Document:

ex103.htm

    Exhibit
10.3

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.

     

    VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.

     

    Warrant
To Purchase Common Stock

     

    Warrant
No.:

    Number of
Shares of Common Stock:

    Date of
Issuance: July 7, 2008 (“Issuance Date”)

     

    Valley
Forge Composite Technologies, Inc., a Florida corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, ____________________________, the registered holder
hereof or its permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon exercise of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the Issuance Date, but not after 11:59 p.m., New York time, on
the Expiration Date (as defined below), ________ (______) fully paid and
non-assessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. This Warrant is one of the Warrants to
purchase Common Stock (the “SPA
Warrants”) issued pursuant to Section 1 of that certain Securities
Purchase Agreement, dated as of July 3, 2008, by and among the Company and the
investors (the “Buyers”)
referred to therein (the “Securities Purchase
Agreement”).

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

     

    
      	
              1.

            	
              EXERCISE OF
      WARRANT.

            

    

     

    (a)           Mechanics of
Exercise. Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f), this Warrant may be exercised by the
Holder on any day on or after the Issuance Date, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the then-applicable Exercise Price multiplied by
the number of Warrant Shares as to which this Warrant is being exercised (the
“Aggregate Exercise
Price”) in cash or wire transfer of immediately available funds or (B) by
notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)).  The Holder shall not
be required to deliver the original of this Warrant in order to effect an
exercise hereunder. Execution and delivery of the Exercise Notice with respect
to less than all of the Warrant Shares shall have the same effect as
cancellation of the original of this Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares.
Execution and delivery of the Exercise Notice for all of the Warrant Shares
shall have the same effect as cancellation of the original of this Warrant after
delivery of the Warrant Shares in accordance with the terms hereof. On or before
the first (1st) Trading Day following the date on which the Company has received
each of the Exercise Notice and the Aggregate Exercise Price (or notice of a
Cashless Exercise) (the “Exercise Delivery Documents”),
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “Transfer
Agent”). On or before the third (3rd) Trading Day following the date on
which the Company has received all of the Exercise Delivery Documents (the
“Share Delivery Date”),
the Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the Holder or, at Holder’s instruction
pursuant to the Exercise Notice, Holder’s agent or designee, in each case, sent
by reputable overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the Company’s share register in the name of
the Holder or its designee (as indicated in the Exercise Notice), for the number
of shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date such Warrant Shares are credited to the
Holder’s DTC account or the date of delivery of the certificates evidencing such
Warrant Shares (as the case may be).  If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three (3)
Business Days after any exercise and at its own expense, issue and deliver to
the Holder (or its designee) a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised.  No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all taxes
which may be payable with respect to the issuance and delivery of Warrant Shares
upon exercise of this Warrant.

     

    (b)           Exercise
Price. For
purposes of this Warrant, “Exercise Price” means $1.61,
subject to adjustment as provided herein.

      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

    

     

    (c)           Company’s Failure to Timely
Deliver Securities.  If
the Company shall fail, for any reason or for no reason, to issue to the Holder
within three (3) Trading Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant (as the case may be), then, in addition to all other
remedies available to the Holder, the Company shall pay in cash to the Holder on
each day after such third (3rd) Trading Day that the issuance of such shares of
Common Stock is not timely effected an amount equal to 2% of the product of (A)
the sum of the number of shares of Common Stock not issued to the Holder on a
timely basis and to which the Holder is entitled and (B) the Closing Sale Price
of the Common Stock on the Trading Day immediately preceding the last possible
date which the Company could have issued such shares of Common Stock to the
Holder without violating Section 1(a). In addition to the foregoing, if within
three (3) Trading Days after the Company’s receipt of the facsimile copy of an
Exercise Notice, the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company’s share
register or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such Holder’s
exercise hereunder (as the case may be), and if on or after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder anticipated
receiving from the Company (a “Buy-In”), then the Company
shall, within three (3) Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such shares
of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such Holder’s
exercise hereunder (as the case may be) and pay cash to the Holder in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Common Stock times (B) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the date of the Exercise
Notice.

     

    (d)           Cashless
Exercise.
Notwithstanding anything contained herein to the contrary (other than Section
1(f) below), the Holder may, in its sole discretion, exercise this Warrant in
whole or in part and, in lieu of making the cash payment otherwise contemplated
to be made to the Company upon such exercise in payment of the Aggregate
Exercise Price, elect instead to receive upon such exercise the “Net Number” of
shares of Common Stock determined according to the following formula (a “Cashless Exercise”) but only
so long as the Warrant Shares are not covered by an existing and effective
registration statement at any time after the six (6) month anniversary date of
the Issuance Date:

     

    
      
        	 	
                Net
      Number =

              	
                 (A x B) - (A x C)

              
	 	 
      	
                B

              

      

    

     

    For
purposes of the foregoing formula:

     

    A= the
total number of shares with respect to which this Warrant is then being
exercised.

     

    B= the
average VWAP for the Common Stock for the five (5) consecutive Trading Days
immediately preceding the date of the Exercise Notice.

     

    
      C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

    

     

    (e)           Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the number of Warrant Shares to be issued pursuant to
the terms hereof, the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 13.

     

    (f)           Limitations on
Exercises.

     

    (i)           Beneficial Ownership.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
shall not be exercisable by the Holder hereof to the extent (but only to the
extent) that, if exercisable by the Holder, the Holder or any of its affiliates
would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the
outstanding shares of Common Stock. To the extent the above limitation
applies, the determination of whether this Warrant shall be exercisable
(vis-à-vis other convertible, exercisable or exchangeable securities owned by
the Holder) and of which warrants shall be exercisable (as among all warrants
owned by the Holder) shall, subject to such Maximum Percentage limitation, be
determined on the basis of the first submission to the Company for conversion,
exercise or exchange (as the case may be). No prior inability to exercise this
Warrant pursuant to this paragraph shall have any effect on the applicability of
the provisions of this paragraph with respect to any subsequent
determination of exercisability. For the purposes of this paragraph, beneficial
ownership and all determinations and calculations (including, without
limitation, with respect to calculations of percentage ownership) shall be
determined by the Holder in accordance with Section 13(d) of the 1934 Act (as
defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Warrant. For any reason at any time, upon the written or oral request of
the Holder, the Company shall within one (1) Business Day confirm orally and in
writing to the Holder the number of shares of Common Stock then outstanding,
including by virtue of any prior conversion or exercise of convertible or
exercisable securities into Common Stock, including, without limitation,
pursuant to this Warrant or securities issued pursuant to the Securities
Purchase Agreement.  Each delivery of an Exercise Notice by the Holder
will constitute a representation by the Holder that it has evaluated the
limitation set forth in this paragraph and determined that issuance of the full
number of Warrant Shares requested by the Holder in such Exercise Notice is
permitted under this paragraph.

     

    (g)           Insufficient Authorized
Shares. The
Company shall at all times keep reserved for issuance under this Warrant a
number of shares of Common Stock as shall be necessary to satisfy the Company’s
obligation to issue shares of Common Stock hereunder (without regard to any
limitation otherwise contained herein with respect to the number of shares of
Common Stock that may be acquirable upon exercise of this Warrant). If,
notwithstanding the foregoing, and not in limitation thereof, at any time while
any of the SPA Warrants remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy
its obligation to reserve for issuance upon exercise of the SPA Warrants at
least a number of shares of Common Stock equal to the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of all of
the SPA Warrants then outstanding (the “Required Reserve Amount”) (an
“Authorized Share
Failure”), then the Company shall immediately take all action necessary
to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for all
the SPA Warrants then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    2.           ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 2.

     

    (a)           Stock Dividends and
Splits.  If
the Company, at any time on or after the date of the Securities Purchase
Agreement, (i) pays a stock dividend on one or more classes of its then
outstanding shares of Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated
hereunder, then the calculation of such Exercise Price shall be adjusted
appropriately to reflect such event.

     

    (b)           Adjustment Upon Issuance of
Shares of Common Stock. If and
whenever from and after the date of the Securities Purchase Agreement and to and
through the date that is two (2) years after the date of the Securities Purchase
Agreement, the Company issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding any Excluded Securities (as defined in the
Securities Purchase Agreement) issued or sold or deemed to have been issued or
sold) for a consideration per share (the “New Issuance Price”) less than
a price equal to the Exercise Price in effect immediately prior to such issue or
sale or deemed issuance or sale (such lesser price being referred to as the
“Applicable Price”) (the
foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the Exercise
Price then in effect shall be reduced to an amount equal to the New Issuance
Price. For purposes of determining the adjusted Exercise Price under this
Section 2(b), the following shall be applicable:

     

    (i)           Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 2(b)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. Except as contemplated below, no
further adjustment of the Exercise Price shall be made upon the actual issuance
of such shares of Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such shares of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities.

     

    (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per
share.  For the purposes of this Section 2(b)(ii), the “lowest price
per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security. Except as
contemplated below, no further adjustment of the Exercise Price shall be made
upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(b), except as contemplated below, no further
adjustment of the Exercise Price shall be made by reason of such issue or
sale.

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    (iii)           Change in Option Price or
Rate of Conversion. If the purchase or exercise price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Exercise Price in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price which would have been in effect at such time had
such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(b)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this Warrant are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(b) shall be made if such adjustment would
result in an increase of the Exercise Price then in effect.

     

    (iv)           Calculation of Consideration
Received. In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Options by
the parties thereto, the Options will be deemed to have been issued for the
difference of (i) the aggregate fair market value of such Options and other
securities issued or sold in such integrated transaction, less (ii) the fair
market value of the securities other than such Option, issued or sold in such
transaction and the other securities issued or sold in such integrated
transaction will be deemed to have been issued or sold for the balance of the
consideration received by the Company.  If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor. If any shares of Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of publicly traded securities, in which case the amount of
consideration received by the Company for such securities will be the average
VWAP of such security for the five (5) Trading Day period immediately preceding
the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day following such Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Holder. The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.

     

    (v)           Record Date. If the
Company takes a record of the holders of shares of Common Stock for the purpose
of entitling them (A) to receive a dividend or other distribution payable
in shares of Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase shares of Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase (as the case may
be).

     

    (c)           Number of Warrant
Shares.
Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs
(a) or (b) of this Section 2, the number of Warrant Shares that may be purchased
upon exercise of this Warrant shall be increased or decreased proportionately,
so that after such adjustment the aggregate Exercise Price payable hereunder for
the adjusted number of Warrant Shares shall be the same as the aggregate
Exercise Price in effect immediately prior to such adjustment (without regard to
any limitations on exercise contained herein).

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    (d)           Other
Events. In the
event that the Company (or any direct or indirect subsidiary thereof) shall
take any action to which the provisions hereof are not strictly applicable, or,
if applicable, would not operate to protect the Holder from dilution or if any
event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s Board of Directors shall in good faith
determine and implement an appropriate adjustment in the Exercise Price and the
number of Warrant Shares (if applicable) so as to protect the rights of the
Holder; provided that no such
adjustment pursuant to this Section 2(d) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2, provided further that
if the Holder does not accept such adjustments as appropriately protecting its
interests hereunder against such dilution, then the Company’s Board of Directors
and the Holder shall agree, in good faith, upon an independent investment bank
of nationally recognized standing to make such appropriate adjustments, whose
determination shall be final and binding and whose fees and expenses shall be
borne by the Company.

     

    (e)           Calculations. All
calculations under this Section 2 shall be made to the nearest cent or the
nearest 1/100th of a share, as applicable. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

     

    3.           RIGHTS UPON DISTRIBUTION OF
ASSETS. If the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, that to the
extent that the Holder’s right to participate in any such Distributions would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
Distribution to such extent) and such Distribution to such extent shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum
Percentage).

     

    
      	
              4.

            	
              PURCHASE RIGHTS;
      FUNDAMENTAL TRANSACTIONS.

            

    

     

    (a)           Purchase
Rights.  In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations on exercise
hereof, including without limitation, the Maximum Percentage) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights (provided, however, that to the
extent that the Holder’s right to participate in any such Purchase Right would
result in the Holder exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to
such extent) and such Purchase Right to such extent shall be held in abeyance
for the Holder until such time, if ever, as its right thereto would not result
in the Holder exceeding the Maximum Percentage).

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    (b)           Fundamental
Transactions.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents (as defined in
the Securities Purchase Agreement) in accordance with the provisions of this
Section 4(b) pursuant to written agreements in form and substance satisfactory
to the Holder and approved by the Holder prior to such Fundamental Transaction,
including agreements to deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation,
which is exercisable for a corresponding number of shares of capital stock
equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant) prior to such Fundamental Transaction, and with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking
into account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
adjustments to the number of shares of capital stock and such exercise price
being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction), and
which is satisfactory in form and substance to the Holder and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Warrant and the
other Transaction Documents with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property (except such items
still issuable under Sections 3 and 4(a) above, which shall continue to be
receivable thereafter)) issuable upon the exercise of this Warrant prior to such
Fundamental Transaction, such shares of the publicly traded Common Stock (or its
equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been exercised immediately prior to
such Fundamental Transaction (without regard to any limitations on the exercise
of this Warrant), as adjusted in accordance with the provisions of this Warrant.
In addition to and not in substitution for any other rights hereunder, prior to
the consummation of any Fundamental Transaction pursuant to which holders of
shares of Common Stock are entitled to receive securities or other assets with
respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property (except such items still issuable under Sections 3 and 4(a)
above, which shall continue to be receivable thereafter)) issuable upon the
exercise of the Warrant prior to such Fundamental Transaction, such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
the Warrant been exercised immediately prior to such Fundamental Transaction
(without regard to any limitations on the exercise of this Warrant). Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Holder. The provisions of this Section 4 shall
apply similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied as if this Warrant (and any such subsequent
warrants) were fully exercisable and without regard to any limitations on the
exercise of this Warrant (provided that the
Holder shall continue to be entitled to the benefit of the Maximum Percentage,
applied however with respect to shares of capital stock registered under the
1934 Act and thereafter receivable upon exercise of this Warrant (or any such
other warrant)).

     

    (c)           Black Scholes
Value. No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Fundamental Transaction, but not prior to the public
announcement of such Fundamental Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier to the Holder (a "Fundamental Transaction
Notice").  Notwithstanding the foregoing, in the event of a
Fundamental Transaction in which a Successor Entity that is a publicly traded
corporation whose stock is quoted or listed for trading on an Eligible Market
does not assume this Warrant such that the Warrant shall be exercisable for the
publicly traded Common Stock of such Successor Entity, then at the request of
the Holder delivered before the ninetieth (90th) day after the consummation of
such Fundamental Transaction, the Company or the Successor Entity (as the case
may be) shall purchase this Warrant from the Holder by paying to the Holder cash
in an amount equal to the Black Scholes Value of the remaining unexercised
portion of this Warrant on the date of the consummation of such Fundamental
Transaction.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    5.           NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of
its Articles of Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale
of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants
are outstanding, take all action necessary to reserve and keep available out of
its authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, the maximum number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).

     

    6.           WARRANT HOLDER NOT DEEMED A
STOCKHOLDER. Except as otherwise specifically provided herein, the
Holder, solely in such Person’s capacity as a holder of this Warrant, shall not
be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person’s capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 6, the Company shall
provide the Holder with copies of the same notices and other information given
to the stockholders of the Company generally, contemporaneously with the giving
thereof to the stockholders.

     

    7.           REISSUANCE OF
WARRANTS.

     

    (a)           Transfer of
Warrant. If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Warrant (in accordance with Section 7(d)), registered as the
Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less than the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to
purchase the number of Warrant Shares not being transferred.

     

    (b)           Lost, Stolen or Mutilated
Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant (as to which a written
certification and the indemnification contemplated below shall suffice as such
evidence), and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary and
reasonable form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.

     

    (c)           Exchangeable for Multiple
Warrants. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance
with Section 7(d)) representing in the aggregate the right to purchase the
number of Warrant Shares then underlying this Warrant, and each such new Warrant
will represent the right to purchase such portion of such Warrant Shares as is
designated by the Holder at the time of such surrender; provided, however, that no
warrants for fractional shares of Common Stock shall be given.

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    (d)           Issuance of New
Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant
Shares designated by the Holder which, when added to the number of shares of
Common Stock underlying the other new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such
new Warrant which is the same as the Issuance Date, and (iv) shall have the same
rights and conditions as this Warrant.

     

    8.           NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Warrant, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon each adjustment of the Exercise Price and the
number of Warrant Shares, setting forth in reasonable detail, and certifying,
the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder and (iii) at least ten
(10) Trading Days prior to the consummation of any Fundamental
Transaction.  To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information regarding the Company
or any of its subsidiaries, the Company shall simultaneously file such notice
with the SEC (as defined in the Securities Purchase Agreement) pursuant to a
Current Report on Form 8-K.

     

    9.           AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)(i)) may be amended and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the written consent of the
Holder. The Holder shall be entitled, at its option, to the benefit of any
amendment of any other similar warrant issued either under the Securities
Purchase Agreement or any other similar warrant. No waiver shall be effective
unless it is in writing and signed by an authorized representative of the
waiving party.

     

    10.           SEVERABILITY.  If
any provision of this Warrant or the application thereof becomes or is declared
by a court of competent jurisdiction to be illegal, void or unenforceable, the
remainder of the terms of this Warrant will continue in full force and
effect.

     

    11.           GOVERNING LAW. This
Warrant shall be governed by and construed and enforced in accor­dance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

     

    12.           CONSTRUCTION;
HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and the Holder and shall not be construed against any Person as the
drafter hereof.  The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date in
such other Transaction Documents unless otherwise consented to in writing by the
Holder.

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    13.           DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Exercise Price or fair
market value or the arithmetic calculation of the Warrant Shares, the Company or
the Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile within two (2)
Business Days of receipt of the applicable notice giving rise to such dispute to
the Company or the Holder (as the case may be). If the Holder and the Company
are unable to agree upon such determination or calculation of the Exercise Price
or fair market value or the number of Warrant Shares (as the case may be) within
three (3) Business Days of such disputed determination or arithmetic calculation
being submitted to the Company or the Holder (as the case may be), then the
Company shall, within two (2) Business Days submit via facsimile (a) the
disputed determination of the Exercise Price or fair market value to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company’s independent, outside accountant. The Company shall cause at its
expense the investment bank or the accountant (as the case may be) to perform
the determinations or calculations (as the case may be) and notify the Company
and the Holder of the results no later than ten (10) Business Days from the time
it receives such disputed determinations or calculations (as the case may be).
Such investment bank’s or accountant’s determination or calculation (as the case
may be) shall be binding upon all parties absent demonstrable
error.

     

    14.           REMEDIES, CHARACTERIZATION,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required. The issuance of shares and
certificates for shares as contemplated hereby upon the exercise of this Warrant
shall be made without charge to the Holder or such shares for any issuance tax
or other costs in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than the Holder
or its agent on its behalf. The Company covenants to the Holder that there shall
be no characterization concerning this instrument other than as expressly
provided herein.

     

    15.           TRANSFER. This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(g) of
the Securities Purchase Agreement.

     

    16.           CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

     

    (a)           “Black Scholes Value” means the
value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg determined as of the day of closing
of the applicable Fundamental Transaction for pricing purposes and reflecting
(i) a risk-free interest rate corresponding to the U.S. Treasury rate for a
period equal to the remaining term of this Warrant as of such date of request,
(ii) an expected volatility equal to the greater of 75% and the 100 day
volatility obtained from the HVT function on Bloomberg as of the trading
day immediately following the public announcement of the applicable Fundamental
Transaction and (iii) the underlying price per share used in such calculation
shall be the sum of the price per share being offered in cash, if any, plus the
value of any non cash consideration, if any, being offered in such Fundamental
Transaction.

     

    (b)           “Bloomberg” means Bloomberg
Financial Markets.

     

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

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    (d)           “Closing Sale Price” means, for
any security as of any date, the last closing trade price for such security on
the Principal Market, as reported by Bloomberg, or, if the Principal Market
begins to operate on an extended hours basis and does not designate the closing
trade price, then the last trade price of such security prior to 4:00:00 p.m.,
New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
trade price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing does not apply, the last trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last trade price is reported for such security
by Bloomberg, the average of the ask prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing
Sale Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in Section 13.
All such determinations shall appropriately adjusted for any share dividend,
share split, share combination or other similar transaction during such
period.

     

    (e)           “Common Stock” means
(i) the Company’s shares of common stock, par value $.001 per share, and
(ii) any capital stock into which such common stock shall have been changed or
any share capital resulting from a reclassification of such common
stock.

     

    (f)           “Convertible Securities” means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

     

    (g)           “Eligible Market” means the The
New York or American Stock Exchange, Inc., the Nasdaq Global Select Market, the
Nasdaq Global Market, the Nasdaq Capital Market or the Principal
Market.

     

    (h)           “Expiration Date” means the
date that is the seventh (7th) anniversary of the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a “Holiday”), the next date that
is not a Holiday.

     

    (i)           “Fundamental Transaction” means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), or (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.

     

    (j)           “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

     

    (k)           “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

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

     

    (m)           “Principal Market” means the
Over-the-Counter Bulletin Board.

     

    (n)           “Successor Entity” means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

     

    (o)           “Trading Day” means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that
“Trading Day” shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).

     

    (p)           “VWAP” means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market (or, if the Principal Market is not the principal trading
market for such security, then on the principal securities exchange or
securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If VWAP cannot be calculated for such security on such date on any of the
foregoing bases, the VWAP of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and
the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved in accordance with the procedures in Section 13.
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

     

    [signature page
follows]

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

     

    IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set forth above.

     

    
      
        	 	      
                VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 

      

      
        
           

        

        
          -14-

          
            

          

        

        
           

        

      

    

     

     

    EXHIBIT
A

     

    EXERCISE
NOTICE

    TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
TO PURCHASE COMMON STOCK

     

    VALLEY
FORGE COMPOSITE TECHNOLOGIES, INC.

     

    The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of Valley
Forge Composite Technologies, Inc., a Florida corporation (the “Company”), evidenced by
Warrant to Purchase Common Stock No. _______ (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

     

    1.           Form of Exercise
Price.  The Holder intends that payment of the Exercise Price
shall be made as:

     

    
      	
               
      

            	
              ____________

            	
              a
      “Cash
      Exercise” with respect to _________________ Warrant Shares;
      and/or

            

    

     

    
      	
               
      

            	
              ____________

            	
              a
      “Cashless
      Exercise” with respect to _______________ Warrant
      Shares.

            

    

     

    2.           Payment of Exercise
Price.  In the event that the Holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the Holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.

     

    3.           Delivery of Warrant
Shares.  The Company shall deliver to Holder, or its designee
or agent as specified below, __________ Warrant Shares in accordance with the
terms of the Warrant.  Delivery shall be made to Holder, or for its
benefit, to the following address:

     

    _______________________

    _______________________

    _______________________

    _______________________

     

    Date:
_______________ __, 20__

     

    

    _______________________

     Name
of Registered Holder

     

    By:  _______________________                                                    

    Name:

    Title:

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _____________, 2008, from
the Company and acknowledged and agreed to by _______________.

     

    
       

      
        
          	 	      
                  VALLEY
      FORGE COMPOSITE TECHNOLOGIES, INC.

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 

        

      

    

    

    

    

    
      
         

      

      
        -16-ex10_1.htm

    
      
        

      
Exhibit 10.1

       

      AMENDED
AND RESTATED ASSET PURCHASE AGREEMENT

      

      This
AMENDED AND RESTATED ASSET PURCHASE
AGREEMENT, dated as of July 1, 2008 (this “Agreement”), by and
among LaPolla Industries, Inc., a Delaware corporation (“Buyer”), Air-Tight
Marketing & Distribution, Inc., a Georgia corporation (“Seller”), and Larry
P. Medford and Ted J. Medford (“Selling Shareholders”) (“Seller” together with
“Selling
Shareholders”, the “Selling
Parties”).

      

      WHEREAS,
Seller is engaged in the business of designing, sourcing, marketing and selling
spray polyurethane foam and application equipment, for residential, commercial
and industrial insulation applications (collectively, the "Business");
and

      

      WHEREAS,
Selling Shareholders are the only shareholders of Seller; and

      

      WHEREAS,
Buyer desires to purchase from Seller, and Seller desires to sell, assign,
transfer, convey and deliver to Buyer, certain of the assets of Seller related
to the Business, together with certain obligations and liabilities relating
thereto, on the terms and subject to the conditions set forth
herein.

      

      NOW
THEREFORE, in consideration of the premises and the covenants, agreements,
representations and warranties contained herein, intending to be legally bound
hereby, the parties hereto hereby agree as follows:

      

      ARTICLE 1

      PURCHASE AND SALE OF
ASSETS

      

      1.1      Purchase and Sale of
Assets.

      

      (a)   Acquired Assets. Upon
the terms and subject to the satisfaction or waiver of the conditions set forth
in this Agreement, at the Closing and effective as of the Closing, Seller shall
sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase
and acquire from Seller, all of the following assets of Seller (collectively,
the “Assets”):

      

      (i)      all
accounts receivable, machinery and equipment, vehicles, computers, and goodwill
of the Business as a going concern;

       

      (ii)      all
contracts, agreements, leases, instruments, obligations, arrangements or other
understandings (whether written or oral) (including amendments and supplements,
modifications, and side letters or agreements) (the “Business Contracts”),
identified in Section 1.1(a)(ii) of the written statement delivered to Buyer by
Seller herewith and dated as of the date hereof (the “Seller Disclosure
Schedule”);

      

      (iii)    all
marketing, sales and promotional literature, books, records, files, documents,
financial records, bills, accounting, internal and audit records, operating
manuals, personnel records, customer and supplier lists and files, preprinted
materials and similar materials primarily related to the Assets or those
employees of Seller who become Transferred Employees;

      

      (iv)    all
rights, title and interests in and to the Rutledge Lease, including Seller’s
right to any improvements, fixtures, fittings thereon and appurtenances
thereto.  Prior to or at Closing, the Selling Shareholders shall cause
the Rutledge Lease to be amended so that at least three (3) years of the term
shall remain in duration from and after Closing, with two (2) automatic three
(3) year extensions (subject to approval of the terms by Buyer);

      

      (v)     all
rights to all telephone numbers related to the Business and the rights to the
name “Air-Tight
Marketing & Distribution” and the corporate name “Air-Tight Marketing &
Distribution, Inc.” and all derivations and variations
thereof;

      

      (vi)    all
intangible assets related to the Business, including the Business Intellectual
Property;

      

      (vii)   all
deposits (including security deposits) and prepaid expenses as set forth on
Section 1.1(a)(vii) of the Seller Disclosure Schedule;

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

       

      (viii)  all
raw materials, components, work-in-progress, finished products, inventory (other
than inventory that have been billed and are being held for customers’
accounts), inventory in-transit, pre-paid deposits for inventory, packaging
materials, samples and other accessories related thereto, related to the
Business, wherever located;

      

      (ix)     all
furnishings, furniture, fixtures, equipment, tools, machinery, art work, office
and other supplies, spare parts and other tangible personal property located at
Seller’s Rutledge facility covered by the Rutledge Lease as set forth on Section
1.1(a)(ix) of the Seller Disclosure Schedule;

      

      (x)      all
rights under warranties, representations and guarantees made by suppliers,
manufacturers or contractors related to the Assets;

      

      (xi)     all
vendor numbers related to the Business;

      

      (xii)   
all sales orders related to the Business as set forth on Section 1.3(a) of the
Seller Disclosure Schedule except for sales orders for any portion of inventory
included in the calculation of Inventory Value that are not included in the
calculation of Inventory Value in the Final Closing Statement; and

      

      (xiii)  
the Business’ software and associated data, to the extent transferable by the
Selling Parties.

      

      1.2       Excluded Assets.
Notwithstanding anything contained herein to the contrary, Seller shall not
sell, assign, transfer, convey or deliver to Buyer, and Buyer shall not purchase
from Seller any receivables, cash and other assets of Seller specifically set
forth in Section 1.2 of the Seller Disclosure Schedule (the “Excluded
Assets”).

      

      1.3       Assumption of
Liabilities. Upon the terms and subject to the satisfaction or waiver of
the conditions set forth in this Agreement, at the Closing and effective as of
the Closing, Buyer shall assume, and agree to pay, perform and discharge when
due, only the following Liabilities of Seller (all as listed on Section 1.3 of
the Seller Disclosure Schedule and collectively herein, the “Assumed
Liabilities”):

      

      (a)   The
obligations under purchase orders and sales orders relating to the Business set
forth on Section 1.3 of the Seller Disclosure Schedule, except for any
liabilities arising out of (A) the failure of Seller or any of its
affiliates to comply with the terms of any such orders during the period prior
to Closing; (B) indemnity obligations of Seller and its affiliates under
orders arising primarily out of events occurring prior to the Closing; or
(C) purchase orders for any portion of the inventory included in the
calculation of Inventory Value which is included in the Purchase
Price;

      

      (b)  the
Rutledge Lease with respect to the period from and after the
Closing;

      

      (c)   the
obligations of Seller under the Business Contracts, but only to the extent such
obligations arise from and after the Closing; and

      

      (d)  any
Liability of Buyer which relates to, or arises out of, directly or indirectly,
the operation of the Business or Buyer’s use of the Assets from and after the
Closing.

      

      1.4      
Excluded
Liabilities.

      

      Except
for the Assumed Liabilities, Buyer shall not assume or be liable for any
Liabilities of Seller or any other Person, whether or not relating to the
Business (the “Excluded
Liabilities”), including the following:

      

      (a)   except
as otherwise specifically provided herein, all Liabilities relating to Taxes
attributable to or imposed upon Seller, the Selling Shareholders or any of their
affiliates (or for which Seller, the Selling Shareholders or any of their
affiliates may otherwise be liable) for any period (or portion thereof) ending
on or prior to the Closing Date;

      

      (b)  any
Liability of Seller for any fees, costs or expenses of the type referred to in
Section 8.2;

      

      (c)   any
Liability relating to any Excluded Asset;

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      (d)   indebtedness,
including amounts loaned or advanced by any lender, or loaned or advanced to
Seller by Selling Shareholders or any related party;

      

      (e)   any
Liability that relates to, or arises out of, directly or indirectly, the
operation of the Business or Seller’s ownership, control or use of the Assets
prior to the Closing, including any Liability under any Environmental
Laws;

      

      (f)   any
Liability under or otherwise attributable to the Benefit Plans (as defined in
Section 2.8(a)), including any Liability for benefits payable
thereunder;

      

      (g)   any
Liability for salary, commission, bonuses, expense reimbursement or other
compensation earned by any employee of Seller for periods prior to the Closing
or any other employee related Liabilities, including Liabilities relating to
severance, workers’ compensation claims or failure to comply with any employment
related statute;

      

      (h)  any
Liabilities with respect to chargebacks, returns, allowances, promotional
agreements or product warranties entered into or regarding sales shipped by
Seller prior to the Closing; and

      

      (i)    except
expressly as set forth in Sections 1.3 and 1.5(b), any Liability in any way
attributable to the performance of services for Seller prior to the Closing by
any employee, independent contractor or agent of Seller or any other individuals
rendering services to Seller.

      

      1.5      Purchase Price;
Allocation.

      

      (a)   Upon
the terms and subject to the conditions set forth herein, in consideration for
the aforesaid sale, assignment, transfer and conveyance of the Assets and the
assumption of the Assumed Liabilities, Buyer shall deliver or cause to be
delivered to Seller the Purchase Price.

      

      (b)  For
purposes of this Agreement, “Purchase Price” shall
mean $1,500,000 in cash, payable in 6 installments, with the first installment
of $100,000 due at Closing and 4 subsequent installments of $250,000 each due on
the last day of each calendar year of 2008, 2009, 2010, and 2011, and a final
installment of $400,000, due on December 31, 2012, subject to adjustment as more
fully set forth in the Note (as defined below), and 2,000,000 shares of
restricted common stock, par value $.01, of Buyer.  The installment
payments are to be evidenced by a Promissory Note (the "Note") in the form
attached hereto as Exhibit 1.5(b).

      

      (c)   The
Purchase Price (plus the Assumed Liabilities assumed pursuant to Section 1.3 to
the extent properly taken into account) will be allocated among the Assets, the
restrictive covenant contained in Section 4.9 as set forth in
Exhibit 1.5(c) attached hereto, the list of Seller’s customers, and in the
manner consistent with Section 1060 of the Code.

      

      (d)   Seller
and Buyer shall (i) be bound by the allocation for all Tax purposes;
(ii) prepare and file all Tax Returns in a manner consistent with the
allocation; and (iii) take no position inconsistent with the allocation in
any Tax Return, any proceeding before any taxing authority or otherwise unless
required to do so pursuant to a determination as defined in Section 1313 of
the Code or a similar provision of state or local Law. In the event that the
allocation is disputed by any taxing authority, the party receiving notice of
such dispute shall promptly notify and consult with the other party and keep the
other party apprised of material developments concerning resolution of such
dispute.

      

      1.6      Payment of Purchase
Price.

      

      (a)   At
or prior to Closing, Seller shall prepare in good faith and deliver Buyer a
statement (“Estimated
Value Statement”) setting forth in reasonable detail the calculation of
the estimated Inventory Value, Accounts Receivable, and Accounts Payable as of
the open of business on the Closing Date.

      

      (b)  At
the Closing, Buyer shall deliver or cause to be delivered to Seller the cash
portion of the Closing Payment by wire transfer of immediately available federal
funds to an account or accounts designated by Seller. The term “Closing Payment”
shall mean an amount equal the first installment of $100,000 towards the
Purchase Price and 2,000,000 shares of restricted common stock of Buyer, each
payable in the manner required herein.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (c)   Not
later than seven (7) business days following the Closing, Buyer shall deliver or
cause to be delivered to Seller a share(s) certificate(s) representing 2,000,000
shares of fully paid and nonassessable restricted common stock of
Buyer.

      

      1.7      Adjustments to Closing
Payment.

      

      (a)   As
soon as practicable (but not later than 30 days) following the Closing,
Buyer shall prepare and deliver to Seller a statement (the “Closing Statement”)
setting forth in reasonable detail the calculation of the Inventory Value,
Accounts Receivable, and Accounts Payable, as of the open of business on the
Closing Date. The Closing Statement shall be prepared in good
faith.

      

      (b)  After
receipt of the Closing Statement, Seller shall have ten (10) days to review it.
Seller and its representatives shall have full access to all relevant books and
records and employees of Buyer in connection with its review of the Closing
Statement. Unless Seller delivers written notice to Buyer on or prior to the
tenth day after receipt of the Closing Statement of its disagreement as to any
amount included in or omitted from the Closing Statement specifying in
reasonable detail the basis for its disagreement, Seller shall be deemed to have
accepted and agreed to the Closing Statement. If Seller so notifies Buyer of
such an objection to the Closing Statement, Seller and Buyer shall within ten
(10) days following the date of such notice (the “Resolution Period”)
attempt to resolve their differences. Any resolution by them as to any disputed
amount shall be final, binding, conclusive and nonappealable.

      

      (c)   If
at the conclusion of the Resolution Period there are amounts on the Closing
Statement still remaining in dispute, then all such amounts remaining in dispute
shall be submitted to a firm of independent public accountants reasonably
acceptable to Buyer and Seller and selected from the list attached hereto as
Exhibit 1.7(c) (the “Neutral Auditor”).
Buyer and Seller agree to execute, if requested by the Neutral Auditor, a
reasonable engagement letter. The Neutral Auditor shall act as an arbitrator to
determine, based solely on presentations by Buyer and Seller, and not by
independent review, only those amounts on the Closing Statement still in
dispute. The Neutral Auditor’s determination shall be made within 30 days
of its engagement, shall be set forth in a written statement delivered to Buyer
and Seller and shall be final, binding, conclusive and nonappealable. The fees
and expenses of the Neutral Auditor shall be allocated between Buyer and Seller
so that Seller’s share of such fees and expenses shall be equal to the product
of (i) and (ii), where (i) is the aggregate amount of such fees and
expenses of such Neutral Auditor, and where (ii) is a fraction, the
numerator of which is the amount on the Closing Statement in dispute that is
ultimately unsuccessfully disputed by Seller (as determined by the Neutral
Auditor) and the denominator of which is the total amount in dispute submitted
to the Neutral Auditor arbitration. The balance of any such fees and expenses
shall be paid by Buyer. The term “Final Closing
Statement,” means the definitive Closing Statement deemed accepted by
Seller or agreed to by Buyer and Seller in accordance with Section 1.7(b) or the
definitive Closing Statement resulting from the determinations made by the
Neutral Auditor in accordance with this Section 1.7(c) (in addition to those
items theretofore accepted by Seller or agreed to by Buyer and
Seller).

      

      (d)   Within
five (5) business days of the determination of the Final Closing
Statement:

      

      (i)       if
the estimated values (calculated as the sum of the inventory and accounts
receivable, less the accounts payable) on the Final Closing Statement are less
than the Estimated Value Statement, the Seller shall reduce the Purchase Price
to Buyer in an amount equal to such difference, which reduction shall be applied
against the last payment(s) due to the Selling Parties pursuant to Section
1.5(b); or

      

      (ii)      if
the estimated values on the Final Closing Statement are more than the Estimated
Value Statement, no adjustment shall occur.

      

      1.8      Closing. Unless this
Agreement shall have been terminated pursuant to its terms, the closing of the
purchase and sale of the Assets and the other transactions contemplated hereby
(the “Closing”)
shall take place at the offices of LaPolla Industries, Inc., Intercontinental
Business Park, 15402 Vantage Parkway East, Suite 322, Houston,
Texas  77032 on July 1, 2008 subject to the satisfaction or waiver of
the conditions set forth in Article 6 or
such other time and date that is agreed to in writing by the parties hereto (the
date on which the Closing occurs, the “Closing
Date”).

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

      1.9      Deliveries by Seller.
At the Closing, Seller shall deliver, or cause to be delivered, to Buyer the
following:

      

      (a)   one
or more assignments and bills of sale for the Assets, in a form reasonably
satisfactory to Buyer;

      

      (b) 
 instruments of assignment with respect to the Intellectual Property
included in the Assets;

      

      (c)   a
lease assignment with respect to the Rutledge Lease, in a form reasonably
satisfactory to Buyer, Seller and the landlord under such lease, subject to the
Rutledge Lease meeting the requirements set forth in Section
1.1(a)(iv);

      

      (d)   copies
of all necessary consents and approvals of governmental bodies, lenders of the
Seller, lessors and other third parties listed on Section 6.1(d) of the Seller
Disclosure Schedule;

       

      (e)  
the
certificates or letters required to be delivered pursuant to Sections
6.2(a),6.2(b), 6.2(f) and 6.2(g); and

       

      (f)  
the
Licensed Applicator Agreement in the form attached hereto as Exhibit 1.9(f) or
otherwise satisfactory to Buyer.

      

      1.10    Deliveries by Buyer.
At the Closing, Buyer shall deliver, or cause to be delivered, to Seller the
following:

      

      (a)   the
Closing Payment;

      

      (b)   an
assumption agreement with respect to the Assumed Liabilities, in a form
reasonably satisfactory to Seller;

      

      (c)   a
lease assumption with respect to the Rutledge Lease, in a form reasonably
satisfactory to Buyer, Seller and the landlord under such lease;

      

      (d)   the
certificates required to be delivered pursuant to Sections 6.1(a) and
6.1(b);

      

      (e)   executed
originals of the Note and Security Agreement; and

      

      (f)    an
executed counterpart of the Licensed Applicator Agreement.

      

      1.11    Consents.  Notwithstanding
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement to sell, assign, transfer, convey or deliver any Asset or any
benefit arising under or resulting from such Asset if the sale, assignment,
transfer, conveyance or delivery thereof, without the consent of a third party,
(i) would constitute a breach or other contravention of the rights of such
third party, (ii) would be ineffective with respect to any party to a
Business Contract concerning such Asset, or (iii) would, upon transfer, in
any way adversely affect the rights of Buyer under such Asset. If the sale,
assignment, transfer, conveyance or delivery by Seller to, or any assumption by
Buyer of, any interest in, or Liability under, any Asset requires the consent of
a third party, then such sale, assignment, transfer, conveyance, delivery or
assumption shall be subject to such consent being obtained; it being understood
that no adjustment to the Purchase Price shall be made as a result of the
failure to transfer or assign any such Asset. To the extent any Asset may not be
sold, assigned, transferred, conveyed or delivered to Buyer by reason of the
absence of any such consent (“Restricted Assets”),
Buyer and Seller, to the extent not prohibited by Law, shall take such action so
that the performance obligations of Seller thereunder shall be deemed to be
subleased or subcontracted to Buyer, or cause to be taken such other actions in
order to place Buyer, insofar as reasonably possible, in the same position as if
such Restricted Asset had been transferred as contemplated hereby and so that
all the benefits and burdens (including all obligations thereunder) relating to
such Restricted Asset, including possession, use, risk of loss, potential for
gain, control and command over such Restricted Asset, are to inure from and
after the Closing to Buyer. Buyer shall use its reasonable best efforts to
assist Seller in obtaining any necessary approvals to such subleases,
subcontracts or such other actions. As soon as a consent for the sale,
assignment, transfer, conveyance, delivery or assumption of a Restricted Asset
is obtained, the applicable Restricted Asset shall be deemed to have been
automatically and without further action transferred to Buyer in accordance with
the terms of this Agreement.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      ARTICLE
2

      REPRESENTATIONS AND
WARRANTIES OF THE SELLING PARTIES

      

      The
Selling Parties jointly and severally represent and warrant to Buyer
that:

      

      2.1      Corporate Organization;
Subsidiaries. Seller (a) is validly existing and in good standing
under the laws of its jurisdiction of formation or organization; (b) has
full power and authority to carry on the Businesses as it is now being conducted
by it and to own the properties and assets used in the Business it now owns; and
(c) is duly qualified or licensed to do business as a foreign Person in
good standing in all the jurisdictions in which such qualification or licensing
is required, except where the failure to be so qualified or licensed would not
have a Material Adverse Effect.

      

      2.2      Authorization. Each
Selling Party has the full power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by each Selling Party of this Agreement and the
consummation of the transactions contemplated hereby, have been duly authorized
and no other corporate or securityholder actions on the part of such Selling
Party are necessary to authorize the execution and delivery by such Selling
Party of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each Selling
Party, and (assuming due and valid authorization, execution and delivery hereof
by the other parties to this Agreement) is a valid and binding obligation of
such Selling Party enforceable against such Selling Party in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar Laws affecting creditors’ rights generally and
by the availability of equitable remedies.

      

      2.3       Consents and Approvals; No
Violation. Except as disclosed in Section 2.3 of the Seller Disclosure
Schedule, neither the execution, delivery or performance of this Agreement by
such Selling Party nor the consummation by such Selling Party of the
transactions contemplated hereby will (i) conflict with or violate any
provision of the organizational documents of such Selling Party;
(ii) conflict with or result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of notice, modification, payment, termination, cancellation or
acceleration) under, or result in the creation of any Lien upon any of the
Assets under, any of the terms, conditions or provisions of any Business
Contract or Rutledge Lease; (iii) violate any order, writ, judgment,
injunction, decree, law, statute, rule or regulation or other similar
authoritative matter (“Law”) applicable to
such Selling Party or any of their properties or assets except for violations
which would not have a Material Adverse Effect or (iv) require on the part
of such Selling Party any material filing or registration with, notification to,
or authorization, consent or approval of, any court, legislative, executive or
regulatory authority or agency (a “Governmental
Authority”) or, to the knowledge of Seller, any other Person, except, in
each case, such filings, registrations, notifications, authorizations, consents
or approvals the failure of which to obtain or make would not have a Material
Adverse Effect.

      

      2.4       Leased Real Property.
The lease with respect to Seller’s Rutledge facility located at 145 Newborn Rd.,
Rutledge, Georgia 30663  (the “Rutledge Lease”) is
legal, valid, binding, enforceable, and is in full force and effect, except as
enforcement may be limited by bankruptcy, insolvency, reorganization and similar
Laws affecting creditors generally and by the availability of equitable
remedies. Neither Seller nor, to the knowledge of Seller, any other party is in
default, violation or breach in any material respect under the Rutledge
Lease.  No event has occurred and is continuing that constitutes or,
with notice or the passage of time or both, would constitute a default,
violation or breach either by  Seller, or, to the knowledge of Seller,
any other party, in any material respect under the Rutledge
Lease.  The consent of the landlord [is/is not] required for
assignment of the Rutledge Lease.  Seller has provided Buyer with a
true and complete copy of the Rutledge Lease.

      

      2.5       Intellectual
Property. Seller either owns, or is licensed to use, all Intellectual
Property used or held for use in connection with the operation of the Business
(the “Business
Intellectual Property”). Section 2.5(a) of the Seller Disclosure
Schedule lists (by name, owner, date of first use and, where applicable,
registration number and jurisdiction of registration, application, certification
or filing) all Business Intellectual Property that are registered, or for which
an application for registration is pending, in the name of Seller that is owned
by Seller (whether solely or jointly with another Person). Section 2.5(b)
of the Seller Disclosure Schedule lists each Business Contract in which any
Business Intellectual Property is licensed to or from any third party (except
for agreements for the use of commercially available, off-the-shelf software).
There are no oppositions, cancellations, invalidity proceedings, interferences
or re-examination proceedings presently pending with respect to the Business
Intellectual Property owned by Seller. Except as set forth on
Section 2.5(c) of the Seller Disclosure Schedule, to the knowledge of
Seller, the conduct of the Business and the Business Intellectual Property owned
by Seller does not infringe on any Intellectual Property or other proprietary
rights of any Person.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      2.6      Business Contracts.
Each Business Contract is a legal, valid and binding obligation of the
applicable Seller and, to the knowledge of Seller, the other parties thereto
enforceable against the Seller, and to the knowledge of Seller, such other
parties in accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization and similar Laws affecting creditors
generally and by the availability of equitable remedies.  Neither
Seller nor, to the knowledge of Seller, any other party to such Business
Contract is in default, violation or breach in any material respect under any
Business Contract, and to Seller’s knowledge, no event has occurred and is
continuing that constitutes or with notice or the passage of time would
constitute, a material default, violation or breach in any respect under any
Business Contract.  Seller has provided Buyer with a true and complete
copy of each Business Contract, and the Business Contracts constitute all of the
material contractual obligations of Seller with respect to the
Business.

      

      2.7       Assets. Except as set
forth on Section 2.7 of the Seller Disclosure Schedule, Seller owns all of
the Assets free and clear of all Liens, except Permitted Liens.

      

      2.8      Benefit Plans;
ERISA.

      

      (a)   For
purposes of this Agreement, “Benefit Plan” shall
mean each deferred compensation plan, each incentive compensation or equity
compensation plan, “welfare” plan, fund
or program (within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)); “pension” plan, fund
or program (within the meaning of Section 3(2) of ERISA); each employment,
retention, termination or severance agreement; and each other employee benefit
plan, fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by a
Seller.

      

      (b)  
No Benefit Plan is or ever has been subject to Title IV or Section 302 of
ERISA. No liability under Title IV or Section 302 of ERISA has been
incurred by Seller that has not been satisfied in full, and no condition exists
that presents a material risk to Seller incurring any such
liability.

      

      (c)   Each
Benefit Plan has been operated and administered in all material respects in
accordance with its terms and applicable Law, including but not limited to ERISA
and the Code.

      

      (d)   No
event has occurred and no condition exists that would subject Seller by reason
of its affiliation with any or by any trade or business, whether or not
incorporated, that together with a Seller would be deemed a “single employer”
within the meaning of Section 414(b), (c), (m) or (o) of the Code to
any material liability imposed by ERISA, the Code or other applicable
Laws.

      

      2.9      Litigation. Except as
set forth on Section 2.9 of the Seller Disclosure Schedule, there is no
action, claim, suit, inquiry, judicial or administrative proceeding, audit or
investigation by or before any Governmental Authority or arbitral body pending
or to Seller’s knowledge, threatened against or involving the Assets, including,
without limitation, claims of employment discrimination or violations of health
or safety laws or regulations.

      

      2.10    Financial
Statements.  Seller has delivered to Buyer copies
of  its financial statements for its 2007 fiscal year as well as
monthly financial statements for each month of the 2008 fiscal year through May
2008, all of which financial statements: (i) have been prepared in accordance
with generally accepted accounting principles consistently
applied;  (ii) accurately set forth the gross income of the business;
(iii) do not over-state gross receipts of the Business; and (iv) do not
under-state expenses and other costs of the Business.  Except as shown
on the financial statements or Schedule 2.10 of the Seller Disclosure Schedule,
Seller has no Liabilities.

      

      2.11    Financial
Condition.  Since the end of Seller's last fiscal year, there
has not been:  (i) any material adverse change in the financial
condition of the Business or any other event or condition of any character which
has had or which may have a material adverse effect on the Business or the
Assets; (ii) any damage or destruction, whether or not covered by insurance,
materially or adversely affecting the Assets; (iii) any notice of any material
change in the purchase orders of, or relationship with, any of the customers of
Seller; or (iv) any action or transactions of Seller other than in the ordinary
and usual course of business.

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      2.12     Condition of
Assets.  To the best of Seller's knowledge, the Assets are in
good repair and operating condition free from any defects except for ordinary
wear and tear and such minor defects as will not interfere with the continued
use thereof in the conduct of normal operations.

      

      2.13    
List of Licenses and
Permits.  Section 2.13 of the Seller Disclosure Schedule
contains is a complete and accurate list of all licenses, permits,
authorizations and approvals required by any federal, state or local
governmental authority in connection with the operation of the Business, all of
which are in full force and effect, and to the extent assignable shall be
assigned to Buyer at Closing.

      

      2.14    Insurance. Section
2.14 of the Seller Disclosure Schedule contains a full and complete list of all
current policies of insurance relating to the Assets and/or the
Business.

      

      2.15    Environmental
Condition.  To the best of its knowledge:  (i) Seller
has not violated or incurred any liability under, any of the Environmental Laws,
as hereinafter defined; (ii) Seller has not caused or suffered the Premises (as
defined below) to contain or be subject to a discharge, as hereinafter defined,
of any Regulated Substance, as hereinafter defined; and (iii) the Premises on
which the Business and the Assets are located are not the site of any
underground storage tanks.  For the purpose of this subparagraph: the
term "Environmental Laws" means the Environmental Protection Act, Resource
Conservation And Recovery Act, Comprehensive Environmental Protection Act, Soil
Erosion And Sedimentation Control Act, Inland Lakes And Streams Act, and all
other statutes, laws and ordinances concerning the ecology of lands, all as
amended, including all regulations promulgated pursuant thereto; the term
"Regulated Substance" means any matter described or defined in, or which is the
subject matter of, or of which the manufacture, production, generation,
transportation or discharge is regulated or prohibited by any of the
Environmental Laws; and the term "discharge" includes, but is not necessarily
limited to, emission, disposal and spill.

      

      2.16     Taxes.  Seller
has satisfied all of its obligations for state and/or federal sales tax,
personal property taxes, unemployment compensation taxes, social security taxes,
income taxes, withholding taxes and any other obligations of Seller which may or
could constitute a lien on any of the Assets, and Seller agrees to obtain
clearance certificates from the applicable governmental authorities and paid
receipts for any of the foregoing upon Buyer’s request;  Seller has
properly completed and filed in correct form all federal, state, county, local
and foreign income, excise, property, sales, use and other tax returns which are
required to be filed by Seller up to and including the Closing, all of which
have been prepared and filed on a timely basis and in accordance with applicable
law; Seller has properly withheld from the salaries, wages or other compensation
paid or payable to its officers, employees and other persons, and has paid the
appropriate federal, state and local authorities, all amounts required to be
withheld therefrom under applicable laws, rules and regulations.

      

      2.17    Premises.  The
real property described in the Rutledge Lease (the "Premises") comprise
all real property owned, leased or used in connection with the operation of the
Business of Seller; the use of the Premises by Seller does not currently violate
any applicable zoning, building or use statutes, rules, ordinances or
regulations of any federal, state, county or local entity, authority or agency,
or any other building or use restriction applicable thereto.

      

      2.18    Employees/Collective
Bargaining Agreements.  No collective bargaining agreement
presently covers any employees of Seller, nor is any such agreement currently
being negotiated by Seller and, to the best knowledge, information and belief of
Seller, no attempt to organize any group or all of the employees of Seller has
been made or proposed;  Seller is in compliance in all respects with
all state and federal laws relating to employment and employment practices,
terms and conditions of employment and wages and hours, and Seller has not
engaged in any unfair labor practices; to the best of Seller's knowledge, no
executive, key employee or group of employees has indicated any intention or
desire to decline employment with Buyer, if offered.  Section 2.18 of
the Seller Disclosure Schedule lists all of Seller’s employees as well as
current salary and benefit information (including such information for those
employees on leave).

      

      2.19     Brokers. Seller is
not a party to any agreement with any finder, broker or consultant, or in any
way obligated to any finder, broker or consultant for any commissions, fees or
expenses, in connection with the origin, negotiation, execution or performance
of this Agreement.

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      2.20    Product
Warranties.  Section 2.20 of the Seller Disclosure Schedule
contains is a complete and accurate list of all product warranties in effect
(the "Product Warranties").  Except as disclosed on Section 2.20 of
the Seller Disclosure Schedule, there are no outstanding claims, and Seller does
not know of any basis for such a claim, with respect to the Product
Warranties.

      

      2.21    No Other Representations or
Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 2, NEITHER
SELLER NOR SELLING SHAREHOLDERS MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, AT LAW OR IN EQUITY, REGARDING SELLER, SELLING SHAREHOLDERS, THE
BUSINESS OR ANY OF ITS RESPECTIVE ASSETS, LIABILITIES, OPERATIONS OR PRACTICES
OR THE CONDUCT OF ANY EMPLOYEES OR CONTRACTORS OF SELLER. EACH OF SELLER AND
SELLING SHAREHOLDERS EXPRESSLY DISCLAIMS ANY OTHER REPRESENTATIONS OR
WARRANTIES, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO BUYER OR ITS
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION.

      

      2.22    
Scope of
Representations and Warranties.  The representations and
warranties of Seller contained in this Agreement are accurate and complete in
all material respects and do not contain any untrue statement of material fact
or omit to state a material fact necessary to make the statements herein and
therein not misleading.  To the best of its knowledge, Seller has
disclosed to Buyer all material facts relating to the Assets and/or the Business
and the assets, liabilities, operations, financial condition, operating results
and prospects of Seller.  There are no facts, conditions or
circumstances known to Seller which would or may have a material adverse effect
on Seller by reason of any matter relating to defective products designed,
manufactured or sold, or services rendered or performed, by Seller under any
express or implied warranty with respect to jobs completed, products or goods
delivered to customers of Seller or services performed by Seller

      

      2.23    Acceptance of Purchase Price
Shares.

      

      (a)   The
Selling Shareholders acknowledge that, unless they have been advised by Buyer
that a current registration statement is in effect covering the resale of the
Purchase Price Shares, because the Purchase Price Shares have not been
registered under the Act, the Purchase Price Shares must be held by the Selling
Shareholders indefinitely unless subsequently registered under the Act or an
exemption from such registration is available. The Selling Shareholders are
aware of the provision of Rule 144 promulgated under the Act that permits the
limited resale of shares subject to the satisfaction of certain conditions,
including, among other things, the satisfaction of having held the Purchase
Price Shares for a certain duration of time, the availability of certain current
public information about the Buyer, the sale being through a "broker's
transaction" (as provided by Rule 144(f)), and the volume of shares sold not
exceeding specified limitations (unless the sale is within the requirements of
Rule 144(k)).

      

      (b)   The
Selling Shareholders each is: (i) an accredited investors as defined in Rule
501(a) of Regulation D of the SEC; (ii)(A) either alone or with the Selling
Shareholders’ professional advisor or advisors, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of acquiring the Purchase Price Shares, (B) either alone by
reason of the Selling Shareholders’ business or financial experience or together
with the Selling Shareholders’ professional advisor or advisors, has the
capacity to protect the Selling Shareholders’ interests in connection with
acquisition of the Purchase Price Shares; and (iii) able to bear the economic
risk of the investment in the Purchase Price Shares, including a complete loss
of the investment.

      

      (c)   The
Selling Shareholders each has had an opportunity to ask questions of and receive
answers from Buyer or its representatives concerning the Purchase Price Shares,
all such questions have been answered to the full satisfaction of each Selling
Shareholder, and the Selling Shareholders each has had the opportunity to
request and obtain any additional information the Selling Shareholders deemed
necessary to verify or supplement the information contained therein. Each of the
Selling Shareholders has reviewed and understands the disclosure provided in
Buyer’s Form 10-K filed with the SEC on April 15, 2008, Form 10-K/A filed with
the SEC on April 30, 2008 and Form 10-Q filed with the SEC on May 19,
2008.

      

      (d)   The
Selling Shareholders each recognize that an investment in the Purchase price
Shares involves substantial risks, and is fully aware of and understands all of
the risk factors related to the acquisition of the Purchase Price Shares. Each
of the Selling Shareholders has determined that the acquisition of the Purchase
Price Shares is consistent with their investment objectives.

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      (e)   The
Selling Shareholders are not relying on Buyer with respect to tax and other
economic considerations involved in the acquisition of the Purchase Price Shares
and each has carefully considered and has, to the extent they believe such
discussion is necessary, discussed with each of their professional, legal, tax,
accounting and financial advisors the suitability of an investment in the
Purchase Price Shares for each of the Selling Shareholders’ particular tax and
financial situation.

      

      (f)   The
Selling Shareholders understand that the Purchase Price Shares shall bear one or
more of the following restrictive legends:

      

      (i)       "THESE
SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND
QUALIFICATION UNDER THE ACT AND SUCH LAWS IS NOT REQUIRED"; and

       

      (ii)     
Any
legend required by applicable state law.

      

      (g)   he
provisions of Rule 144 promulgated under the Act notwithstanding, the Selling
Shareholders acknowledge and agree that, in the absence of an effective
registration statement with respect to the Purchase Price Shares stating
otherwise: (i) A total of one million Purchase Price Shares shall be held by
Selling Shareholders for a minimum period of two years from the date of closing,
prior to any sale, transfer or hypothecation of such shares; and (ii) a total of
one million Purchase price Shares shall be held by Selling Shareholders for a
minimum period of three years from the date of closing, prior to any sale,
transfer or hypothecation of such shares.

      

      ARTICLE
3

      REPRESENTATIONS AND
WARRANTIES OF BUYER

      

      Buyer
hereby represents and warrants to the Selling Parties that:

      

      3.1       Corporate
Organization. Buyer is a corporation duly formed, validly existing and in
good standing under the laws of Delaware. Buyer has delivered to Seller all
documents requested by Seller relating to the existence of Buyer, the authority
of Buyer to enter into this Agreement and in furtherance of the transactions
contemplated by this Agreement, including any financing documents.

      

      3.2       Authorization. Buyer
has the full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery
and performance by Buyer of this Agreement and the consummation of the
transactions contemplated hereby, have been duly authorized and no other
corporate or shareholder actions on the part of Buyer are necessary to authorize
the execution and delivery by Buyer of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer and (assuming due and valid authorization, execution and
delivery hereof by the Selling Parties) is a valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or other
similar Laws affecting creditors’ rights generally and by the availability of
equitable remedies.

      

      3.3       No Violation;
Consents. Neither the execution, delivery or performance of this
Agreement by Buyer nor the consummation by Buyer of the transactions
contemplated hereby will (i) conflict with or violate any provision of the
Restated Certificate of Incorporation, as amended from time to time, of Buyer;
(ii) conflict with or result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of notice, modification, payment, termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, lease, license, permit, contract, agreement or
other instrument, obligation, arrangement or understanding to which Buyer is a
party or by which it or any of its properties or assets may be bound;
(iii) violate any Law applicable to Buyer or any of its properties or
assets or (iv) require on the part of Buyer any material filing or
registration with, notification to, or authorization, consent or approval of,
any Governmental Authority, except in the case of clause (ii) or
(iv) for such violations, breaches or defaults which, or filings,
registrations, notifications, authorizations, consents or approvals the failure
of which to obtain would prevent Buyer from consummating the transactions
contemplated by this Agreement.

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      3.4      Financial Capacity.
Buyer has sufficient cash on hand or financing to consummate the transactions
contemplated by this Agreement and to pay all fees and expenses of Buyer related
to the transactions contemplated by this Agreement.

      

      3.5      Brokers. Buyer is not
a party to any agreement with any finder, broker or consultant, or in any way
obligated to any finder, broker or consultant for any commissions, fees or
expenses, in connection with the origin, negotiation, execution or performance
of this Agreement.

      

      ARTICLE
4

      COVENANTS

      

      4.1      Taxes; Post-Closing
Access.

      

      (a)   All
real estate Taxes, personal property Taxes and similar ad valorem obligations
levied with respect to the Assets for a taxable period that includes (but does
not end on) the Closing Date shall be apportioned between Seller, on the one
hand, and Buyer, on the other hand, as of the Closing Date based on the number
of days of such taxable period included in the period ending with and including
the Closing Date (with respect to any such taxable period, the “Pre-Closing Tax
Period”), and the number of days of such taxable period beginning after
the Closing Date (with respect to any such taxable period, the “Post-Closing Tax
Period”). Seller shall be liable for the proportionate amount of such
Taxes that is attributable to the Pre-Closing Tax Period, and Buyer shall be
liable for the proportionate amount of such Taxes that is attributable to the
Post-Closing Tax Period.

      

      (b)   After
the Closing, upon reasonable notice, Buyer, on the one hand, and Seller, on the
other hand, agree to furnish or cause to be furnished to each other and their
representatives, employees, counsel and accountants access, during normal
business hours, to such information (including access to books and records) and
assistance relating to the Assets as are reasonably necessary for financial
reporting and accounting matters relating to the Assets, the preparation and
filing of any Tax Returns, reports or forms relating to the Assets, the making
of any election relating to Taxes, the preparation for any audit, including but
not limited to, by any taxing authority, the defense of any Tax or other claim
or assessment relating to the Assets or, in the case of Seller, for any lawful
purpose relating to the conduct of the Business prior to the Closing, provided,
however, that such access and assistance do not unreasonably disrupt the normal
operations of Buyer, in the case of access and assistance given to Seller, or
Seller, in the case of access and assistance given to Buyer.

      

      (c)   At
the request of Seller in reliance on Seller’s representation in Section 2.10 of
this Agreement, Seller’s covenant in Section 4.8 of this Agreement, and the
Selling Parties’ indemnification obligation in Article 5 of this Agreement, the
parties have not complied with the provisions of the “bulk sales,” “bulk transfer” or
similar Laws of any state or political subdivision.

      

      4.2      Employees.

      

      (a)   Prior
to the Closing, Buyer shall not be prohibited from soliciting any of Seller’s
employees and the Selling Parties shall reasonably cooperate with the Buyer in
connection with any employment offers contemplated under this
Section 4.2.  Buyer shall undertake good-faith efforts to conduct
such solicitation in a manner which is not disruptive to Seller's ongoing
business activities.

      

      (b)   Effective
immediately prior to the Closing, Seller has terminated all employees and will
pay any and all obligations arising from that termination.  Effective
as of the Closing, the Buyer shall offer employment to all employees listed on
Section 4.2(b) of the Seller Disclosure Schedule on terms (including
salary) comparable to currently offered terms to such employees by Seller. Any
employees receiving offers of employment from the Buyer and who accept such
employment offer are hereinafter referred to as “Transferred
Employees”.  Buyer may require the Transferred Employees waive
any claims against Buyer for any matters arising prior to Closing as a condition
of hiring.

      

      4.3      Publicity. Except as
may be required by Law, no public announcements relating to the Agreement or the
transaction shall be made without the prior consent of the other party. Buyer
acknowledges that the Selling Parties will issue a press release relating to the
transactions contemplated by this Agreement and will file a Form 8-K with the
United States Securities and Exchange Commission which will include a copy of
this Agreement, provided, that Buyer will have an opportunity to review and
comment on the Form 8-K and press release prior thereto.

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      4.4       Information and
Access. Prior to the Closing, Seller shall permit representatives of
Buyer to have reasonable access during normal business hours, and in a manner so
as not to interfere with the normal operations, to all premises, properties,
personnel, accountants, books, records, contracts and documents of or pertaining
to the Business. Buyer shall and shall cause each of its representatives to
treat and hold as confidential such information.

      

      4.5      Confidentiality. The
Selling Parties agree that, from and after the Closing, except as otherwise
consented to in writing by Buyer or to comply with this Agreement or applicable
Laws, (i) they will not directly or indirectly disclose or use in a manner
adverse to Buyer or the Business, any confidential information related to the
Business or the Assets, and (ii) if any of the Selling Parties receive a request
to disclose all or any part of such confidential information in connection with
a legal proceeding, such party will (A) promptly notify Buyer of the
existence, terms and circumstances surrounding such request, to the extent
permitted by Law, (B) if requested by Buyer, seek a protective order with
respect to the disclosure of such confidential information at the expense of
Buyer, and (C) in the event no such protective order or other remedy is
obtained and disclosure of such information is required, exercise their
reasonable best efforts, if requested by Buyer, to obtain an order or other
reliable assurance that confidential treatment will be accorded to such
confidential information required to be disclosed, at the reasonable expense of
Buyer.

      

      4.6      Further Assurances.
After the Closing, the Selling Parties shall, from time to time, at the request
of Buyer, and without further expense to Buyer, execute and deliver such other
instruments of conveyance and transfer (including powers of attorney) as Buyer
may reasonably request, in order to more effectively consummate the transactions
contemplated hereby and to vest in Buyer good and marketable title to the Assets
(or in the case of the Rutledge Lease, valid leasehold interests), including
assistance in the collection or reduction to possession of any such
Assets.

      

      4.7      Change of Name. On
the Closing Date, Seller shall amend its organizational documents so as to
delete therefrom the words “Air-Tight Marketing &
Distribution” or “Air-Tight Marketing &
Distribution, Inc.” as applicable and will file, as promptly as
practicable, but in no event later than three (3) business days therafter, such
documents as are necessary to reflect such name change in its state of formation
or organization and the other jurisdictions where it is qualified to do business
as a foreign Person. Seller further agrees that, from and after the Closing,
except as otherwise provided in the Licensed Applicator Agreement, Seller will
not adopt any name that is confusingly similar to “Air-Tight Marketing &
Distribution” or “Air-Tight Marketing &
Distribution, Inc.”.

      

      4.8      Discharge of Excluded
Liabilities; Post-Closing Operations of Seller. From and after the
Closing, Selling Shareholders shall cause Seller to pay and discharge, when due,
the Excluded Liabilities.

      

      4.9       Non-Competition and Related
Matters.

      

      (a)   Non-Competition.  As
a material inducement to Buyer entering into this Agreement, the Selling Parties
agree that they shall not for a period of five (5) years (“Restricted Period”),
either directly or indirectly, for himself or any third party, anywhere in North
America:  (a) engage in or have any interest in any activity that
directly or indirectly competes or intends to compete with the business of Buyer
or of any of its affiliates (which for purposes hereof shall include all
subsidiaries or parent companies of Buyer, now or in the future during the
Restricted Period), as currently conducted and contemplated and disclosed to the
Sellers, including without limitation, accepting employment from or providing
consulting services to any such competitor, owning any interest in or being a
partner, shareholder or owner of any such competitor, (b) solicit, induce,
recruit, or cause another person in the employ of Buyer or its affiliates or who
is a consultant or independent contractor for Buyer or its affiliates to
terminate his employment, engagement or other relationship with Buyer or its
affiliates, or (c) except as permitted in the Licensed Applicator Agreement,
solicit or accept business from any individual or entity which shall have
obtained the goods or services of, or purchased goods or services from, Seller
or Buyer or which otherwise competes with or engages in a business which is
competitive with or similar to the business of Buyer or any of its affiliates,
(d) except as permitted in the Licensed Applicator Agreement, call on, solicit
or accept any business from any of the actual or targeted prospective customers
of Seller or Buyer and its affiliates (the identity of and information
concerning which constitute trade secrets and Confidential Information of Buyer)
on behalf of any person or entity in connection with any business competitive
with the business of Buyer, nor shall Sellers make known the names and addresses
of such customers or any information relating in any manner to Seller’s or
Buyer’s trade or business relationships with such customers.

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

      (b)   Acknowledgment by Selling
Parties.  The Selling Parties acknowledge and confirm that (i)
the restrictive covenants contained in this Agreement are reasonably necessary
to protect the legitimate business interests of the Buyer, and (ii) the
restrictions contained in this Agreement (including without limitation the
geographic area and length of the term of the provisions of Section 2 are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Selling Shareholders acknowledge and confirm that
their special knowledge of the business of Seller is or will be such as would
cause Buyer serious injury or loss and substantially diminish the value of the
Business if he were to use such ability and knowledge to the benefit of a
competitor or were to compete with Buyer in violation of the terms of this
Agreement. The Selling Parties further acknowledges that the restrictions
contained in this Agreement are intended to be, and shall be, for the benefit of
and shall be enforceable by, Buyer’s successors and assigns and shall be
enforced to the fullest extent of the law applicable at the time that Buyer
deems it necessary or advisable to enforce the restrictive covenants and other
provisions of this Agreement.

      

      (c)   Injunctive Relief;
Damages.  Because of the difficulty of measuring economic
losses to Buyer as a result of a breach of the covenants in this Agreement, and
because of the immediate and irreparable damage that could be caused to Buyer
for which it would have no other adequate remedy, the Selling Parties agree that
the covenants in this Agreement may be enforced by Buyer in the event of breach
by any of the Selling Parties, by injunctions and restraining orders. Nothing
herein shall be construed as prohibiting Buyer from pursuing any other available
remedy for such breach or threatened breach, including recovery of
damages.

      

      (d)  Severability; Reformation;
Independent Covenants. The covenants in this Agreement are severable and
separate, and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable,
and the Agreement shall thereby be reformed. Each covenant and agreement of the
Selling Parties in this Agreement shall be construed as an agreement independent
of any other provision in this Agreement, and the existence of any claim or
cause of action by the Selling Parties against Buyer (including the affiliates
thereof), whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Buyer of such covenants or
agreements.  It is specifically agreed that the periods of restriction
during which the agreements and covenants of the Selling Parties made in this
Agreement shall be effective, shall be computed by extending such periods by the
amount of time during which the Selling Parties each is in violation of any
provision of this Agreement. The covenants contained in this Agreement shall not
be affected by any breach of any other provision hereof by any party
hereto.

      

      (e)   Survival.  The
obligations of the parties under this Agreement shall survive the termination of
this Agreement.

      

      4.10    “As Is” Condition.
Subject to the representations and warranties of the Selling Parties set forth
in Article 2 with respect to the Assets, Buyer agrees that it shall accept
all Assets in an “As Is” “Where Is” condition at the Closing.  Except
as otherwise expressly provided in Article 2, Seller makes no warranty with
respect to the resale value, condition or use of the Assets, whether expressed
or implied, including, without limitation, any implied warranty of
merchantability or fitness for a particular purpose.

      

      4.11     Administration of Accounts
and Related Matters.

      

      (a)   All
payments and reimbursements made in the ordinary course of business by any third
party in the name of or to Seller or any affiliate thereof in connection with or
arising out of the Assets or the Assumed Liabilities after the Closing Date, or
any inventory that is part of the Assets that is returned to Seller or any
affiliate thereof, shall be held by such Person in trust for the benefit of
Buyer and, immediately upon receipt by such Person of any such payment,
reimbursement or inventory such Person shall pay over to Buyer the amount of
such payment or reimbursement or deliver to Buyer such inventory without right
of set off.

      

      (b)  All
payments and reimbursements made in the ordinary course of business by any third
party in the name of or to Buyer or any affiliate thereof in connection with or
arising out of the Excluded Assets or Excluded Liabilities after the Closing
Date shall be held by such Person in trust for the benefit of Seller and,
immediately upon receipt by such Person of any such payment or reimbursement,
such Person shall pay over Seller the amount of such payment or reimbursement
without right of set off.

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

      ARTICLE 5

      SURVIVAL AND
INDEMNIFICATION

      

      5.1      Survival of Representations,
Warranties and Covenants. All representations and warranties of each
party contained in this Agreement shall survive the Closing, for a period ending
twelve months from the Closing Date, except that: (a) the representations
and warranties set forth in Sections 2.1, 2.2, 2.7, 2.8, 3.1 and 3.2 shall
survive until the applicable statute of limitations has run plus 30 days;
and (b) all representations or warranties shall survive beyond such period
with respect to any inaccuracy therein or breach thereof, notice of which shall
have been duly given within such applicable period in accordance with Section
5.3(a) hereof. The covenants and agreements contained herein shall survive the
Closing without limitation as to time unless the covenant or agreement specifies
a term, in which case such covenant or agreement shall survive for such
specified term.

      

      5.2      
Indemnification.

      

      (a)   Subject
to the limits set forth in this Article 5, the
Selling Parties agree to jointly and severally indemnify, defend and hold Buyer,
its officers, directors, employees, agents, representatives and affiliates,
harmless from and in respect of any and all actual losses, damages, costs and
expenses (including, demands, suits, claims, actions, assessments, Liabilities,
judgments, expenses of investigation and reasonable fees and disbursements of
counsel) (collectively, “Losses”), that they
may incur arising out of or due to (i) the breach of any representation or
warranty of any of the Selling Parties contained in this Agreement,
(ii) the breach by any of the Selling Parties of any covenant, undertaking
or other agreement of any of the Selling Parties contained in this Agreement,
(iii) the Excluded Liabilities, (iv) enforcing the indemnification
rights of Buyer pursuant to this Article 5, (v)
non-compliance with any applicable bulk sales laws and (vi) transfer, sales or
use taxes arising from the transactions contemplated in this
Agreement.

      

      (b)  Subject
to the limits set forth in this Article 5, Buyer
agrees to indemnify, defend and hold the Selling Parties and their respective
officers, directors, employees, agents, representatives and affiliates, harmless
from and in respect of any and all Losses that they may incur arising out of or
due to (i) the breach of any representation or warranty of Buyer contained
in this Agreement, (ii) the breach by Buyer of any covenant, undertaking or
other agreement of Buyer contained in this Agreement, (iii) the Assumed
Liabilities, and (iv) enforcing the indemnification rights of the Selling
Parties pursuant to this Article
5.

      

      (c)   Neither
the Selling Parties nor Buyer shall have any liability with respect to matters
described in Sections 5.2(a) or 5.2(b), respectively, for Losses (other than in
the case of fraud) until the total of all Losses exceeds $25,000 and then the
full amount of such Losses shall be subject to indemnification hereunder. The
parties hereby acknowledge and agree that their sole and exclusive remedy with
respect to any and all claims (other than in the case of fraud) relating to the
subject matter of this Agreement and the transactions contemplated hereby shall
be pursuant to the indemnification provisions set forth in this Article 5.
In no event shall a party be entitled to recover any consequential or punitive
damages of any kind under this Agreement. For the purposes of computing the
amount of any Losses incurred under this Article 5 there
shall be deducted an amount equal to the amount of any insurance proceeds,
indemnification payments, contribution payment or reimbursements actually
received in the respect of such Losses or any of the circumstances giving rise
thereto, other than pursuant to this Agreement. The indemnification obligations
of the Selling Parties under Sections 5.2(a)(i) and 5.2(a)(ii) and the
indemnification obligations of Buyer under Sections 5.2(b)(i) and 5.2(b)(ii)
shall survive the Closing Date for only the periods specified in Section 5.1 and
no claim for the recovery of Losses may be asserted by either the Selling
Parties or Buyer after such periods specified in Section 5.1. The parties agree
that any indemnification payments made pursuant to this Agreement shall be
treated for tax purposes as an adjustment to the Purchase Price, unless
otherwise required by applicable Law.   Subject to the foregoing,
the Note shall permit Buyer to offset any unpaid obligations of the Selling
Parties pursuant to Section 5.2(a) above from any amounts due thereunder in
addition to any and all other remedies provided herein or at law or in
equity.

      

      5.3       Claims for
Indemnification.

      

      (a)   The
parties intend that all indemnification claims be made as promptly as
practicable by the party seeking indemnification (the “Indemnified Party”).
Whenever any claim shall arise for indemnification, the Indemnified Party shall
promptly notify the party from whom indemnification is sought (“Indemnifying Party”)
of the claim, and the facts constituting the basis for such claim. The failure
to so notify the Indemnifying Party shall not relieve the Indemnifying Party of
any liability that it may have to the Indemnified Party, except to the extent
the Indemnifying Party demonstrates that the defense of such action is
materially prejudiced thereby.

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

       

      (b)         With
respect to claims made by third parties, the Indemnifying Party, upon
acknowledgement of its obligations under the terms of the indemnity hereunder in
connection with such third party claim, shall be entitled to assume the defense
of such action or claim with counsel reasonably satisfactory to the Indemnified
Party. No Indemnifying Party shall consent to the entry of any judgment or enter
into any settlement without the consent of the Indemnified Party (A) if
such judgment or settlement does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnified Party of a release
from all liability in respect to such claim, (B) if such judgment or
settlement would result in the finding or admission of any violation of Law, or
(C) if as a result of such consent or settlement, injunctive or other
equitable relief would be imposed against the Indemnified Party or such judgment
or settlement would interfere with or adversely affect the business, operations
or assets of the Indemnified Party. The Indemnified Party agrees to cooperate
with the Indemnifying Party and its counsel in the defense against any such
asserted claim. The Indemnified Party shall have the right to participate at its
own expense in the defense of such asserted claim, but shall not be entitled to
settle or compromise such asserted claim without the prior written consent of
the Indemnifying Party, such consent not to be unreasonably withheld.
Notwithstanding the foregoing, if (i) the claim for indemnification is with
respect to a criminal proceeding, action, indictment, allegation or
investigation against the Indemnified Party, (ii) the Indemnified Party has
been advised by counsel that a reasonable likelihood exists of a conflict of
interest between the Indemnifying Party and the Indemnified Party,
(iii) the Indemnifying Party has failed or is failing to vigorously
prosecute or defend such claim or shall have failed to have engaged counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time or (iv) the claim seeks an injunction or other equitable relief
against the Indemnified Party, then (A) the Indemnifying Party shall not be
entitled to assume the defense of any such claim or action, (B) the
Indemnified Party shall have the right to conduct and control the defense of
such action or claim with counsel of its choosing and the reasonable legal and
other expenses incurred by the Indemnified Party shall be borne by the
Indemnifying Party and (C) the Indemnifying Party shall not be bound by any
defense or settlement that the Indemnified Party shall make in respect to such
action or claim without the consent of the Indemnifying Party.

      

      ARTICLE 6

      CONDITIONS TO
CLOSING

      

      6.1       Conditions to Seller’s
Obligations. The obligation of Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by Seller) of each of the following conditions on or prior to the
Closing Date:

      

      (a)   the
representations and warranties of Buyer contained in this Agreement shall be
true and correct, without giving effect to any qualification as to materiality
(or any variation of such term) contained in any particular representation or
warranty, on and as of, the Closing Date, as though such representations and
warranties were made on and as of the Closing Date, except to the extent that
any such breach together with all other such breaches does not materially impair
Buyer’s ability to perform its obligations hereunder. Buyer shall have delivered
to Seller a certificate of its duly-authorized office, dated as of the Closing
Date, to the foregoing effect;

      

      (b)   Buyer
shall have performed and complied in all material respects with all covenants to
be performed or complied with by it on or prior to the Closing Date. Buyer shall
have delivered to Seller a certificate, dated the Closing Date, to the foregoing
effect;

      

      (c)   no
Law shall have been enacted, issued, promulgated, enforced or entered which is
in effect and has the effect of making the sale of the Assets by Seller to Buyer
or any of the other transaction contemplated by this Agreement illegal or
otherwise restraining or prohibiting the consummation of the sale of the Assets
by Seller to Buyer or any of the other transactions contemplated by this
Agreement; and

      

      (d)   the
consents, authorizations, approvals and waivers set on the Seller Disclosure
Schedule 6.1(d) shall have been obtained.

      

      6.2       Conditions to Buyer’s
Obligations. The obligation of Buyer to consummate the transactions
contemplated by this Agreement is subject to the satisfaction (unless waived in
writing by Buyer) of each of the following conditions on or prior to the Closing
Date:

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

       

      (a)   the
representations and warranties of Seller and Selling Shareholders contained in
this Agreement shall be true and correct, without giving effect to any
qualification as to materiality or Material Adverse Effect (or any variation of
such terms) contained in any particular representation or warranty, on and as of
the Closing Date with the same force and effect as though made on and as of the
Closing Date, except to the extent any such breach together with all other such
breaches does not, or could not reasonably be expected to constitute a Material
Adverse Effect. Seller shall have delivered to Buyer a certificate of its
President, a Vice President or Secretary, dated the Closing Date, to the
foregoing effect;

      

      (b)  Seller
shall have performed and complied in all material respects with all covenants to
be performed or complied with by it on or prior to the Closing Date. Seller
shall have delivered to Buyer a certificate of its President, a Vice President
or Secretary, dated the Closing Date, to the foregoing effect; and

      

      (c)   no
Law shall have been enacted, issued, promulgated, enforced or entered which is
in effect and has the effect of making the sale of the Assets by Seller to Buyer
or any of the other transaction contemplated by this Agreement illegal or
otherwise restraining, or prohibiting the consummation of the sale of the Assets
by Seller to Buyer or any of the other transactions contemplated by this
Agreement.

      

      (d)   Buyer
shall have obtained any required written consents of its lender, ComVest Capital
LLC, to this Agreement and the Option Agreement with Ted J. Medford, on terms
acceptable to Buyer in its sole discretion.

      

      (e)   Each
of the Transferred Employees identified on Section 4.2(b) of the Seller
Disclosure Schedule as "Key Employees" shall have entered into employment
agreements with Buyer on terms acceptable to Buyer in its sole
discretion.

      

      (f)    Seller
shall have delivered to Buyer a Tax Clearance letter from the Georgia Department
of Revenue.

      

      (g)   Seller
shall have delivered to Buyer a sales tax exemption resale certificate with
respect to inventory included in the Assets.

      

      (h)   Buyer
shall have received a lien search report with respect to the Assets which shall
be satisfactory to Buyer in all respects.

      

      ARTICLE 7

      TERMINATION

      

      7.1       Termination. This
Agreement and the transactions contemplated hereby may be terminated in any of
the following ways at any time before the Closing and in no other
manner:

      

      (a)   by
mutual written consent of Buyer, Seller and Selling Shareholders;

      

      (b)   by
Buyer or Selling Parties (if such terminating party is not then in default of
any of its obligation hereunder), by written notice to the other, if the Closing
shall not have occurred on or before July 1, 2008;

      

      7.2      Effect of
Termination. In the event this Agreement is terminated pursuant to
Section 7.1, all further obligations of the parties hereunder shall
terminate, except for the obligations set forth in Sections 4.4, 7.2 and 8.2,
and except that nothing in this Section 7.2 shall relieve any party hereto of
any liability for breach of this Agreement prior to such
termination.

      

      ARTICLE 8

      MISCELLANEOUS

      

      8.1       Amendment, Extension and
Waiver. Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed, in the case of an
amendment, by each party to this Agreement, or in the case of a waiver, by the
party against whom the waiver is to be effective. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      
         

        8.2      Expenses. Each party
shall pay its own legal, accounting and other miscellaneous expenses incident to
the negotiation, preparation and execution of this Agreement and the
consummation of the transactions contemplated by this
Agreement.

      8.3      Entire Agreement; No
Third-Party Beneficiaries. This Agreement, and the Seller Disclosure
Schedule constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.  This Agreement shall be deemed to replace the
Asset Purchase Agreement entered into between the parties on June 3, 2008 (the
"Former Agreement").

      

      8.4      Headings. The Article
and Section headings contained herein are for reference purposes only and shall
not affect in any way the meaning or interpretation of this
Agreement.

      

      8.5      Notices. All notices,
requests, demands and other communications made under or by reason of the
provisions of this Agreement shall be in writing and shall be given by hand
delivery, overnight air courier or facsimile transmission to the parties at the
addresses set forth below.

      

      
        	
                If
      to any of the Selling Parties:

              	
                Larry
      P. Medford and Ted J. Medford

              

      

      179 West
Main Street

      P.O. Box
311

      Rutledge,
Georgia  30663

      Fax:
706-557-3205

      

      With a
copy (which shall not constitute notice)

      
        	
              	
                given
      in the manner prescribed above, to:

              	
                Lawrence
      M. Merlin

              

      

      Friedman,
Dever & Merlin, LLC

      5555
Glenridge Connector, Suite 925

      Glenridge
Highlands

      Atlanta,
Georgia  30342

      Fax:
(404) 236-8609

      

      
        	
                 
      

              	
                If
      to Buyer:

              	
                LaPolla
      Industries, Inc.

              

      

      15402
Vantage Parkway East, Suite 322

      Houston,
Texas  77032

      Fax:
(281) 219-4710

      

      With a
copy (which shall not constitute notice)

      
        	
              	
                given
      in the manner prescribed above, to:

              	
                Matthew
      A. Kornhauser

              

      

      Hoover
Slovacek, LLP

      5847 San
Felipe, Suite 2200

      Houston,
Texas  77057

      Fax:
(713) 977-5395

      

      Any such
notice, request, demand or other communication shall be deemed to have been
received (i) when delivered, if delivered by hand or sent by facsimile, or
(ii) on the second (2nd) business day after dispatch, if sent by overnight
air courier.

      

      8.6      Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, legal representatives and assigns, but this
Agreement may not be assigned by any party without the written consent of the
other parties.

      

      8.7      Severability. Any
term or provision of this Agreement that is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent jurisdiction or
other authority declares that any term or provision hereof is invalid, void or
unenforceable, the parties agree that the court making such determination shall
have the power to reduce the scope, duration, area or applicability of the term
or provision, to delete specific words or phrases, or to replace any invalid,
void or unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

       

      8.8      Applicable Law. This
Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of Texas, without giving effect to the conflict of
laws provisions thereof.

      

      8.9      Interpretation. When
a reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. Whenever the words “include”, “includes” or “including” are used
in this Agreement they shall be deemed to be followed by the words “without limitation.”
As used in this Agreement, the term “affiliate” shall have
the meaning set forth in Rule 12b-2 of the Securities Exchange Act of 1934,
as amended. The words describing the singular number shall include the plural
and vice versa, and words denoting any gender shall include all genders and
words denoting natural persons shall include corporations and partnerships and
vice versa.

      

      8.10    Jurisdiction and
Venue.  This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to conflict of
laws principles to the extent that such principles would require the application
of laws other than the laws of the state of Texas.  Jurisdiction and
venue for any action brought hereunder or in connection herewith shall be in
Harris County, Texas and the parties hereto waive any claim that such forum is
inconvenient.

      

      8.11    Arbitration.   It
is the goal of the parties to maintain, at all times, a constructive and
positive relationship on the matters described above. However, should a dispute
arise between the parties, the parties believe that a prompt and fair resolution
is in the interests of all concerned. To this end, if any controversy or claim
arises out of or relating to this Agreement in connection with the above
described or any other matters, both parties waive any right to bring a court
action or have a jury trial and agree that the dispute shall be submitted to
binding arbitration to be conducted in the city of Houston, county of Harris,
state of Texas before the American Arbitration Association (“AAA”) in accordance
with the Commercial Arbitration Rules of the AAA.

      

      8.12     Specific Performance.
Each of the parties acknowledges and agrees that the other party would be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the parties agrees that the other party shall be entitled
to seek an injunction or injunctions to prevent breaches of the provisions of
this Agreement and to enforce specifically this Agreement and the terms and
provisions hereof, in addition to any other remedy to which it may be entitled,
at law or in equity.

      

      8.13     Counterparts. This
Agreement may be executed simultaneously in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

      

      ARTICLE
9

      CERTAIN
DEFINITIONS

      

      As used
in this Agreement, the following terms shall have the following
meanings:

      

      “Act” means the
Securities Act of 1933, as amended.

      

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

      

      “Intellectual
Property” means all patents and patent rights, trademarks and trademark
rights, trade names and trade name rights, service marks and service mark
rights, brand names, inventions, copyrights and copyright rights, processes,
formulae, trade dress, business and product names, logos, slogans, trade
secrets, industrial models, patterns, designs, methodologies, computer programs
and related documentation, technical information, manufacturing, engineering and
technical drawings and all pending applications for and registrations of
patents, trademarks, service marks and copyrights.

      

      “Liabilities” means
any and all debts, losses, expenses, liabilities, damages, fines, costs,
royalties, proceedings, deficiencies or obligations of any nature (whether known
or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, due or to become due, and whether or not
resulting from third-party claims) and any out-of-pocket costs and expenses
(including attorneys, accountants or other fees) including any liability for
Taxes.

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

       

      “Liens” means all
mortgages, pledges, security interests, deeds of trust, liens, charges, options,
conditional sales contracts, restrictions, easements, rights of way, title
defects or other encumbrances or restrictions of any nature
whatsoever.

      

      “Material Adverse
Effect” means any event, change, development, effect or occurrence that
has a material adverse effect on (i) the business, customers, operations,
properties, condition (financial or otherwise), assets or Liabilities of Seller
or the Business, or (ii) the ability of any of the Selling Parties to
consummate the transactions contemplated by this Agreement.

      

      “Permitted Liens”
means (a) Liens for Taxes, assessments and governmental charges or levies
not yet due and payable, or if due, (A) not delinquent or (B) being
contested in good faith by appropriate proceedings; (b) materialmen’s,
mechanics’, carriers’, workmen’s and repairmen’s Liens and other similar Liens
arising in the ordinary course of business that are not, individually or in the
aggregate, material or if the underlying obligations are not past due;
(c) with respect to real property only, survey exceptions, Liens, and all
matters of record (including, but not limited to, easements, rights of way,
zoning and building codes and ordinances) that do not, individually or in the
aggregate, materially adversely affect the value of such real property or the
use of such real property; or (d) Liens set forth on the Seller Disclosure
Schedule in 9 (Permitted Liens Schedule).

      

      “Person” means any
corporation, individual, joint stock company, joint venture, partnership,
limited liability company, unincorporated association, Governmental Authority,
country, state or political subdivision thereof, trust or other
entity.

      

      “Purchase Price
Shares” means the 2,000,000 shares of fully paid and nonassessable
restricted common stock delivered to Selling Shareholders as part of the
Purchase Price.

      

      “Seller’s Knowledge”
or “Knowledge of
Seller” means the actual knowledge of Larry P. Medford and Ted P. Medford
after due investigation and inquiry.

      

      “Tax” or “Taxes” means all
taxes, assessments, charges, duties, fees, levies, imposts or other governmental
charges, including all federal, state, local, foreign and other income,
environmental, add-on, minimum, franchise, profits, capital gains, capital
stock, capital structure, transfer, sales, gross receipt, use, ad valorem,
service, service use, lease, recording, customs, occupation, property, excise,
gift, severance, windfall profits, premium, stamp, license, payroll, social
security, employment, unemployment, disability, value-added, withholding,
escheat and other taxes, assessments, charges, duties, fees, levies, imposts or
other governmental charges of any kind whatsoever and all estimated taxes,
deficiency assessments, additions to tax, additional amounts imposed by an
governmental authority, penalties, fines and interest, and shall include any
liability for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person, regardless of whether disputed.

      

      “Tax Return” means any
return, report, declaration, information return, filing or other document
(including any amendments thereto or related or supporting information) filed or
required to be filed with respect to Taxes.

      

      [THE
REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

      IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by the duly authorized officer of each of the Seller,
Selling Shareholders and Buyer as of the day and year first above
written.

      

      
        
          	 
      	
                  LAPOLLA
      INDUSTRIES, INC.

                
	 
      	 
      
	 
      	 
      
	 
      	
                  By:

                	
                  /s/  Douglas
      J. Kramer, CEO

                
	 
      	
                  Name:

                	
                  Douglas
      J. Kramer

                
	 
      	
                  Title:

                	
                  President
      and CEO

                
	 
      	 
      
	 
      	
                  AIR-TIGHT
      MARKETING & DISTRIBUTION, INC.

                
	 
      	 
      
	 
      	 
      
	 
      	
                  By:  

                	/s/  Ted
      J. Medford
	 
      	
                  Name:

                	
                  Ted
      J. Medford

                
	 
      	
                  Title:

                	
                  President

                
	 
      	 
      
	 
      	
                  LARRY
      P. MEDFORD

                
	 
      	 
      
	 
      	 
      
	 
      	
                  By:

                	
                  /s/  Larry
      P. Medford by Ted J. Medford, POA

                
	 
      	 
      	
                  Individually
      and as Shareholder of

                
	 
      	 
      	
                  Air-Tight
      Marketing & Distribution, Inc.

                
	 
      	 
      
	 
      	
                  TED
      J. MEDFORD

                
	 
      	 
      

        

        
          	 
      	 
      
	 
      	
                  By:

                	
                  /s/  Ted J.
      Medford

                
	 
      	 
      	
                  Individually
      and as Shareholder of

                
	 
      	 
      	
                  Air-Tight
      Marketing & Distribution,
Inc.

                

        

      

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

      EXHIBIT
1.5(b)

      

      PROMISSORY
NOTE

      

      
        	
                $1,400,000.00

              	
                July
      1, 2008

              

      

      

      Houston,
Texas

      

      FOR VALUE
RECEIVED, the undersigned, LaPolla Industries, Inc., a Delaware corporation
("Maker"),
promises to pay to the order of AirTight Marketing & Distribution, Inc., a
Georgia corporation, Larry P. Medford and Ted J. Medford (collectively herein
called "Payee",
which term shall herein in every instance refer to any owner or holder of this
Note) the sum of One Million Four Hundred Thousand and No/100 Dollars
($1,400,000.00), payable as hereinafter stated being payable in lawful money of
the United States of America at 179 West Main Street, P.O. Box 311, Rutledge,
Georgia  30663 or at such other place as Payee may hereafter designate
in writing.

      

      The
principal balance hereof advanced and from time to time remaining unpaid shall
be paid in four (4) equal installments of Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00), payable to Payee on the last of each calendar year, with
the first such payment due December 31, 2008, and continuing thereafter until a
final installment representing the remaining principal balance shall have been
repaid in accordance with the terms hereof on December 31, 2012 (the "Final
Payment").  Notwithstanding the foregoing, in the event Maker
is entitled to any adjustment of the Purchase Price in accordance with Section
1.7 of that certain Amended and Restated Asset Purchase Agreement by and between
Maker as buyer and Payee, as seller (the "Asset Purchase
Agreement"), dated July 1, 2008, the Final Payment shall be adjusted
accordingly and Maker's obligations hereunder shall be adjusted to reflect the
adjusted amount under the Asset Purchase Agreement.  In addition,
Maker shall be entitled to offset any amount due hereunder by the amount of any
Losses (as defined in Section 5.2(a) of the Asset Purchase Agreement) suffered
by Maker.  Maker may prepay this Note in whole or in part at any time
without being required to pay any penalty or premium for such
privilege.

      

      Notwithstanding
the foregoing, in the event the none of the New Division Gross Sales Targets (as
defined herein) shall be met, the Final Payment shall be reduced by $150,000.00,
such amount being deemed waived and released by Payee for all purposes
herein.  The term "New Division
Gross Sales Targets" shall mean Base Gross Revenue [as defined in that
certain Executive Employment Agreement between Ted J. Medford and Maker dated as
of the date hereof (the "Employment Agreement")] of the New Division (as defined
in the Employment Agreement) for the applicable calendar year as
follows:

      

      
        	
                Calendar
      Year

              	 	
                Base Gross
      Revenue

              	 
	
                2008

              	 	$	14,000,000.00	 
	
                2009

              	 	$	17,000,000.00	 
	
                2010

              	 	$	20,000,000.00	 
	
                2011

              	 	$	23,000,000.00	 
	
                2012

              	 	$	26,000,000.00	 

      

      

      The
principal balance hereof advanced and from time to time remaining unpaid shall
not bear interest.   Notwithstanding the foregoing, with respect
to all past due and matured amounts due Payee hereunder such past due amounts
shall bear interest at a per annum rate equal to to the lesser of: (i) the rate
from time to time published by the Wall Street Journal as the prime rate for
commercial banks, which interest rate (herein called "Stated
Rate") shall change when and as said prime rate shall change, effective
at the close of business on the day of such change or (ii) the maximum lawful
rate of interest permitted by the applicable usury laws, now or hereafter
enacted, which interest rate (herein called "Maximum
Rate") shall change when and as said laws shall change, effective at the
close of business on the day such change in said laws becomes
effective.  Notwithstanding the foregoing if at any time the Stated
Rate shall exceed the Maximum Rate and thereafter the Stated Rate shall become
less than the Maximum Rate, then interest hereon shall accrue at a rate equal to
the Maximum Rate until the aggregate amount of interest accrued hereunder equals
the aggregate amount of interest which would have accrued hereunder at the
Stated Rate without regard to any usury limit.

      

      This Note
shall be governed by and construed under the applicable laws of the State of
Texas and the laws of the United States of America, except that Chapter 346 of
the Texas Finance Code, as amended (which regulates certain revolving credit
loan accounts and revolving tri-party accounts), shall not apply
hereto.

      

      For
purposes of any suit relating to this Note, Maker hereof submits itself to the
jurisdiction of any Court sitting in the State of Texas and further agrees that
venue in any suit arising out of this Note or any venue shall be fixed in Harris
County, Texas.

      

      
        	 
      	
                LaPolla
      Industries, Inc.

              
	 
      	
                a
      Delaware corporation

              
	 
      	 
      	 
      
	 
      	
                By:

              	
                /s/  Douglas
      J. Kramer, CEO

              
	 
      	
                Name:

              	
                Douglas
      J. Kramer

              
	 
      	
                Title:

              	
                President
      and CEO

              

      

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

      EXHIBIT
1.5(c)

      

      AGREED
ALLOCATION OF PURCHASE PRICE

      

      

      
        	 
      	 	 	 	 	
                Debit

              	 	 	
                Credit

              	 
	
                Current
      Assets

              	 	 	 	 	 	 	 	 	 
	
                Cash

              	 	$	125.28	 	 	 	 	 	 	 
	
                Checking-Regions

              	 	$	32,954.74	 	 	 	 	 	 	 
	
                Bank
      of Madison

              	 	$	715.17	 	 	 	 	 	 	 
	
                Accounts
      Receivable

              	 	$	1,446,585.73	 	 	 	 	 	 	 
	
                Undeposited
      Funds

              	 	$	0.02	 	 	 	 	 	 	 
	
                Inventory
      Asset

              	 	$	306,550.93	 	 	 	 	 	 	 
	
                Employee
      Advance

              	 	$	21,610.23	 	 	 	 	 	 	 
	
                Loans
      to Shareholders

              	 	$	19,264.16	 	 	 	 	 	 	 
	
                Total

              	 	 	 	 	 	$	1,827,806.26	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 
	
                Fixed
      Assets

              	 	 	 	 	 	$	458,881.18	 	 	 	 
	 
      	 	 	 	 	 	 	 	 	 	 	 
	
                Current
      Liabilities

              	 	 	 	 	 	 	 	 	 	 	 
	
                Accounts
      Payable

              	 	$	1,884,101.13	 	 	 	 	 	 	 	 
	
                Credit
      Cards

              	 	$	771,632.39	 	 	 	 	 	 	 	 
	
                Other
      Current Liabilities

              	 	$	(1,280.41	)	 	 	 	 	 	 	 
	
                Total

              	 	 	 	 	 	 	 	 	 	$	2,654,453.11	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                Long
      Term Liabilities

              	 	 	 	 	 	 	 	 	 	$	206,243.80	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 
	
                Purchase
      Price

              	 	 	 	 	 	 	 	 	 	 	 	 
	
                Cash

              	 	 	 	 	 	 	 	 	 	$	1,500,000.00	 
	
                Common
      Stock

              	 	 	 	 	 	 	 	 	 	$	1,480,000.00	 
	
                Goodwill

              	 	 	 	 	 	$	2,054,009.47	 	 	 	 	 
	
                Other
      Intangible Assets:

              	 	 	 	 	 	 	 	 	 	 	 	 
	
                Trademark

              	 	 	 	 	 	$	750,000.00	 	 	 	 	 
	
                Customer
      List

              	 	 	 	 	 	$	750,000.00	 	 	 	 	 
	 
      	 	 	 	 	 	$	5,840,696.91	 	 	$	5,840,696.91	 

      

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
1.7(c)

      

      LIST
OF NEUTRAL AUDITORS

      

      

      
        	
                1.

              	
                UHY
      LLP, HOUSTON, TEXAS

              

      

      
        	
                2.

              	
                ROBINSON
      RABINOWITZ BERNSTEIN, ATLANTA,
GEORGIA

              

      

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

      EXHIBIT
1.9(f)

      

      FORM
OF LICENSED APPLICATOR AGREEMENT

      

      (**Omitted
for Confidentiality Reasons**)

       

       
24

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00144-of-00352.parquet"}]]