations and warranties
      made by the Borrower in the this Agreement and the other Loan Documents (all
      of
      which shall be applicable to such new Domestic Subsidiary as if named therein),
      and the Borrower shall cause such new Domestic Subsidiary to execute and deliver
      (i) a Guaranty Agreement in form and substance reasonably satisfactory to the
      Lender, and (ii) a Collateral Agreement (with completed perfection certificate
      and other appropriate Security Documents) in substantially the form of the
      Collateral Agreement as then in effect (or a joinder agreement with respect
      to
      the existing Collateral Agreement in form and substance reasonably satisfactory
      to the Lender) and other Security Documents as reasonably requested by the
      Lender. 

     

    Section
      5.12.   Landlord Waivers.
      To the
      extent requested by the Lender from time to time subsequent to the Closing
      Date,
      the Borrower and the Subsidiaries shall use their commercially reasonable
      efforts to obtain any and all bailee waivers, warehousemen’s waivers, landlord
      waivers and/or access agreements requested by the Lender, in form and substance
      reasonably satisfactory to the Lender. 

     

    
      	
              VI.

            	
              NEGATIVE
                COVENANTS

            

    

     

    The
      Borrower hereby covenants and agrees that, until all Obligations (whether now
      existing or hereafter arising) have been paid in full and the Revolving Credit
      Commitment has been terminated, unless the Lender shall otherwise consent in
      writing, the Borrower shall not, and shall not permit any Subsidiary to,
      directly or indirectly:

     

    Section
      6.01. Indebtedness.
      Incur,
      create, assume, become or be liable in any manner with respect to, or permit
      to
      exist, any Indebtedness, other than:

     

    (a)    Indebtedness
      to the Lender pursuant to the Loan Documents;

     

    (b)    liabilities
      with respect to trade obligations, accounts payable, advances, royalty or other
      similar payments, operating leases and other normal accruals incurred in the
      ordinary course of business, or with respect to which the Borrower or the
      subject Subsidiary is contesting in good faith the amount or validity thereof
      by
      appropriate proceedings, and then only to the extent that the Borrower or the
      subject Subsidiary has set aside on its books adequate reserves
      therefor;

     

    
      
         

      

      
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    (c)    Indebtedness
      existing on the date of this Agreement and reflected in the Financial Statements
      or the footnotes thereto or owed to those Persons, in those amounts and having
      those maturities as set forth in Schedule
      3.01
      of the
      Disclosure Schedule;

     

    (d)    Capitalized
      Leases reflected in the Financial Statements, and Capitalized Leases hereafter
      entered into by the Borrower or its Subsidiaries, within the limitations
      provided in Section 6.16 below;

     

    (e)    purchase
      money Indebtedness incurred in connection with the Borrower’s or its
      Subsidiaries’ acquisition of capital assets, within the limitations provided in
      Section 6.16 below;

     

    (f)    
Subordinated
      Debt in such amounts and upon such terms and conditions as shall be acceptable
      to the Lender in its sole and absolute discretion;

     

    (g)    intercompany
      Indebtedness between the Borrower and any Wholly-Owned Subsidiary or between
      Wholly-Owned Subsidiaries; and

     

    (h)    Guarantees
      to the extent permitted pursuant to Section 6.03 below.

     

    Section
      6.02.   Liens.
      Create,
      incur, assume or suffer to exist any Lien or other encumbrance of any nature
      whatsoever on any of its assets, now or hereafter owned, other
      than:

     

    (a)    subject
      to Section 5.02 above, Liens securing the payment of taxes which are either
      not
      yet due or the validity of which is being contested in good faith by appropriate
      proceedings, and as to which the Borrower or the subject Subsidiary shall have
      set aside on its books adequate reserves;

     

    (b)    deposits
      under workers’ compensation, unemployment insurance and social security laws, or
      to secure the performance of bids, tenders, contracts (other than for the
      repayment of money borrowed) or leases, or to secure statutory obligations
      or
      surety or appeal bonds, or to secure indemnity, performance or other similar
      bonds in the ordinary course of business;

     

    (c)    statutory
      Liens of landlords and Liens imposed by law, such as, carriers’, warehousemen’s,
      materialmen’s or mechanics’ liens, incurred by the Borrower or any Subsidiary in
      good faith in the ordinary course of business and discharged promptly after
      same
      are incurred; fully bonded Liens arising out of a judgment or award against
      the
      Borrower or any Subsidiary with respect to which the Borrower or such Subsidiary
      shall currently be prosecuting an appeal, a stay of execution pending such
      appeal having been secured; and Liens arising out of a judgment or award against
      the Borrower or any Subsidiary which are fully covered by insurance (subject
      to
      applicable deductibles) and for which the relevant insurer has not denied or
      disclaimed coverage;

     

    (d)    other
      Liens incurred in connection with Indebtedness expressly permitted pursuant
      to
      Section 6.01(d) and/or Section 6.01(e) above, provided that such Liens do not
      extend to any assets or property other than the specific assets or properties
      acquired pursuant to such permitted Indebtedness;

     

    (e)    encumbrances
      consisting of easements, rights-of-way, survey exceptions and other similar
      restrictions on the use of Real Property, or minor irregularities in title
      thereto which do not materially impair the use of such property in the operation
      of the business of the Borrower and its Subsidiaries;

     

    (f)    
Liens
      in
      existence on the date of this Agreement, as set forth on Schedule
      6.02
      of the
      Disclosure Schedule;

     

    (g)    Liens
      arising out of judgments or awards (i) which are fully covered by insurance
      (subject to applicable deductibles) and for which the relevant insurer has
      not
      denied or disclaimed coverage, or (ii) with respect to which the Borrower or
      the
      subject Subsidiary shall be prosecuting an appeal in good faith and in respect
      of which a stay of execution shall have been issued;

     

    (h)    Liens
      in
      favor of the Lender; and

     

    (i)    
extensions,
      renewals or replacements of any Lien referred to in clauses (a) through (f)
      above, provided that same shall not effect any increase in any principal amount
      secured thereby. 

     

    Section
      6.03.   Guarantees.
      Guarantee, endorse or otherwise in any manner become or be responsible for
      obligations of any other Person, except (a) endorsements of negotiable
      instruments for collection in the ordinary course of business, and (b)
      guarantees by the Borrower of obligations of Wholly-Owned Subsidiaries in the
      ordinary course of business.

     

    
      
         

      

      
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    Section
      6.04.   Sales of Assets and Management.
      (a)
      Sell, lease, transfer, encumber or otherwise dispose of any of the Borrower’s or
      any Subsidiary’s properties, assets, rights, licenses or franchises other than
      (i) sales of inventory in the ordinary course of business, (ii) licenses, joint
      ventures and related transactions entered into, modified or terminated in the
      ordinary course of business, or (iii) the disposition of surplus or obsolete
      personal properties in the ordinary course of business, or (b) permit any
      Affiliate of the Borrower (other than a Subsidiary which is a party to the
      Collateral Agreement) to own or obtain any patent, patent application,
      copyright, copyright application, trademark, trademark application, license,
      or
      other intangible asset relating to the Business Operations except in the normal
      course of business on terms and conditions no less favorable to the Borrower
      or
      any Subsidiary than those which could be obtained in an arms’ length transaction
      with an unaffiliated third party.

     

    Section
      6.05.   Sale-Leaseback.
      Enter
      into any arrangement, directly or indirectly, with any Person whereby the
      Borrower or any Subsidiary shall sell or transfer any property (real, personal
      or mixed) used or useful in the Business Operations, whether now owned or
      hereafter acquired, and thereafter rent or lease such property.

     

    Section
      6.06.   Investments; Acquisitions.
      Make
      any Investment in, or otherwise acquire or hold securities (including, without
      limitation, capital stock and evidences of Indebtedness) of, or make loans
      or
      advances to, or enter into any arrangement for the purpose of providing funds
      or
      credit to, any other Person (including any Affiliate), except:

     

    (a)    Investments
      in Wholly-Owned Subsidiaries which have complied with the requirements of
      Section 5.11 hereof;

     

    (b)    advances
      (to the extent permitted by Applicable Law, including federal securities laws)
      to employees of the Borrower or any Wholly-Owned Subsidiaries for normal
      business expenses not to exceed at any time $10,000 in the aggregate;

     

    (c)    Investments
      of excess cash generated in the Business Operations in Cash
      Equivalents;

     

    (d)    Investments
      of cash in overnight deposits or other customary cash management Investments
      with commercial banks or in commercial paper satisfying the criteria for such
      banks or commercial paper as set forth in the definition of Cash
      Equivalents.

     

    Section
      6.07.   Corporate Form; Acquisitions.
      Dissolve or liquidate, or consolidate or merge with or into, sell all or
      substantially all of the assets of the Borrower or any Subsidiary to, or acquire
      all or substantially all of the securities, assets or properties of, any other
      Person, except for (a) consolidations of a Subsidiary with a Wholly-Owned
      Subsidiary; (b) mergers of a Wholly-Owned Subsidiary into the Borrower or into
      a
      Wholly-Owned Subsidiary; or (c) sales to the Borrower or another Subsidiary
      for
      fair value.

     

    Section
      6.08.   Dividends and Redemptions.
      Directly or indirectly declare or pay any dividends, or make any distribution
      of
      cash or property, or both, to any Person in respect of any of the shares of
      the
      capital stock or other equity securities of the Borrower or any other Person,
      or
      directly or indirectly redeem, purchase or otherwise acquire for consideration
      any securities or shares of the capital stock or other equity securities of
      the
      Borrower or any other Person; provided,
      that
      this Section 6.08 shall not be deemed to prohibit (a) the payment of dividends
      or distributions by any Subsidiary to the Borrower or to any other direct or
      indirect Wholly-Owned Subsidiary, or (b) so long as no Default or Event of
      Default exists at the time of such payment or would exist after giving effect
      to
      such payment, (i) the payment, on or before March 31, 2007, of up to $200,000
      of
      unpaid Series D Dividends accrued through March 31, 2007, and (ii) the payment
      of accrued Series D Dividends subsequent to March 31, 2007 to the extent that
      (A) the Borrower has positive Pro Forma Operating Cash Flow, in the twelve
      (12)
      month period ended most recently prior to the date of such payment, equal to
      or
      greater than the sum of the proposed Series D Dividend and all other Series
      D
      Dividends paid during such twelve (12) month period, and (B) such proposed
      Series D Dividend can be lawfully paid by the Borrower. 

     

    Section
      6.09.   Compensation.
      Directly or indirectly pay any cash compensation to any executive officers
      of
      the Borrower except (a) in accordance with the employment agreements between
      the
      Borrower and such executive officers as in effect on the Closing Date, (b)
      in
      accordance with the compensation levels disclosed in Schedule
      6.09
      of the
      Disclosure Schedule, or (c) as otherwise approved by the independent
      Compensation Committee of the Board of Directors of the Borrower but in no
      case
      in any amount or amounts which would cause or reasonably be expected to cause
      a
      Material Adverse Effect.

     

    Section
      6.10.   Change of Business.
      Directly or indirectly: (a) engage in a business materially different from
      the
      general nature of the Business Operations (i) as now being conducted, or (ii)
      as
      the same may hereafter be reasonably expanded from time to time in like areas
      of
      business; (b) wind up the Business Operations or cease substantially all of
      its
      normal Business Operations for a period in excess of ten (10) consecutive days;
      or (c) suffer any material disruption, interruption or discontinuance of a
      material portion of its normal Business Operations for a period in excess of
      ten
      (10) consecutive days.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    Section
      6.11.   Receivables.
      Sell or
      assign in any way any accounts receivable, promissory notes or trade acceptances
      held by the Borrower or any Subsidiary with or without recourse, except for
      collections (including endorsements) in the ordinary course of
      business.

     

    Section
      6.12.   Certain Amendments.
      Agree,
      consent, permit or otherwise undertake to amend any of the terms or provisions
      of the Borrower’s or any Subsidiary’s Organic Documents in a manner which may
      impair in any respect any of the Lender’s rights under any of the Loan
      Documents.

     

    Section
      6.13.   Affiliate Transactions.
      Enter
      into any Contract, agreement or transaction with any Affiliate of the Borrower
      except (a) as disclosed in Schedule
      6.13
      of the
      Disclosure Schedule, (b) for intercompany Indebtedness between the Borrower
      and
      any Wholly-Owned Subsidiary or between any Wholly-Owned Subsidiaries, or (c)
      in
      the normal course of business on terms and conditions no less favorable to
      the
      Borrower or any Subsidiary than those which could be obtained in an arms’ length
      transaction with an unaffiliated third party.

     

    Section
      6.14.   Fiscal Year.
      Amend
      its Fiscal Year.

     

    Section
      6.15.   Subordinated Debt.
      Prepay,
      redeem or purchase any Subordinated Debt, or make any payment on any
      Subordinated Debt, in each case in violation of the applicable subordination
      agreement.

     

    Section
      6.16.  Capital Expenditures.
      Make
      aggregate Capital Expenditures in any Fiscal Year in excess of (a) $1,000,000
      in
      the Fiscal Year ending December 31, 2007, (b) $300,000 in the Fiscal Year ending
      December 31, 2008, and (c) $500,000 in any Fiscal Year thereafter.

     

    
      	
              VII.

            	
              DEFAULTS

            

    

     

    Section
      7.01.   Events of Default.
      Each of
      the following events is herein, and in the Notes, sometimes referred to as
      an
      Event of Default: 

     

    (a)    if
      any
      representation or warranty made herein or in any other Loan Document, or in
      any
      certificate, financial statement, Borrowing Base report, instrument or other
      written statement furnished by the Borrower or any Subsidiary in connection
      with
      this Agreement, any other Loan Document or any of the borrowings hereunder
      shall
      be false, inaccurate or misleading in any material respect when made or when
      deemed made hereunder;

     

    (b)    any
      default in the payment of any principal or interest under any of the Notes
      or
      any other Obligations when the same shall be due and payable, whether at the
      due
      date thereof or at a date required for prepayment or by acceleration or
      otherwise, and the continuance of any such non-payment (in whole or in part)
      for
      a period of three (3) Business Days;

     

    (c)    any
      default in the due observance or performance of any covenant, condition or
      agreement contained in any Section of Article VI hereof, which, if capable
      of
      being cured, is not fully cured within thirty (30) days after the occurrence
      thereof;

     

    (d)    any
      default in the due observance or performance of any covenant, condition or
      agreement to be observed or performed under Article V hereof, or otherwise
      pursuant to the terms hereof or any other Loan Document and not addressed in
      Sections 7.01(a), (b) or (c), and the continuance of such default unremedied
      for
      a period of thirty (30) days (five (5) Business Days in the case of Section
      5.01(d) hereof) after written notice thereof to the Borrower, or such other
      cure
      period as may be provided in the applicable Loan Document;

     

    (e)    any
      default with respect to any Indebtedness for money borrowed of the Borrower
      or
      any of the Subsidiaries (other than to the Lender) in an amount in excess of
      $50,000, if the effect of such default is to permit the holder, with or without
      notice or lapse of time or both, to accelerate the maturity of any such
      Indebtedness for money borrowed or to cause such Indebtedness for money borrowed
      to become due prior to the stated maturity thereof;

     

    (f)    
if
      the
      Borrower or any Subsidiary shall: (i) apply for or consent to the appointment
      of
      a receiver, trustee, custodian or liquidator of it or any of its properties,
      (ii) admit in writing its inability to pay its debts as they mature, (iii)
      make
      a general assignment for the benefit of creditors, (iv) be adjudicated a
      bankrupt or insolvent or be the subject of an order for relief under Title
      11 of
      the United States Code, or (v) file a voluntary petition in bankruptcy, or
      a
      petition or an answer seeking reorganization or an arrangement with creditors
      or
      to take advantage or any bankruptcy, reorganization, insolvency, readjustment
      of
      debt, dissolution or liquidation law or statute, or an answer admitting the
      material allegations of a petition filed against him or it in any proceeding
      under any such law, or (vi) take or permit to be taken any action in furtherance
      of or for the purpose of effecting any of the foregoing;

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    (g)    if
      any
      order, judgment or decree shall be entered, without the application, approval
      or
      consent of the Borrower or any Subsidiary, by any court of competent
      jurisdiction, approving a petition seeking reorganization of the Borrower or
      any
      Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the
      Borrower or any Subsidiary, or of all or any substantial part of its assets,
      and
      such order, judgment or decree shall continue unstayed and in effect for any
      period of sixty (60) days;

     

    (h)    if
      final
      judgment(s) for the payment of money in an uninsured amount in excess of $50,000
      individually or in the aggregate shall be rendered against the Borrower and/or
      any Subsidiary, and the same shall remain undischarged or unbonded for a period
      of thirty (30) consecutive days, during which execution shall not be effectively
      stayed; 

     

    (i)    
the
      occurrence of any levy upon or seizure or attachment of, or any uninsured loss
      of or damage to, any property of the Borrower or any Subsidiary having an
      aggregate fair value or repair cost (as the case may be) in excess of $50,000
      individually or in the aggregate, and any such levy, seizure or attachment
      shall
      not be set aside, bonded or discharged within thirty (30) days after the date
      thereof; 

     

    (j)    
if
      any
      Lien purported to be created by any Security Document shall cease to be a valid
      perfected first priority Lien (subject only to any priority accorded by law
      to
      Permitted Liens) on the assets or properties covered thereby, or the Borrower
      or
      any Subsidiary shall assert in writing that any Lien purported to be created
      by
      any Security Document is not a valid perfected first priority lien (subject
      only
      to any priority accorded by law to Permitted Liens) on the assets or properties
      purported to be covered thereby;

     

    (k)    if
      any of
      the Loan Documents shall cease to be in full force and effect (other than as
      a
      result of the discharge thereof in accordance with the terms thereof or by
      written agreement of all parties thereto);

     

    (l)    
if
      the
      Common Stock shall not be listed or traded on any national securities exchange,
      or shall cease to be actively quoted on the OTC Bulletin Board, for any period
      in excess of thirty (30) consecutive days; or 

     

    (m)           if
      the
      Borrower or any Subsidiary shall be indicted for, convicted of or plead
nolo contendere
      to any
      criminal offense; or 

     

    (n)    the
      occurrence of a Material Adverse Effect.

     

    Section
      7.02.   Remedies.
      Upon
      the occurrence of any Event of Default, and at all times thereafter during
      the
      continuance thereof: (a) the Notes, and any and all other Obligations, shall,
      at
      the Lender’s option (except in the case of Sections 7.01(f) and 7.01(g) hereof,
      the occurrence of which shall automatically effect acceleration, regardless
      of
      any action or forbearance in respect of any prior or ongoing Default or Event
      of
      Default which may be inconsistent with such automatic acceleration), become
      immediately due and payable, both as to principal, interest and other charges,
      without presentment, demand, protest or notice of any kind, all of which are
      hereby expressly waived, anything contained herein or in the Notes or other
      evidence of such Obligations to the contrary notwithstanding, (b) all
      outstanding Obligations under the Notes, and all other outstanding Obligations,
      shall bear interest at the default rates of interest provided in the Notes,
      (c)
      the Lender may file suit against the Borrower on the Notes and against the
      Borrower and the Subsidiaries under the other Loan Documents and/or seek
      specific performance or injunctive relief thereunder (whether or not a remedy
      exists at law or is adequate), (d) the Lender shall have the right, in
      accordance with the Security Documents, to exercise any and all remedies in
      respect of such or all of the Collateral as the Lender may determine in its
      discretion (without any requirement of marshalling of assets or other such
      requirement, all of which are hereby waived by the Borrower), and (e) the
      Revolving Credit Commitment shall, at the Lender’s option (except in the case of
      Sections 7.01(f) and 7/01(g) hereof, the occurrence of which shall automatically
      effect termination, regardless of any action or forbearance in respect of any
      prior or ongoing Default or Event of Default which may be inconsistent with
      such
      automatic termination), be immediately terminated or reduced, and the Lender
      shall be under no further obligation to consider making any further
      Advances.

     

    
      	
              VIII.

            	
              PARTICIPATING
                LENDERS; ASSIGNMENT.

            

    

     

    Section
      8.01.   Participations.
      Anything in this Agreement to the contrary notwithstanding, the Lender may,
      at
      any time and from time to time, without in any manner affecting or impairing
      the
      validity of any Obligations, transfer, assign or grant participating interests
      in the Loans as the Lender shall in its sole discretion determine, to such
      other
      Persons (the “Participants”)
      as the
      Lender may determine. Upon any such transfer, assignment or granting of
      participating interests, the Participants shall be deemed to be included within
      the term “Lender” for all purposes of this Agreement, subject to such agreements
      and arrangements as the Lender and the Participants may agree upon.
      Notwithstanding the granting of any such participating interests: (a) the
      Borrower shall look solely to the Lender for all purposes of this Agreement
      and
      the transactions contemplated hereby, (b) the Borrower shall at all times have
      the right to rely upon any waivers or consents signed by the Lender as being
      binding upon all of the Participants, and (c) all communications in respect
      of
      this Agreement and such transactions shall remain solely between the Borrower
      and the Lender (exclusive of Participants) hereunder.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    Section
      8.02.   Transfer and Assignment.
      Anything in this Agreement to the contrary notwithstanding, the Lender may,
      at
      any time and from time to time, without in any manner affecting or impairing
      the
      validity of any Obligations, transfer and assign all or any portion of its
      interest in this Agreement, the Notes and the other Loan Documents to any Person
      (an “Assignee
      Lender”)
      as the
      Lender may determine. Upon any such transfer or assignment, the Assignee Lender
      shall be deemed to succeed (to the extent of the interest assigned) to the
      rights and obligations of the Lender for all purposes of this Agreement. In
      the
      event of any transfer and assignment of the Lender’s entire interest in this
      Agreement, the Notes and the Security Documents, the Lender shall be replaced
      by
      the Assignee Lender as “Secured Party” under the Collateral Agreement and all
      other Security Documents.

     

    
      	
              IX.

            	
              MISCELLANEOUS

            

    

     

    Section
      9.01.   Survival.
      This
      Agreement and all covenants, agreements, representations and warranties made
      herein and in the certificates delivered pursuant hereto, shall survive the
      making by the Lender of the Loans and the execution and delivery to the Lender
      of the Notes, and shall continue in full force and effect for so long as the
      Notes or any other Obligations are outstanding and unpaid or the Revolving
      Credit Commitment remains outstanding. Whenever in this Agreement any of the
      parties hereto is referred to, such reference shall be deemed to include the
      successors and permitted assigns of such party; and all covenants, promises
      and
      agreements in this Agreement contained, by or on behalf of the Borrower shall
      inure to the benefit of the successors and assigns of the Lender.

     

    Section
      9.02.   Indemnification.
      The
      Borrower shall indemnify the Lender and its directors, officers, employees,
      attorneys and agents against, and shall hold the Lender and such Persons
      harmless from, any and all losses, claims, damages and liabilities and related
      expenses, including reasonable counsel fees and expenses, incurred by the Lender
      or any such Person arising out of, in any way connected with, or as a result
      of:
      (a) the use of any of the proceeds of the Loans made by the Lender to the
      Borrower; (b) this Agreement, the ownership and operation of the Borrower’s and
      any Subsidiary’s assets, including all Real Properties and improvements or any
      Contract, the performance by the Borrower or any other Person of their
      respective obligations thereunder, and the consummation of the transactions
      contemplated by this Agreement; (c) any finder’s fee, brokerage commission of
      other such obligation payable or alleged to be payable in respect of the
      transactions contemplated by this Agreement which arises or is alleged to arise
      from any agreement, action or conduct of the Borrower or any of its Affiliates,
      and/or (d) any claim, litigation, investigation or proceeding relating to any
      of
      the foregoing, whether or not the Lender or its directors, officers, managers,
      employees, attorneys or agents are a party thereto; provided
      that
      such indemnity shall not apply to any such losses, claims, damages, liabilities
      or related expenses arising from (i) any unexcused breach by the Lender of
      any
      of its obligations under this Agreement, (ii) the willful misconduct or gross
      negligence of the Lender as determined by a final, non-appealable judgment
      of a
      court of competent jurisdiction, or (iii) the breach of any commitment or legal
      obligation of the Lender to any Person other than the Borrower or its
      Affiliates, provided
      that
      such breach is determined pursuant to a final and nonappealable decision of
      a
      court of competent jurisdiction. The foregoing indemnity shall remain operative
      and in full force and effect regardless of the expiration or any termination
      of
      this Agreement, the consummation of the transactions contemplated by this
      Agreement, the repayment of the Loans, the invalidity or unenforceability of
      any
      term or provision of any Loan Document, any investigation made by or on behalf
      of the Lender, and the content or accuracy of any representation or warranty
      made by the Borrower or any Subsidiary in any Loan Document. All amounts due
      under this Section 9.02 shall be payable on written demand
      therefor.

     

    Section
      9.03.   Governing Law.
      This
      Agreement and the other Loan Documents shall (irrespective of where same are
      executed and delivered) be governed by and construed in accordance with the
      laws
      of the State of New York (without giving effect to principles of conflicts
      of
      laws).

     

    Section
      9.04.   Waiver and Amendment.
      Neither
      any modification or waiver of any provision of this Agreement, the Notes, or
      any
      other Loan Document, nor any consent to any departure by the Borrower or any
      Subsidiary therefrom, shall in any event be effective unless the same shall
      be
      set forth in writing duly signed or acknowledged by the Lender and all parties
      to such Loan Document, and then such waiver or consent shall be effective only
      in the specific instance, and for the specific purpose, for which given. No
      notice to or demand on the Borrower in any instance shall entitle the Borrower
      to any other or future notice or demand in the same, similar or other
      circumstances.

     

    Section
      9.05.   Reservation of Remedies.
      Neither
      any failure nor any delay on the part of the Lender in exercising any right,
      power or privilege hereunder or under the Notes or any other Loan Document
      shall
      operate as a waiver thereof, nor shall a single or partial exercise thereof
      preclude any other or future exercise, or the exercise of any other right,
      power
      or privilege.

     

    Section
      9.06.   Notices.
      All
      notices, requests, demands and other communications under or in respect of
      this
      Agreement or any transactions hereunder shall be in writing (which may include
      telegraphic or telecopied communication) and shall be personally delivered
      or
      mailed (by prepaid registered or certified mail, return receipt requested),
      sent
      by prepaid recognized overnight courier service, or telegraphed or telecopied
      by
      facsimile transmission to the applicable party at its address or telecopier
      number indicated below.

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    

    If
      to the
      Lender:

    

    ComVest
      Capital, LLC

    One
      North
      Clematis, Suite 300

    West
      Palm
      Beach, FL 33401

    Attention:
      Chief Financial Officer

    Telecopier:
      (212) 829-5986

    

    with
      a
      copy to:

    

    Greenberg
      Traurig, LLP

    200
      Park
      Avenue

    New
      York,
      New York 10166

    Attention:
      Shahe Sinanian, Esq.

    Telecopier:
      (212) 801-6400

    

    If
      to the
      Borrower:

    

    LaPolla
      Industries, Inc.

    15402
      Vantage Parkway East, Suite 322

    Houston,
      Texas 77032

    Attention:
      Michael T. Adams, EVP and Secretary

    Telecopier:
      (281) 219-4710

    

    with
      a
      copy to:

    

    Sterchio
      Greco & Greco, LLP

    720
      Fifth
      Avenue, Suite 1301

    New
      York,
      New York 10019

    Attention:
      Alfred V. Greco, Esq.

    Telecopier:
      (212) 246-2225

    

    or,
      as to
      each party, at such other address or telecopier number as shall be designated
      by
      such party in a written notice to the other party delivered as aforesaid. All
      such notices, requests, demands and other communications shall be deemed given
      (a) when personally delivered, (b) three (3) Business Days after being deposited
      in the mails with postage prepaid (by registered or certified mail, return
      receipt requested), (c) one (1) Business Day after being delivered to the
      telegraph company or overnight courier service, if prepaid and sent overnight
      delivery, addressed as aforesaid and with all charges prepaid or billed to
      the
      account of the sender, or (d) when sent by facsimile transmission to a
      telecopier number designated by such addressee.

     

    Section
      9.07.   Binding Effect.
      This
      Agreement shall be binding upon and inure to the benefit of the Borrower and
      the
      Lender and their respective successors and assigns, except that the Borrower
      shall not assign any of its rights or obligations hereunder without the prior
      written consent of the Lender.

     

    Section
      9.08.   Consent to Jurisdiction; Waiver of Jury Trial.
      The
      Borrower hereby consents to the jurisdiction of all courts of the State of
      New
      York and the United States District Court for the Southern District of New
      York,
      as well as to the jurisdiction of all courts from which an appeal may be taken
      from such courts, for the purpose of any suit, action or other proceeding
      arising out of or with respect to this Agreement, any other Loan Document,
      any
      other agreements, instruments, certificates or other documents executed in
      connection herewith or therewith, or any of the transactions contemplated hereby
      or thereby, or any of the Borrower’s or any Subsidiary’s obligations hereunder
      or thereunder. The Borrower hereby waives the right to interpose any
      counterclaims (other than compulsory counterclaims) in any action brought by
      the
      Lender hereunder or in respect of any other Loan Document, provided that this
      waiver shall not preclude the Borrower from pursuing any such claims by means
      of
      separate proceedings. THE BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL
      OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS, AND ALSO WAIVES
      TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. The Lender may file a
      copy
      of this Agreement as evidence of the foregoing waiver of right to jury
      trial.

     

    Section
      9.09.   Certain Waivers.
      The
      Borrower and the Lender each hereby waives any claims for special, consequential
      or punitive damages in any way arising out of or relating to this Agreement,
      any
      of the other Loan Documents, or any breach hereof or thereof.

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    Section
      9.10.   Severability.
      If any
      provision of this Agreement is held invalid or unenforceable, either in its
      entirety or by virtue of its scope or application to given circumstances, such
      provision shall thereupon be deemed modified only to the extent necessary to
      render same valid, or not applicable to given circumstances, or excised from
      this Agreement, as the situation may require, and this Agreement shall be
      construed and enforced as if such provision had been included herein as so
      modified in scope or application, or had not been included herein, as the case
      may be.

     

    Section
      9.11.   Captions.
      The
      Article and Section headings in this Agreement are included herein for
      convenience of reference only, and shall not affect the construction or
      interpretation of any provision of this Agreement.

     

    Section
      9.12.   Sole and Entire Agreement.
      This
      Agreement, the Notes, the other Loan Documents, and the other agreements,
      instruments, certificates and documents referred to or described herein and
      therein constitute the sole and entire agreement and understanding between
      the
      parties hereto as to the subject matter hereof, and supersede all prior
      discussions, agreements and understandings of every kind and nature between
      the
      parties as to such subject matter.

     

    Section
      9.13.   Confidentiality.
      The
      Lender shall not disclose any Confidential Information to any Person without
      the
      prior consent of the Borrower; provided,
      however,
      that
      nothing herein contained shall limit any disclosure of the tax structure of
      the
      transactions contemplated hereby, or the disclosure of any information (a)
      to
      the extent required by statute, rule, regulation or judicial process, (b) to
      counsel for the Lender, (c) to bank examiners, auditors, accountants or, if
      required by law, any regulatory authority, (d) to the officers, partners,
      managers, directors, employees, agents and advisors (including independent
      auditors and counsel) of the Lender, (e) in connection with any litigation
      which
      relates to this Agreement to which the Lender is a party, (f) to a subsidiary
      or
      Affiliate of the Lender, or (g) to any assignee or participant (or prospective
      assignee or participant) which agrees to be bound by this Section 9.13,
and further provided,
      that in
      no event shall the Lender be obligated or required to return any materials
      furnished by the Borrower. The obligations of the Lender under this Section
      9.13
      shall supersede and replace the obligations of the Lender under any
      confidentiality letter in respect of this financing previously signed and
      delivered by the Lender to the Borrower.

     

    Section
      9.14.   Counterparts; Fax Signatures.
      This
      Agreement may be executed in any number of counterparts, all of which shall
      constitute one and the same agreement. This Agreement may be executed by fax
      signatures, each of which shall be fully binding on the signing
      party.

     

    [The
      remainder of this page is intentionally blank]

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Agreement to be duly executed by their duly
      authorized officer as of the day and year first written above.

     

    
      	 	 	
              COMVEST
                CAPITAL, LLC

            	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	
              By:

            	
              /s/
                Larry E. Lenig, Jr.

            	 
	 	 	 	
              Name:
                Larry E. Lenig, Jr.

            	 
	 	 	 	
              Title:
                Senior Partner/Portfolio Manager

            	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	
              LAPOLLA
                INDUSTRIES, INC.

            	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	
              By:

            	
              /s/
                Michael T. Adams, EVP

            	 
	 	 	 	
              Name:
                Michael T. Adams

            	 
	 	 	 	
              Title:
                Executive Vice President

            	 

    

     

     

    28

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