Document:

ex10_1.htm

    
      
        

      

      Exhibit
10.1

       

      AMENDED
AND RESTATED

      REVOLVING CREDIT AND TERM
LOAN AGREEMENT

       

      AGREEMENT (this “Agreement”) is made
and entered into as of the 30th day of June, 2008, by and between COMVEST CAPITAL, LLC, a
Delaware limited liability company (the “Lender”), and LAPOLLA INDUSTRIES, INC., a
Delaware corporation (the “Borrower”).

       

      W I T N E S S E T H
:

       

      WHEREAS, the Borrower is
engaged in the business of manufacturing and supplying spray polyurethane foam
for insulation and coatings targeting commercial and residential applications in
the building envelope construction industries (collectively, the “Business
Operations”); and

       

      WHEREAS, the Lender and the
Borrower are parties to a Revolving Credit and Term Loan Agreement dated as of
February 21, 2007 and as amended by Amendment No. 1 dated as of June 12, 2007
(collectively, the “Original Agreement”)
pursuant to which the Lender has made available to the Borrower a revolving
credit facility in the maximum amount of $5,000,000 (which has a current
outstanding principal balance of $4,932,500) and a convertible term loan in the
original principal amount of $2,000,000 (which has a current outstanding
principal balance of $1,362,384); and

       

      WHEREAS, in order to provide
funds for growth and anticipated growth in its business, the Borrower has
requested an increase in the maximum amount of the revolving credit facility, an
increase in the amount of the outstanding term loan, and certain other
amendments to the Original Agreement as set forth in this Agreement;
and

       

      WHEREAS, the Lender is willing
and able to provide such lending increases and other amendments on the terms and
conditions of this Agreement;

       

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

       

      I.         
   DEFINITIONS

       

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

       

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

       

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

       

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

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

      “Borrowing Base” shall
mean an amount, determined in accordance with the most recent borrowing base
report provided to the Lender under Section 5.04(e) hereof, equal to (a) 80% of
Eligible Accounts, plus (b) 50% of
Eligible Inventory, minus (c) such
reserves as the Lender may establish from time to time in its Permitted
Discretion (including, without limitation, to account for dilution,
concentration and other risks of collection).  In the event that the
Borrower has not timely delivered a current Borrowing Base report in accordance
with Section 5.04(e) below, then the applicable Borrowing Base shall be such
amount as is established by the Lender, until such time as the Borrower has
delivered a current Borrowing Base report.

       

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

       

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

       

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

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

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

       

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

       

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

       

      “Closing Date” shall
mean the date of this Agreement, simultaneously with the funding of the
additional portion of the Term Loan as described in Section 2.02
below.

       

      “Closing Fee” shall
mean the sum of $120,000, which shall be payable in accordance with Section
2.03(a) below.

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

      “Control” shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms “Controlling” and
“Controlled”
shall have meanings correlative thereto.

       

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

       

      “Credit Party” shall
mean the Borrower, each Subsidiary of the Borrower, and (for so long as the
Stockholder Guaranty shall remain in effect) Richard Kurtz.

       

      “Debt Service” shall
mean, for the period in question, the sum of (a) all principal payments
scheduled or required to be made during or with respect to such period in
respect of Indebtedness of the Borrower and its Subsidiaries, plus (b) all cash
Interest Expense of the Borrower and its Subsidiaries for such
period.

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

      “Eligible Inventory”
shall mean the lower of the fair market value of, or the cost charged by
suppliers which are not Affiliates of the Borrower for, that inventory (whether
consisting of raw materials, work in progress or finished goods, but excluding
accessories, product models or samples, and inventory in the process of being
reworked) of Borrower or any Domestic Subsidiary which is party to the
Collateral Agreement which (a) is in good and merchantable condition (or, as
respects work in process, is being processed in the normal course so as to
promptly become finished goods which will, upon completion, constitute Eligible
Inventory), (b) meets all standards imposed by any governmental agency having
regulatory authority over such goods and/or their use, manufacture and/or sale,
(c) has been physically received in the continental United States by the
Borrower or the subject Domestic Subsidiary, or has been shipped to the Borrower
or the subject Domestic Subsidiary with title thereto having passed to the
Borrower or such Domestic Subsidiary, (d) is currently usable or currently
saleable in the normal course of the Business Operations, (e) is not on
consignment to or from any Person, (f) is not insured from loss as required by
this Agreement and the Collateral Agreement, (g) is not subject to any Lien
whatsoever, except for the Lien of the Lender, which shall be perfected with
respect to such inventory, (h) has not been sold to any Person, and (i) is
otherwise satisfactory to the Lender in its Permitted Discretion.

       

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

       

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

       

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

       

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

       

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

       

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

       

      “Fixed Charges” shall
mean, for the period in question, the sum of (a) all Debt Service for such
period, plus,
(b) all cash income taxes paid or accrued for the Borrower and its Subsidiaries
for such period.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      “Maturity Date” shall
mean August 31, 2010.

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      “Original Agreement”
shall have the meaning ascribed thereto in the second “WHEREAS” paragraph
above.

       

      “Original Closing
Date” shall mean the “Closing Date” under and as defined in the Original
Agreement, which was February 21, 2007.

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

      “Qualified Proceeds”
shall mean any and all net proceeds received by the Borrower from time to time
from the issuance and/or sale of any capital stock of the Borrower (other than
the Common Stock contemplated by Section 4.04 below) or any security or
Indebtedness convertible into or exchangeable for capital stock of the Borrower,
except to the extent that such proceeds are, within thirty (30) days after the
receipt thereof, applied to pay the purchase price and/or directly associated
expenses of the Borrower’s acquisition (directly or through a Wholly-Owned
Subsidiary) of another business (whether through merger, consolidation, share
exchange, stock purchase, or purchase of all or substantially all of the assets
of the target company or an operating division or unit thereof), in each case
effected subject to and in accordance with the requirements of this
Agreement.  In determining the amount of net proceeds for purposes of
this definition, there shall be deducted from gross proceeds only those
reasonable expenses incurred by the Borrower directly related to the subject
issuance or sale, exclusive of any fees or commissions paid to any officer,
director or other Affiliate of the Borrower or any Affiliate of any of the
foregoing.

       

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

       

      “Register” shall have
the meaning provided in Section 8.03(a) below.

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      “Stockholder Guaranty”
shall mean the personal guaranty of the Term Loan by Richard Kurtz pursuant to a
guaranty to be dated on or about the Closing Date, in form and substance
satisfactory to the Lender.

       

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

       

      
        
           

        

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

       

      “Term Loan” shall mean
the term loan in the principal amount of $3,000,000 to be made pursuant to
Section 2.02(a) below.

       

      “Term Note” shall mean
the Amended and Restated Convertible Term Note of the Borrower issued to the
Lender as described in Section 2.02(d) below.

       

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

       

      “Warrants” shall mean
(a) the warrants to purchase shares of Common Stock (such warrants originally
covering an aggregate of 1,500,000 shares of Common Stock, subject to
adjustment) issued by the Borrower to the Lender on the Original Closing Date,
(b) the warrant to purchase 250,000 shares of Common Stock (subject to
adjustment) issued by the Borrower to the Lender pursuant to the Amendment No. 1
forming a part of the Original Agreement (which Warrant has been exercised in
full), and (c) an additional warrant to purchase up to 1,000,000 shares of
Common Stock (subject to adjustment) to be issued by the Borrower to the Lender
on the Closing Date.

       

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

       

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

       

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

       

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

       

      
        
           

        

        
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      II.        
   GENERAL
TERMS

       

      Section 2.01. 
Revolving
Credit Loans.

       

      (a)           Subject
at all times to all of the terms and conditions of this Agreement, the Lender
hereby agrees to extend to the Borrower a secured revolving credit facility,
from the Closing Date to the Primary Maturity Date, in an aggregate principal
amount not to exceed, at any time outstanding, the lesser of (i) the Borrowing
Base at the subject time, or (ii) $9,500,000 (the "Revolving Credit
Commitment").

       

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

       

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

       

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

       

      (e)           Unless
sooner due and payable by reason of an Event of Default or Sale having occurred,
the Borrower shall pay in full all of the Obligations to the Lender in respect
of all Advances on or prior to the Maturity Date.  Anything elsewhere
contained herein to the contrary notwithstanding, in the event that and at such
time as the Term Loan shall be repaid in full or shall be required to be prepaid
in full in accordance with Section 2.02(b) or Section 2.07 below, the Revolving
Credit Commitment shall thereupon terminate and all outstanding Advances, all
accrued interest thereon and all other outstanding Obligations shall be
immediately due and payable, without requirement of any notice or
demand.

       

      
        
           

        

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

       

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

       

      Section
2.02.  Term Loan.

       

      (a)           Subject
at all times to all of the terms and conditions of this Agreement, the Lender
hereby agrees to extend to the Borrower a Term Loan in the principal amount of
$3,000,000.  The Term Loan shall be borrowed in a single borrowing on
the Closing Date, and any principal amounts repaid in respect of the Term Loan
may not be reborrowed; and the Borrower hereby acknowledges that (i) the
outstanding principal balance of the term loan made pursuant to the Original
Agreement is $1,362,384, (ii) such outstanding principal balance shall treated
as a pre-funding of the Term Loan hereunder, and (iii) by reason of the
foregoing, the funding to be made by the Lender in respect of the Term Loan on
the Closing Date will be in the amount of $1,637,616.

       

      (b)           The
Term Loan shall be repayable in installments, in accordance with the schedules
of payments set forth in the Term Note.  The Borrower shall be
required to prepay the Term Loan (i) in full upon the consummation of any Sale,
and (ii) in whole or in part from time to time in the event and to the extent of
25% of any Qualified Proceeds received by the Borrower from time to
time.  Any prepayment required under the foregoing clause (ii) shall
be due and payable as and when the amount of Qualified Proceeds is determined
(i.e., upon receipt of such Qualified Proceeds in the event that no acquisition
transaction is then pending, or thirty (30) days after receipt of such Qualified
Proceeds to the extent that such Qualified Proceeds are not applied to the
purchase price and/or related expenses of a consummated business
acquisition).

       

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

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

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

       

      Section
2.03.  Fees and Premiums.

       

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

       

      (b)           The
Borrower shall further pay to the Lender, in advance on the Closing Date and on
the first (1st)
Business Day of each calendar month prior to the Revolver Maturity Date or the
earlier termination of the Revolving Credit Commitment and payment of the
Obligations thereon in accordance with this Agreement, a collateral monitoring,
availability and administrative fee in the amount of (i) $3,500 per month if,
during the immediately preceding  calendar month, the outstanding
principal balance of the Advances did not at any time exceed $5,000,000, and
(ii) $4,500 per month if at any time during the immediately preceding calendar
month, the outstanding principal amount of the advances exceeded
$5,000,000.

       

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

       

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

       

      (e)           In
the event that the Closing Date has not occurred on or before June 30, 2008 and
the Lender was, prior thereto, ready, willing and able to consummate the
transactions contemplated by this Agreement on substantially the terms hereof,
then the Lender may, at any time thereafter until the Closing Date, terminate
this Agreement by written notice to the Borrower, in which event the Borrower
shall immediately become obligated to pay to the Lender an amount equal to all
out-of-pocket costs, charges and expenses (including, reasonable attorneys’ fees
and expenses) incurred by the Lender in respect of the transactions contemplated
by this Agreement.

       

      
        
           

        

        
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      Section 2.04.  Use
of Proceeds.  The Borrower shall utilize the proceeds of the
Loans solely (a) to pay a portion of the purchase price of and related
transaction expenses for business acquisitions, as and to the extent approved by
the Lender in writing from time to time, and (b) for working capital and other
general corporate purposes of the Borrower.

       

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

       

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

       

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

       

      Section
2.08.  Obligations Unconditional.

       

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

       

      
        
           

        

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

       

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

       

      III.           REPRESENTATIONS AND
WARRANTIES

       

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

       

      Section
3.01.  Financial Matters.

       

      (a)           The
Borrower has heretofore furnished to the Lender (i) the audited financial
statements (including balance sheets, statements of income and statements of
cash flows) of the Borrower as at December 31, 2006 and 2007, and for the Fiscal
Years then ended, and (ii) the unaudited financial statements of the Borrower as
of March 31, 2008 and for the three (3) months then ended (collectively, the
“Financial
Statements”).

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      (e)           The
Borrower has in place adequate systems of internal controls and disclosure
controls and procedures sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences, and
(v) the Borrower and its management are able to obtain timely and accurate
information regarding the Business Operations and all material transactions
relating to the Borrower; and no material deficiency exists with respect to the
Borrower’s systems of internal controls.

       

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

       

      
        
           

        

        
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      Section
3.02.  Organization; Corporate Existence.

       

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

       

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

       

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

       

      Section
3.03.  Authorization.

       

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

       

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

       

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

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

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

       

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

       

      Section
3.13.  Taxes.

       

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

       

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

       

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

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

       

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

       

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

       

      
        
           

        

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

       

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

       

      Section
3.19.  Environmental Laws.

       

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

       

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

       

      
        
           

        

        
          25

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

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

       

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

       

       

      IV.           CONDITIONS OF MAKING THE
LOANS

       

      A.           The
obligation of the Lender to make the additional incremental portion of the Term
Loan hereunder, to make the initial Advance subsequent to the Closing Date, and
to consummate the other transactions contemplated hereby are subject to the
following conditions precedent:

       

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

       

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

       

      (a)           The
Notes;

       

      (b)           The
Warrant described in clause (c) of the definition of “Warrants”;

       

      (c)           A
written request for the borrowing of the Term additional incremental portion of
the Term Loan;

       

      (d)           A
certificate of an authorized officer of the Borrower, certifying (i) the vote of
the Boards of Directors of the Borrower, authorizing and directing the execution
and delivery of the Loan Documents and all further agreements, instruments,
certificates and other documents pursuant hereto and thereto, and (ii) that no
Default orb Event of Default has occurred and is continuing;

       

      
        
           

        

        
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      (e)           A
certificate issued by the Secretary of State of the State of Delaware as of a
recent date, stating that the Borrower is legally existing and in good standing
under the laws under the State of Delaware; and

       

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

       

      Section
4.03.  Stockholder Guaranty.  Richard Kurtz shall
have executed and delivered the Stockholder Guaranty to the Lender.

       

      Section
4.04.  Equity Funding.  Richard Kurtz shall have
converted not less than $2,000,000 in principal amount of outstanding
Indebtedness owed to him by the Borrower into shares of Common Stock at a price
of $.78 (the volume weighted average closing price for the 10 days immediately
preceding the date of this Agreement) per share, and the Borrower shall have
provided reasonably satisfactory evidence thereof to the Lender.

       

      Section
4.05.  Fees and Reimbursements.  The Borrower shall
have paid to the Lender the Closing Fee, and shall have paid or reimbursed the
Lender for its reasonable out-of-pocket costs, charges and expenses incurred to
the Closing Date (provided that the Borrower’s payment in respect of the
Lender’s legal fees shall not exceed $15,000); and in connection herewith, the
Borrower hereby irrevocably authorizes the Lender to charge such amounts as
Advances to the Borrower’s revolving credit loan account.  Failure of
the Lender to effect any such charge shall not excuse the Borrower from its
obligation to pay such amounts.

       

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

       

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

       

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

       

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

      V.         
  AFFIRMATIVE
COVENANTS

       

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

       

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

       

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

       

      
        
           

        

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

       

      Section
5.04.  Periodic Reports.  Furnish to the
Lender:

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

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

       

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

       

      
        
           

        

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

       

      Section
5.13.  Shareholder Loan Subordination.  On or prior
to July 31, 2008, cause Richard Kurtz and/or any of his applicable Affiliates to
execute and deliver to the Lender a subordination agreement in respect of all
outstanding Indebtedness of the Borrower (after giving effect to the conversion
contemplated by Section 4.04 above) owed to such Person(s), pursuant to which
such Person(s) subordinate such Indebtedness to the Obligations on terms and
conditions satisfactory to the Lender; and pending the execution and delivery of
such subordination agreement, no payment shall be made on any such Indebtedness
prior to the payment in full of the Obligations.

       

      VI.           NEGATIVE
COVENANTS

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          33

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          34

          
            

          

        

        
           

        

      

      (h)           Liens
in favor of the Lender; and

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          35

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

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

       

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

       

      Section
6.14.  Fiscal Year.  Amend its Fiscal
Year.

       

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

       

      Section
6.16.  Capital Expenditures.  Make aggregate Capital
Expenditures in any Fiscal Year in excess of (a) $300,000 in the Fiscal Year
ending December 31, 2008 (exclusive of the Capital Expenditure component of the
Borrower’s acquisition of the assets of Air Tight Marketing and Distribution,
Inc.), and (b) $500,000 in any Fiscal Year thereafter.

       

      Section
6.17.  Coverage Test.  With respect to any fiscal
quarter commencing with the quarter ending March 31, 2009, fail to maintain a
ratio of EBITDA to Fixed Charges of at least 1.1 to 1.0.

       

      VII.         DEFAULTS

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          37

          
            

          

        

        
           

        

      

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

       

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

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          38

          
            

          

        

        
           

        

      

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

       

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

       

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

       

      (n)           the
occurrence of a Material Adverse Effect.

       

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

       

      VIII.                      PARTICIPATING LENDERS;
ASSIGNMENT.

       

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

       

      
        
           

        

        
          39

          
            

          

        

        
           

        

      

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

       

      Section
8.03.  Recordation of Assignment.  In respect of any
negotiation, transfer or assignment of all or any portion of any Lender’s
interest in this Agreement, any Note and/or any other Loan Documents at any time
and from time to time, the following provisions shall be
applicable:

       

      (a)           The
Borrower, or any agent appointed by the Borrower, shall maintain a register (the
“Register”) in
which there shall be recorded the name and address of each Person holding any
Note(s) hereunder or any commitment to lend hereunder, and the principal amount
payable to such Person under such Person’s Note(s) or committed by such Person
under such Person’s lending commitment.  The Borrower hereby
irrevocably appoints the Lender (and/or any subsequent Lender appointed by the
Lender then maintaining the Register) as the Borrower’s agent for the purpose of
maintaining the Register.

       

      (b)           In
connection with any negotiation, transfer or assignment as aforesaid, the
transferor/assignor shall deliver to the Lender then maintaining the Register an
assignment and assumption agreement executed by the transferor/assignor and the
transferee/assignee, setting forth the specifics of the subject transaction,
including but not limited to the amount of Obligations and/or lending
commitments being transferred or assigned (and being assumed, as applicable),
and the proposed effective date of such transfer or assignment and the related
assumption (if applicable).

       

      (c)           Subject
to receipt of completed tax forms (indicating withholding status, or exemption
from withholding, as applicable, of the transferee/assignee) reasonably required
by the Person then maintaining the Register, and (if required by such Person)
surrender of the negotiated, transferred or assigned Note(s) for reissuance by
the Borrower, such Person shall record the subject negotiation, assignment and
assumption in the Register.  Anything contained in any Note or other
Loan Document to the contrary notwithstanding, no negotiation, transfer or
assignment shall be effective until it is recorded in the Register pursuant to
this Section 8.03(c).  The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error; and the Borrower and each
Lender shall treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement.  The Register
shall be available for inspection by the Borrower and each Lender at any
reasonable time and from time to time upon reasonable prior notice.

       

      
        
           

        

        
          40

          
            

          

        

        
           

        

      

      IX.           MISCELLANEOUS

       

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

       

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

       

      Section
9.03.  Governing Law.  This Agreement and the other
Loan Documents shall (irrespective of where same are executed and delivered) be
governed by and construed in accordance with the laws of the State of New York
(without giving effect to principles of conflicts of laws other than Sections
5-1401 and 5-1402 of the New York General Obligations Law).

       

      
        
           

        

        
          41

          
            

          

        

        
           

        

      

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

       

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

       

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

       

      If to the
Lender:

       

      ComVest
Capital, LLC

      One North
Clematis, Suite 300

      West Palm
Beach, FL 33401

      Attention:
Chief Financial Officer

      Telecopier:
(212) 829-5986

       

      with a
copy to:

       

      Greenberg
Traurig, LLP

      200 Park
Avenue

      New York,
New York  10166

      Attention:  Shahe
Sinanian, Esq.

      Telecopier:
(212) 801-6400

       

      If to the
Borrower:

       

      LaPolla
Industries, Inc.

      15402
Vantage Parkway East, Suite 322

      Houston,
Texas  77032

      Attention:  Michael
T. Adams, EVP and Secretary

      Telecopier:  (281)
219-4710

       

      
        
           

        

        
          42

          
            

          

        

        
           

        

      

      with a
copy to:

       

      Sterchio
Greco & Greco, LLP

      720 Fifth
Avenue, Suite 1301

      New York,
New York 10019

      Attention:  Alfred
V. Greco, Esq.

      Telecopier:
(212) 246-2225

       

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

       

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

       

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

       

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

       

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

       

      
        
           

        

        
          43

          
            

          

        

        
           

        

      

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

       

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

       

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

       

      
        
           

        

        
          44

          
            

          

        

        
           

        

      

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

       

      Section
9.15.  Effect on other Loan Documents.  From and
after the Closing Date, (a) this Agreement shall amend, modify and supercede the
Original Agreement in its entirety, provided that this Agreement shall not
revoke any transactions effected under the Original Agreement or effect a
novation of any Obligations outstanding under the Original Agreement, (b) all
references to the “Loan Agreement” in the various Loan Documents shall be deemed
to refer to this Agreement, (c) all references to the “Notes” contained in the
various Loan Documents shall mean and refer to the Revolving Credit Note and the
Term Note issued pursuant to this Agreement, and (d) the Warrant described in
clause (c) of the definition of “Warrants” shall be entitled to all of the
benefits of the Registration Rights Agreement, and in furtherance thereof, the
Borrower shall file and pursue to effectiveness a Registration Statement (or an
appropriate amendment to any pending Registration Statement) under the Act
covering the Registrable Securities (as such term is defined in the Registration
Rights Agreement) issuable upon exercise of such Warrant.

       

      [The
remainder of this page is intentionally blank]

      
        
           

        

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

       

      
        	 
      	
                COMVEST
      CAPITAL, LLC

              
	 
      	
                By:
      ComVest Management LLC, its Manager

                 

              
	 
      	
                By:

              	
                /s/  Gary E.
      Jaggard

              
	 
      	 
      	
                Name:
      Gary E. Jaggard

              
	 
      	 
      	
                Title:
      Managing Director

                 

                 

              
	 
      	
                LAPOLLA
      INDUSTRIES, INC.

                 

              
	 
      	
                By:

              	
                /s/  Michael
      T. Adams, EVP

              
	 
      	 
      	
                Name:  Michael
      T. Adams

              
	 
      	 
      	
                Title:    Executive
      Vice President

              

      

       

       

      46ex10_2.htm

    
      
        

      

      Exhibit
10.2

       

      
        	
                $3,000,000 

              	
                June
      30, 2008

              

      

       

      AMENDED
AND RESTATED

      CONVERTIBLE TERM
NOTE

       

      This Note and the Common Stock
issuable upon conversion hereof (except to the extent that such Common Stock is
registered with the Securities and Exchange Commission pursuant to an effective
registration statement) have not been registered under the Securities Act of
1933, as amended (the “Act”), or any state securities laws, and may not be sold,
offered for sale of otherwise transferred unless registered or qualified under
the Act and applicable state securities laws or unless the Maker receives an
opinion, in form and from counsel reasonably acceptable to the Maker, that
registration, qualification or other such actions are not required under any
such laws.

       

      FOR VALUE
RECEIVED, LAPOLLA INDUSTRIES, INC., a Delaware corporation (the “Maker”), hereby promises to
pay to ComVest Capital, LLC, a Delaware limited liability company (“ConVest”),
or registered assigns (hereinafter, collectively with ComVest, the “Payee”), the sum of Three
Million ($3,000,000) Dollars (the “Principal”), with interest
thereon, on the terms and conditions set forth herein and in the Amended and
Restated Revolving Credit and Term Loan Agreement of even date herewith by and
between the Maker and ComVest (as same may be amended, modified, supplemented
and/or restated from time to time, the “Loan
Agreement”).  Terms defined in the Loan Agreement and not
otherwise defined herein shall have the meanings assigned thereto in the Loan
Agreement.

       

      Payments
of principal of, interest on and any other amounts with respect to this
Convertible Promissory Note (this “Note”) are to be made in
lawful money of the United States of America.

       

      Principal
and accrued interest of this Note may or shall be convertible into common stock
of the Maker as provided in Section 3 below.

       

      
        	
              	
                1.

              	
                Payments.

              

      

       

      (a)           Interest. This Note
shall bear interest (“Interest”) on Principal
amounts outstanding from time to time from the date hereof at the rate of ten
(10%) percent per annum; provided, however, that during
the continuance of any Event of Default, the Interest rate hereunder shall be
increased to fourteen (14%) percent per annum.  All Interest shall be
computed on the daily unpaid Principal balance of this Note based on a three
hundred sixty (360) day year, and shall be payable monthly in arrears on the
first day of each calendar month commencing July 1, 2008 and on the maturity
hereof.

       

      (b)           Principal.  The
Principal of this Note shall be payable (i) in thirteen (13) equal monthly
installments of $83,333.33 each, due and payable on the first day of each
calendar month commencing July 1, 2009 and continuing through and including
August 1, 2010, and (ii) in a final installment due and payable on August 31,
2010 in an amount equal to the entire remaining principal balance of this
Note.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (c)           Non-Business
Day.  If any scheduled payment date as aforesaid is not a
business day in either the State of Florida or the State of Texas, then the
payment to be made on such scheduled payment date shall be due and payable on
the next succeeding business day, with additional interest on any Principal
amount so delayed for the period of such delay.

       

      
        	
              	
                2. 

              	
                Prepayment.

              

      

       

      (a)           Optional Prepayment of
Principal. The unpaid Principal balance of this Note may, at the Maker’s
option, be prepaid in whole or in part, at any time or from time to time, upon
fifteen (15) days’ prior written notice to the Payee, provided that the Payee
shall retain the right to convert all or any portion of such Principal amount
called for prepayment, together with any or all Interest accrued thereon, at any
time prior to the date fixed for prepayment, and thereafter until such
prepayment is actually made.  Any optional prepayment of Principal
hereunder shall require the simultaneous payment of a prepayment premium as
provided in Section 2.03(c) of the Loan Agreement.

       

      (b)           Mandatory Prepayment of
Principal.    The Principal of this Note may be
required to be prepaid, in whole or in part, at any time and from time to time
in accordance with Section 2.02(b) of the Loan Agreement.

       

      (c)           Interest. Except to
the extent that such Interest is converted as herein provided, each prepayment
of Principal shall be accompanied by all accrued Interest on the Principal
amount prepaid or converted accrued to the date of prepayment or
conversion.

       

      (d)           Application of
Payments.  Any and all prepayments hereunder shall be applied
first to any prepayment premium required under Section 2(a) above, then to
unpaid accrued Interest on the Principal amount being prepaid, and finally to
the remaining Principal installments in inverse order of maturity.

       

      
        	
              	
                3. 

              	
                Conversion.

              

      

       

      (a)           Optional and Mandatory
Conversion.  The
Payee may, at its option, upon written notice to the Maker given at any time and
from time to time, convert all or any portion of the unpaid Principal balance of
this Note, and/or any accrued Interest thereon, into shares of common stock of
the Maker (“Common
Stock”), at a price of $.77 Cents per share of Common Stock (as same may
be adjusted from time to time in accordance herewith, the “Conversion
Price”).  In addition, if (i) there is not then continuing
any Default or Event of Default under and as defined in the Loan Agreement,
(ii) the Common Stock is then traded or listed for trading on any national
securities exchange or the Nasdaq Global Market or the Nasdaq Global Select
Market, (iii) there is then in effect a valid registration statement under
the Securities Act of 1933, as amended, in respect of the Common Stock issued
and issuable upon conversion of this Note and upon exercise of the Warrants
issued pursuant to the Loan Agreement, such that all such shares of Common Stock
will be freely tradable immediately upon issuance at such time, (iv) the Maker
is current in all of its required filings with the Securities and Exchange
Commission, (v) the reported Trading Price (as hereinafter defined) of the
Common Stock for each of the twenty (20) consecutive trading days immediately
prior thereto has been equal to or greater than 150% of the Conversion Price in
effect on each such trading day, and (vi) the average daily trading volume of
the Common Stock as reported by the principal exchange or trading medium on
which the Common Stock is listed or quoted has been equal to or greater than
100,000 shares (such number to be subject to adjustment on a proportionate basis
in the event of each and every stock split, stock dividend, combination of
shares, recapitalization or other such event respecting the Common Stock which
may occur subsequent to the date hereof) during the three (3) months immediately
prior thereto, then the Maker may,
upon five (5) business days’ prior written notice to the Payee, require the
Payee to convert all or any portion of the Principal of this Note into shares of
Common Stock at the Conversion Price then in effect; and in the event of any
such conversion at the option of the Maker, the Maker shall give written notice
thereof to the Payee certifying as to the satisfaction of the foregoing
conditions (including a detailed schedule of Trading Prices and volumes for
purposes of the foregoing clauses (v) and (vi)), and shall pay to the Payee,
simultaneously with the delivery of stock certificates in accordance with
Section 3(c), all unpaid accrued Interest on the Principal amount so
converted.  As used herein, the term “Trading Price” on any relevant
date means the closing sale price (or, if no closing sale price is reported, the
last reported sale price) of the Common Stock (regular way).  The
effective date of any conversion hereunder is herein referred to as the “Conversion
Date.”  To the extent that this Note is converted only in part,
then such conversion shall be treated as a prepayment of the Principal amount
converted in accordance with Section 2(d) above, provided that no prepayment
premium shall be required in respect of any conversion.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      (b)           Mechanics of Conversion. Upon
notice to the Maker of the Payee’s conversion election as provided in Section
3(a), or upon notice to the Payee of the Maker’s conversion election as provided
in Section 3(a), the Maker shall, in accordance with Section 3(c), issue to the
Payee (or to the Payee’s designee(s) set forth in the Payee’s conversion
election, or in any direction given to the Maker in response to the Maker’s
conversion election) the number of shares of Common Stock to which the Payee
shall be entitled upon such conversion, and shall deliver or cause to be
delivered to the Payee or such designee(s) the certificates representing such
shares of Common Stock.  All shares of Common Stock issued or
delivered upon any conversion hereunder shall, when issued or delivered, be duly
authorized, validly issued, fully paid and nonassessable.  In lieu of
any fractional shares to which the Payee would otherwise be entitled, the Maker
shall pay cash equal to such fraction multiplied by the per share Conversion
Price.

       

      (c)           Issuance of Common Stock
Upon Conversion.  Within
a reasonable time, not exceeding five (5) Business Days after the Conversion
Date, the Maker shall deliver or cause to be delivered, to or upon the written
order of the Payee of this Note so converted, certificates representing the
number of fully paid and nonassessable shares of Common Stock into which this
Note has been converted in accordance with the provisions of this Section
3.  If so requested by the Maker, the Payee shall, within a reasonable
time (not exceeding five (5) Business Days after receipt by the Payee of such
certificates), surrender this Note to the Maker for cancellation, against
delivery of a replacement Note representing the remaining balance (if any) of
this Note which has not been converted.  Subject to the following
provisions of this Section 3, such conversion shall be deemed to have occurred
on the Conversion Date, so that the Payee of this Note or such Payee’s
designee(s) shall be treated for all purposes as having become the record Payee
of such shares of Common Stock at such time.

       

      
        
          
             

          

          
            3

            
              

            

          

          
             

          

        

      

      

      (d)           Taxes on Conversion.  The
issuance of certificates for shares for Common Stock upon the conversion of this
Note shall be made without charge by the Maker to the converting Payee for any
tax in respect of the issuance of such certificates and such certificates shall
be issued in the name of, or in such names as may be directed by, the Payee of
this Note; provided, however, that the
Maker shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance or delivery of any such certificate in a
name other than that of the Payee of this Note, and the Maker shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Maker the amount
of any such tax or shall have established to the satisfaction of the Maker that
any such tax has been paid.

       

      (e)           Adjustment of
Shares.

       

      (i)           Stock Dividends,
Distributions or Subdivisions.  In the event that, at any time
and from time to time from and after the date of this Note, the Maker shall
issue additional shares of Common Stock (or securities convertible into Common
Stock) in a stock dividend, stock distribution or subdivision paid with respect
to Common Stock, or declare any dividend or other distribution payable in
additional shares of Common Stock (or securities convertible into Common Stock)
or effect a split or subdivision of the outstanding shares of Common Stock,
then, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, the then-effective Conversion Price shall be
proportionately decreased, and the number of shares of Common Stock issuable
upon conversion of this Note shall thus be proportionately
increased.

       

      (ii)          Combinations or
Consolidations.  In the event that, at any time and from time
to time from and after the date of this Note, the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, then, concurrently with the
effectiveness of such combination or consolidation, the then-effective
Conversion Price shall be proportionately increased, and the number of shares of
Common Stock issuable upon conversion of this Note shall thus be proportionately
decreased.

       

      (iii)         Other Dividends or
Distributions.  If the Maker, at any time or from time to time
after the issuance of this Note, makes a distribution to the holders of Common
Stock which is payable in securities of the Maker other than Common Stock, then,
in each such event, provision shall be made so that the Payee shall receive upon
conversion of this Note, in addition to the number of shares of Common Stock,
the amount of such securities of the Maker which would have been received if the
portion of this Note so converted had been exercised for Common Stock on the
date of such event, subject to adjustments subsequent to the date of such event
with respect to such distributed securities which shall be on terms as nearly
equivalent as practicable to the adjustments provided in this
Section 3(e)(iii) and all other adjustments under this
Section 3(e).  Nothing contained in this Section 3(e)(iii) shall
be deemed to permit the payment of any distribution in violation of the Loan
Agreement.

       

      (iv)        Merger, Consolidation or
Exchange.  If, at any time or from time to time after the date
of this Note, there occurs any merger, consolidation, arrangement or statutory
share exchange of the Maker with or into any other person or entity, then, in
each such event, provision shall be made so that the Payee shall receive upon
conversion of this Note the kind and amount of shares and other securities and
property (including cash) which would have been received upon such merger,
consolidation, arrangement or statutory share exchange by the Payee if the
portion of this Note so converted had been exercised for shares of Common Stock
immediately prior to such merger, consolidation, arrangement or statutory share
exchange, subject to adjustments for events subsequent to the effective date of
such merger, consolidation, arrangement or statutory share exchange with respect
to such shares and other securities which shall be on terms as nearly equivalent
as practicable to the adjustments provided in this Section 3(e)(iv) and all
other adjustments under this Section 3(e).  Nothing contained in
this Section 3(e)(iv) shall be deemed to permit any such transaction in
violation of the Loan Agreement.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      (v)         Recapitalization or
Reclassification.  If, at any time or from time to time after
the date of this Note, the shares of Common Stock issuable upon conversion of
this Note are changed into the same or a different number of securities of any
class of the Maker, whether by recapitalization, reclassification or otherwise
(other than a merger, consolidation, arrangement or statutory share exchange
provided for elsewhere in this Section 3(e)), then, in each such event,
provision shall be made so that the Payee shall receive upon conversion of this
Note the kind and amount of securities or other property which would have been
received in connection with such recapitalization, reclassification or other
change by the Payee if the portion of this Note so converted had been converted
immediately prior to such recapitalization, reclassification or change, subject
to adjustments for events subsequent to the effective date of such
recapitalization, reclassification or other change with respect to such
securities which shall be on terms as nearly equivalent as practicable to the
adjustments provided in this Section 3(e)(v) and all other adjustments
under this Section 3(e).

       

      (vi)        Extraordinary Dividends or
Distributions.  If, at any time or from time to time after the
date of this Note, the Maker shall declare a dividend or any other distribution
upon the Common Stock payable otherwise than out of current earnings, retained
earnings or earned surplus and otherwise than in shares of Common Stock, then
the Conversion Price in effect immediately prior to such declaration shall be
reduced by an amount equal, in the case of a dividend or distribution in cash,
to the amount thereof payable per share of Common Stock or, in the case of any
other dividend or distribution, to the value thereof per share of Common Stock
at the time such dividend or distribution was declared, as determined by the
Board of Directors of the Maker in good faith.  Such reductions shall
take effect as of the date on which a record is taken for the purposes of the
subject dividend or distribution, or, if a record is not taken, the date as of
which the holders of record of Common Stock entitled to such dividend or
distribution are to be determined.  Nothing contained in this Section
3(e)(vi) shall be deemed to permit the payment of any dividend or distribution
in violation of the Loan Agreement.

       

      (vii)       Dilutive
Issuances.  (A)  If the Maker, at any time or from
time to time, issues or sells any Additional Shares of Common Stock (as defined
below), other than as provided in the foregoing subsections of this
Section 3(e), for a price per share (which, in the case of options,
warrants, convertible securities or other rights, includes the amounts paid
therefor plus the exercise price, conversion price or other such amounts payable
thereunder) that is less than the Conversion Price then in
effect, then and in each such case, the then applicable Conversion Price shall
automatically be reduced as of the opening of business on the date of such issue
or sale, to a price determined by multiplying the Conversion Price then in
effect by a fraction (i) the numerator of which shall be (A) the
number of share of Common Stock deemed outstanding (as determined below)
immediately prior to such issue or sale, plus (B) the number of shares of
Common Stock which the aggregate consideration received by the Maker for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price, and (ii) the denominator of which shall be the
number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued; provided, however, that upon
the expiration or other termination of options, warrants or other rights to
purchase or acquire Common Stock which triggered any adjustment under this
Section 3(e)(vii), and upon the expiration or termination of the right to
convert or exchange convertible or exchangeable securities (whether by reason of
redemption or otherwise) which triggered any adjustment under this Section
3(e)(vii), if any thereof shall not have been exercised, converted or exchanged,
as applicable, the number of shares of Common Stock deemed to be outstanding
pursuant to this Section 3(e)(vii) shall be reduced by the number of shares
as to which options, warrants and rights to purchase or acquire Common Stock
shall have expired or terminated unexercised, and as to which conversion or
exchange rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be outstanding; and the Conversion Price
then in effect shall forthwith be readjusted and thereafter be the price that it
would have been had adjustment been made on the basis of the issuance only of
the shares of Common Stock actually issued.  For purposes of the
preceding sentence, the number of shares of Common Stock deemed to be
outstanding as of a given date shall be the sum of (x) the number of shares
of Common Stock actually outstanding, (y) the number of shares of Common
Stock into which this Note could be converted on the day immediately preceding
the given date, and (z) the number of shares of Common Stock which could be
obtained through the exercise or conversion of all other rights, options and
convertible securities outstanding on the day immediately preceding the given
date.  “Additional
Shares of Common Stock” shall mean all shares of Common Stock, and all
options, warrants, convertible securities or other rights to purchase or acquire
Common Stock, issued by the Maker other than (i) shares of Common Stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding on the date hereof (including, without limitation, all of the
Warrants issued pursuant to the Original Agreement (as such term is defined in
the Loan Agreement) and pursuant to the Loan Agreement), or hereafter issued
from time to time pursuant to and in accordance with stock purchase or stock
option plans as in effect on the date hereof, and (ii) shares of Common Stock
and/or options, warrants or other Common Stock purchase rights for up to an
aggregate of 1,000,000 shares of Common Stock (such number to be subject to
adjustment in accordance with Sections 3(e)(i) and 3(e)(ii) above), where such
options, warrants or other rights are issued both (x) with exercise prices per
share of Common Stock at the then-current fair market value of a share of Common
Stock, as determined in good faith by the Board of Directors of the Maker or the
Compensation Committee thereof, and (B) to employees, officers or directors of,
or consultants to, the Maker or any Subsidiary pursuant to stock purchase or
stock option plans or other arrangements that are approved by the Maker’s Board
of Directors or the Compensation Committee thereof, and by the Maker’s
stockholders.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      (B)         In
the event that the exercise price, conversion price, purchase price or other
price at which shares of Common Stock are purchasable pursuant to any options,
warrants, convertible securities or other rights to purchase or acquire Common
Stock is reduced at any time or from time to time (other than under or by reason
of provisions designed to protect against dilution), then, upon such reduction
becoming effective, the Conversion Price then in effect hereunder shall
forthwith be decreased to such Conversion Price as would have been obtained had
the adjustments made and required under this Section 3(e)(vii) upon the issuance
of such options, warrants, convertible securities or other rights been made upon
the basis of (and the total consideration received therefor) (i) the issuance of
the number of shares of Common Stock theretofore actually delivered upon the
exercise, conversion or exchange of such options, warrants, convertible
securities or other rights, (ii) the issuance of all of the Common Stock and all
other options, warrants, convertible securities and other rights to purchase or
acquire Common Stock issued after the issuance of the modified options,
warrants, convertible securities or other rights, and (iii) the original
issuance at the time of the reduction of any such options, warrants, convertible
securities or other rights then still outstanding.

       

      (C)         In
no event shall an adjustment under this Section 3(e)(vii) be made if it
would result in an increase in the then applicable Conversion
Price.

       

      (viii)      Certificate of
Adjustment.  Whenever the Conversion Price and/or the number of
shares of Common Stock receivable upon conversion of this Note is adjusted, the
Maker shall promptly deliver to the Payee a certificate of adjustment, setting
forth the Conversion Price and/or shares of Common Stock issuable after
adjustment, a brief statement of the facts requiring the adjustment and the
computation by which the adjustment was made.  The certificate of
adjustment shall be prima facie evidence of the correctness of the
adjustment.

       

      (ix)         Successive
Application.  The provisions of this Section 3(e) shall be
applicable successively to each event described herein which may occur
subsequent to the date of this Note and prior to the conversion in full of this
Note.

       

      (x)          Fractional
Shares.  No fractional shares of Common Stock shall be issuable
by reason of any adjustments made pursuant to this Section 3(e); and in lieu of
any such fractional shares, the Maker shall pay cash therefor in accordance with
Section 3(b) above.

       

      (f)        
   No
Impairment. The
Maker will not, by amendment of its incorporation documents or through any
reorganization, transfer of assets, consolidation, merger, 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 to be observed or performed
hereunder but will at all times in good faith assist in the carrying out of all
the provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the Payee
of this Note against impairment.  In the event of any merger or
consolidation in which the Maker is not the surviving entity, the Maker shall
make appropriate arrangements in order that, upon any subsequent conversion of
this Note, the Payee shall become entitled to receive the same securities or
other consideration that such Payee would have received had such conversion been
made immediately prior to the consummation of such merger or consolidation,
subject to further adjustments, of the type provided in this Note, with respect
to any events relating to any such securities occurring subsequent to the
consummation of such merger or consolidation.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      (g)           Common
Stock Reserved.  The
Maker shall at all times reserve and keep available out of its authorized but
unissued Common Stock such number of shares of Common Stock as shall from time
to time be sufficient to effect the full conversion of this Note into Common
Stock.

       

      (h)           Restricted
Securities.  The
shares of Common Stock issuable to the Payee hereunder (the “Shares”) may not, at the time
of issuance, have been registered under any federal or state securities laws,
and may constitute “restricted securities” within the meaning of federal and
state securities laws.  By its receipt of Shares, if the Shares are
not then the subject of an effective registration statement under the Securities
Act, the Payee will be deemed to acknowledge and confirm that it is receiving
such Shares for its own account for investment, and not with a view to the
resale or distribution thereof in violation of any federal or state securities
laws.

       

      4.            
Events of
Default.  The
occurrence and continuance of an Event of Default under the Loan Agreement shall
constitute a default under this Note and shall entitle the Payee to accelerate
the entire indebtedness hereunder and take such other action as may be provided
for in the Loan Agreement and/or in any and all other instruments evidencing
and/or securing the indebtedness under this Note, or as may be provided under
the law.

       

      5.           
 Communications
and Notices.  Except
as otherwise specifically provided herein, all communications and notices
provided for in this Note shall be sent by post-paid first class mail, reputable
overnight courier or facsimile to the Payee at the Payee’s address as provided
to the Secretary of the Maker from time to time and, if to the Maker, at 15402
Vantage Parkway East, Suite 322, Houston, Texas 77032,
Attention:  Michael T. Adams, Executive Vice President and
Secretary.  Any first-class mail notice provided pursuant to this
Section 5 shall be deemed given three (3) Business Days after being sent by
first-class mail.  Any notice sent by overnight courier shall be
deemed given on the next Business Day after being deposited with the courier
with all charges prepaid or billed to the account of the sender. Notices sent by
facsimile shall be deemed received upon delivery.  The Maker and the
Payee may from time to time change their respective addresses, for purposes of
this Section 5, by written notice to the other parties; provided, however, that
notice of such change shall be effective only upon receipt.

       

      6.            
Governing
Law.  This
Note shall be construed in accordance with and governed by the laws of the State of
New York, except to the extent superseded by Federal enactments.

       

      7.         
   Assignment.  This
Note shall be binding upon and shall inure to the benefit of the respective
successors and permitted assigns of the parties hereto, provided that the Maker
may not assign any of its rights or obligations hereunder without the prior
written consent of the Payee.

       

      8.    
        Waiver and
Amendment.  No
waiver of a right in any instance shall constitute a continuing waiver of
successive rights, and any one waiver shall govern only the particular matters
waived.  Neither any provision of this Note nor any performance
hereunder may be amended or waived except pursuant to an agreement in writing
signed by the party against whom enforcement thereof is
sought.  Except as otherwise expressly provided in this Note, the
Maker hereby waives diligence, demand, presentment for payment, protest,
dishonor, nonpayment, default, notice of any and all of the foregoing, and any
other notice or action otherwise required to be given or taken under the law in
connection with the delivery, acceptance, performance, default, enforcement or
collection of this Note, and expressly agrees that this Note, or any payment
hereunder, may be extended, modified or subordinated (by forbearance or
otherwise) from time to time, without in any way affecting the liability of the
Maker.  The Maker further waives the benefit of any exemption under
the homestead exemption laws, if any, or any other exemption, appraisal or
insolvency laws, and consents that the Payee may release or surrender, exchange
or substitute any personal property or other collateral security now held or
which may hereafter be held as security for the payment of this
Note.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      9.            
Usury Savings Clause.  All
agreements between the Maker and the Payee are hereby expressly limited to
provide that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Payee for the use, forbearance
or detention of the indebtedness evidenced hereby exceed the maximum amount
which the Payee is permitted to receive under applicable law.  If,
from any circumstances whatsoever, fulfillment of any provision hereof or of the
Loan Agreement or any Loan Document thereunder, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then, ipso facto, the obligation
to be fulfilled shall automatically be reduced to the limit of such validity,
and if from any circumstance the Payee shall ever receive as interest an amount
which would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance of any of
the Maker’s Obligations (as such term is defined in the Loan Agreement) to the
Payee, and not to the payment of interest hereunder.  To the extent
permitted by applicable law, all sums paid or agreed to be paid for the use,
forbearance or detention of the indebtedness evidenced by this Note shall be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full, to the end that the rate or amount of
interest on account of such indebtedness does not exceed any applicable usury
ceiling.  As used herein, the term “applicable law” shall mean the law
in effect as of the date hereof, provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
this Note shall be governed by such new law as of its effective
date.  This provision shall control every other provision of all
agreements between the Maker and the Payee.

       

      10.           Collection
Costs.  In
the event that the Payee shall place this Note in the hands of an attorney for
collection during the continuance of any Event of Default, the Maker shall
further be liable to the Payee for all costs and expenses (including reasonable
attorneys’ fees) which may be incurred by the Payee in enforcing this Note, all
of which costs and expenses shall be obligations under and part of this Note;
and the Payee may take judgment for all such amounts in addition to all other
sums due hereunder.

       

      11.           Effect on Prior
Note.  This Note amends, restates and supercedes in its
entirety the Amended and Restated Convertible Term Note dated June 12, 2007
issued by the Maker to ComVest, provided that this Note does not effect a
novation of the outstanding obligations under such prior Amended and Restated
Convertible Term Note (all of which obligations shall henceforth be evidenced by
this Note).

       

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      IN
WITNESS WHEREOF, the Maker has executed this Note on the date first above
written.

       

      
        
          	 	LAPOLLA
      INDUSTRIES, INC.	 
	 	 	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	
                  /s/  Michael
      T. Adams, EVP

                	 
	 	 	Name:  Michael
      T. Adams	 
	 	 	

                  Title:    Executive
      Vice President

                	 

        

         

      

       

      
        9

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