Document:

Loan Agreement

    

    

    

    

    

    

    

    

    

    ____________________________________________________________________________

    

    

    

    

    

    

    BANK
      OF TEXAS, N.A.,

    a
      national banking association

    

    

    

    

    -and-

    

    

    

    

    LIGHTING
      SCIENCE GROUP CORPORATION,

    a
      Delaware corporation

     

    LOAN
      AGREEMENT

     

    Dated:
      As
      of June 29, 2006

    

    

    
      D-1450133.v2
____________________________________________________________________________

    
      
        
           

          

        

         

      

      
         

        
          

        

      

      
         

        
        

      

    

    Article
      One Certain Definitions

    1.1 Definitions

    1.2 Accounting
      Matters

    1.3 Headings

    1.4 Number
      and Gender of Words

    1.5 Articles,
      Sections and Exhibits

    Article
      Two Commitment to Lend, Terms of Payment

    2.1 Revolving
      Loan

    2.2 Revolving
      Note

    2.3 Revolving
      Loan Borrowing Procedure

    2.4 Payments

    2.5 Prepayments.

    2.6 Purpose
      of Loans

    2.7 Sale
      of
      Participations

    2.8 Order
      of
      Application

    2.9 Commitment
      Fee

    2.10 Lockbox
      and Account Collections

    2.11 Letters
      of Credit

    Article
      Three Collateral

    3.1 Security
      Interests

    Article
      Four Conditions Precedent to Lending

    4.1 Initial
      Extension of Credit

    4.2 Conditions
      for Each Subsequent Advance

    Article
      Five Representations and Warranties

    5.1 Existence

    5.2 Authorization

    5.3 Properties;
      Permitted Liens

    5.4 Compliance
      with Laws and Documents

    5.5 Litigation

    5.6 Taxes

    5.7 Enforceability
      of Loan Documents

    5.8 Financial
      Statements

    5.9 Regulation
      U

    5.10 Subsidiaries

    5.11 Other
      Debt

    5.12 Regulatory
      Acts

    5.13 Environmental
      Matters

    5.14 General

    Article
      Six Certain Affirmative Covenants

    6.1 Reporting
      Requirements

    6.2 Insurance

    6.3 Payment
      of Debts

    6.4 Taxes

    6.5 Expenses
      of Bank

    6.6 Maintenance
      of Entity Existence, Assets and Business; Continuance of Present
      Business

    6.7 Books
      and
      Records

    6.8 Compliance
      with Applicable Laws and with Contracts

    6.9 Comply
      with Agreement

    6.10 Notice
      of
      Event of Default, Suits, and Material Adverse Effect

    6.11 Information
      and Inspection

    6.12 Depository
      Relationship

    6.13 Additional
      Information

    Article
      Seven Certain Negative Covenants

    7.1 Debt

    7.2 Contingent
      Liabilities

    7.3 Limitation
      on Liens

    7.4 Mergers,
      Etc

    7.5 Restricted
      Payments

    7.6 Loans
      and
      Investments

    7.7 Transactions
      With Affiliates

    7.8 Sale
      and
      Leaseback and Disposition of Assets

    7.9 Nature
      of
      Business

    7.10 Environmental
      Protection

    7.11 No
      Negative Pledge

    7.12 Judgments

    Article
      Eight Financial Covenants

    8.1 Bookings

    Article
      Nine Events of Default

    9.1 Payment
      of Indebtedness

    9.2 Misrepresentation

    9.3 Covenants

    9.4 Voluntary
      Debtor Relief

    9.5 Involuntary
      Proceedings

    9.6 Attachment

    9.7 Other
      Obligations

    9.8 Dissolution

    9.9 Other
      Agreements with Bank

    9.10 Cash
      Collateral

    9.11 Defaults
      on Other Debt or Agreements

    9.12 Voluntary
      Debtor Relief

    9.13 Involuntary
      Proceedings

    9.14 Right
      to
      Cure Events of Default under Sections 9.10, 9.12 and 9.13

    9.15 Financial
      Covenant

    Article
      Ten Certain Rights and Remedies of Bank

    10.1 Rights
      Upon Event of Default

    10.2 Setoff

    10.3 Performance
      by Bank

    10.4 Diminution
      in Collateral Value

    10.5 Bank
      Not
      In Control

    10.6 Waivers

    10.7 Cumulative
      Rights

    10.8 INDEMNIFICATION
      OF BANK

    10.9 Limitation
      of Liability

    Article
      Eleven Miscellaneous

    11.1 Headings

    11.2 Notices

    11.3 Form
      and
      Number of Documents

    11.4 Survival

    11.5 GOVERNING
      LAW; PLACE OF PERFORMANCE

    11.6 Maximum
      Interest

    11.7 Ceiling
      Election

    11.8 Invalid
      Provisions

    11.9 Amendments

    11.10 Multiple
      Counterparts; Facsimiles

    11.11 Parties
      Bound

    11.12 Bank’s
      Consent or Approval

    11.13 Loan
      Agreement Governs

    11.14 WAIVER
      OF
      JURY TRIAL

    11.15 ENTIRE
      AGREEMENT

    

    

    LIST
      OF SCHEDULES AND EXHIBITS

     

    EXHIBIT
      A - Compliance
      Certificate

     

    SCHEDULE
      ONE -
       Conditions
      Precedent

     

    SCHEDULE
      TWO - Disclosure
      Schedule

     

    

     

    

     

    LOAN
      AGREEMENT

     

    This
      Loan
      Agreement (“Agreement”)
      is
      made and entered into as of June 29, 2006, by and between BANK OF TEXAS, N.A.,
      a
      national banking association (“Bank”)
      and
      LIGHTING SCIENCE GROUP CORPORATION, a Delaware corporation (“Borrower”).

     

    RECITALS:

     

    A. Borrower
      has requested that Bank extend credit to Borrower as described in this
      Agreement. Bank is willing to make such credit available to Borrower upon and
      subject to the provisions, terms and conditions hereinafter set
      forth.

     

    B. Subject
      to and upon the terms and conditions of this Agreement, Bank has agreed to
      lend
      to Borrower the amounts herein described for the purposes set forth
      below.

     

    AGREEMENT:

     

    NOW,
      THEREFORE, in consideration of the premises, the covenants, representations,
      warranties and agreements contained herein and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto hereby covenant and agree as follows:

     

    Article
      One  

     

     

    Certain
      Definitions

     

    1.1  Definitions.
      As used
      in this Agreement, all exhibits and schedules hereto and in any note,
      certificate, report or other Loan Documents made or delivered pursuant to this
      Agreement, the following terms will have the meanings given such terms in
Article
      One.

     

    “Accounts”
has
      the
      meaning set forth for such term in the Security Agreement.

     

    “Advance”
means
      any disbursement of an amount or amounts to be loaned by Bank to Borrower
      hereunder (including any advance made by Bank to cover any drawings under any
      Letter of Credit) or the reborrowing of amounts previously loaned
      hereunder.

     

    “Affiliate”
means,
      as to any Person, any other Person (a) that directly or indirectly, through
      one
      or more intermediaries, controls or is controlled by, or is under common control
      with, such Person, (b) that directly or indirectly beneficially owns or holds
      ten percent (10%) or more of any class of voting stock of such Person, or (c)
      ten percent (10%) or more of the voting stock of which is directly or indirectly
      beneficially owned or held by the Person in question. The term “control”
means
      the possession, directly or indirectly, of the power to direct or cause
      direction of the management and policies of a Person, whether through the
      ownership of voting securities, by control, or otherwise; provided, however,
      in
      no event shall Bank be deemed an Affiliate of Borrower.

     

    “Agreement”
means
      this Loan Agreement, as the same may, from time to time, be amended,
      supplemented, or replaced.

     

    “Approved
      Purposes”
mean
      general working capital needs, corporate expenses and repayment of certain
      existing Debt of the Borrower.

     

    “Article”
and
      “Articles”
have
      the meanings set forth in Section
      1.5.

     

    “Bank”
means
      Bank of Texas, N.A. and its successors and assigns.

     

    “Bookings”
means
      the sum of: (i) gross amounts ordered by customers of Borrower (including
      Affiliates) as evidenced by bona fide written purchase orders from third parties
      in any calendar quarter and (ii) with respect to Shared Savings Programs
      (including those with Affiliates, made on an arm’s length basis), the forecast
      capital asset value expected to be recorded by the Borrower during such calendar
      quarter as evidenced by bona fide written purchase orders from third
      parties.

     

    “Borrower”
means
      the Person identified as such in the introductory paragraph hereof, and its
      successors and assigns.

     

    “Borrowing
      Base”
means,
      at any time, an amount equal to the sum of (a) the amount of the Loan guaranteed
      in form and substance satisfactory to Bank, plus (b) the amount of cash
      Collateral subject to the control Bank in form and substance satisfactory to
      Bank.

     

    “Borrowing
      Limit”
means
      the lesser of the Borrowing Base or the Committed Sum (after deducting all
      outstanding Letter of Credit Liabilities, if any).

     

    “Business
      Day”
means
      a
      day other than a Saturday, Sunday or a day on which commercial banks in Dallas,
      Texas are authorized to be closed. Unless otherwise provided, the term “days”
means calendar days.

     

    “Capital
      Lease Obligation”
means
      the amount of Debt under a lease of property by a Person that would be shown
      as
      a liability on a balance sheet of such Person prepared for financial reporting
      purposes in accordance with GAAP.

     

    “Closing
      Date”
means
      June 29, 2006.

     

    “Code”
means
      the Uniform Commercial Code of the State of Texas or other applicable
      jurisdiction as it may be amended from time to time.

     

    “Collateral”
means
      all property (regardless of owner), which secures, either directly or
      indirectly, the Indebtedness and the Obligations.

     

    “Commitment”
means
      the obligation of Bank to make the Revolving Loan in an amount not to exceed
      in
      the aggregate the Borrowing Limit in effect from time to time.

     

    “Committed
      Sum”
means
      $2,000,000.00.

     

    “Compliance
      Certificate”
means
      a
      certificate, substantially in the form of Exhibit
      A
      attached
      hereto, prepared by and executed by the chief financial officer (or other
      authorized representative acceptable to Bank) of Borrower.

     

    “Current
      Financial Statements”
means
      the financial statements of Borrower most recently submitted to Bank and dated
      March 31, 2006.

     

    “Debt”
means
      as to any Person at any time (without duplication), (a) all obligations of
      such
      Person for borrowed money, (b) all obligations of such Person evidenced by
      bonds, notes, debentures, or other similar instruments, (c) all obligations
      of
      such Person to pay the deferred purchase price of property or services, except
      trade accounts payable of such Person arising in the ordinary course of
      business, and further excepting any deferred executive compensation (not to
      exceed, in the aggregate, $100,000.00), (d) all Capital Lease Obligations of
      such Person, (e) all debt or other obligations of others guaranteed by such
      Person; (f) all obligations secured by a Lien existing on property owned by
      such
      Person, whether or not the obligations secured thereby have been assumed by
      such
      Person or are non-recourse to the credit of such Person; (g) any other
      obligation for borrowed money or other financial accommodations which in
      accordance with GAAP would be shown as a liability on the balance sheet of
      such
      Person, (h) any repurchase obligation or liability of a Person with respect
      to
      accounts, chattel paper or notes receivable sold by such Person; (i) any
      liability under a safe and leaseback transaction that is not a Capital Lease
      Obligation, and (j) all reimbursement obligations of such Person (whether
      contingent or otherwise) in respect of letters of credit, bankers’ acceptances,
      surety or other bonds and similar instruments.

     

    “Debtor
      Relief Laws”
means
      the Bankruptcy Code of the United States and all other applicable liquidation,
      conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
      reorganization, or similar debtor relief Laws affecting the rights of creditors
      generally from time to time in effect.

     

    “Environmental
      Laws”
means
      any and all federal, state, and local laws, regulations, judicial decisions,
      orders, decrees, plans, rules, permits, licenses, and other governmental
      restrictions and requirements pertaining to health, safety, or the environment,
      including, without limitation, the Comprehensive Environmental Response,
      Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et
      seq.,
      the
      Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901, et
      seq.,
      the
      Occupational Safety and Health Act, 29 U.S.C. § 651, et
      seq.,
      the
      Clean Air Act, 42 U.S.C. § 7401 et
      seq.,
      the
      Clean Water Act, 33 U.S.C. § 1251, et
      seq.,
      and the
      Toxic Substances Control Act, 15 U.S.C. § 2601, et
      seq.,
      as the
      same may be amended or supplemented from time to time.

     

    “Environmental
      Liabilities”
means,
      as to any Person, all liabilities, obligations, responsibilities, Remedial
      Actions, losses, damages, punitive damages, consequential damages, treble
      damages, costs, and expenses (including, without limitation, all reasonable
      fees, disbursements and expenses of counsel, expert and consulting fees and
      costs of investigation and feasibility studies), fines, penalties, sanctions,
      and interest incurred as a result of any claim or demand, by any Person, whether
      based in contract, tort, implied or express warranty, strict liability, criminal
      or civil statute, including any Environmental Law, permit, order or agreement
      with any Governmental Authority or other Person, arising from environmental,
      health or safety conditions or the Release or threatened Release of a Hazardous
      Material into the environment, resulting from the past, present, or future
      operations of such Person or its Affiliates.

     

    “Event
      of Default”
has
      the
      meaning set forth in Article
      Nine
      and in
      any other provision hereof using the term.

     

    “Existing
      Environmental Matters”
has
      the
      meaning set forth in Section
      5.13.

     

    “Existing
      Litigation”
has
      the
      meaning set forth in Section
      5.5.

     

    “GAAP”
means
      generally accepted accounting principles, applied on a consistent basis, set
      forth in Opinions of the Accounting Principles Board of the American Institute
      of Certified Public Accountants and/or in statements of the Financial Accounting
      Standards Board which are applicable in the circumstances as of the date in
      question; and the requisite that such principles be applied on a consistent
      basis means that the accounting principles observed in a current period are
      comparable in all material respects to those applied in a preceding period,
      except to the extent that a deviation therefrom is expressly permitted by this
      Agreement.

     

    “Guarantor”
means
      Bob Bachman, Barron Cass, John Collingwood, Iroquois Funds, Phil Lacerte, Fred
      Maxik, Daryl Snadon and any other Person
      who from time to time guarantees all or any part of the Indebtedness and
      Obligations or otherwise enters into an agreement in favor of Bank in connection
      therewith.

     

    “Guaranty
      Agreement”
means
      an agreement executed by Guarantor in favor of Bank, as may be amended from
      time
      to time.

     

    “Hazardous
      Material”
means
      any substance, product, waste, pollutant, material, chemical, contaminant,
      constituent, or other material which is or becomes listed, regulated, or
      addressed under any Environmental Law, including, without limitation, asbestos,
      petroleum, and polychlorinated biphenyls.

     

    “Inchoate
      Lien”
means
      any Tax Lien for Taxes not yet due and payable and any mechanic’s Lien and
      materialman’s Lien for services or materials for which payment is not yet
      due.

     

    “Indebtedness”
means
      all present and future indebtedness, obligations, and liabilities, including
      all
      direct and contingent obligations arising under letters of credit, banker’s
      acceptances, bank guaranties and similar instruments, net obligations under
      any
      swap contract, overdrafts, Automated Clearing House obligations, and all other
      financial accommodations which could be considered a liability under GAAP,
      and
      all renewals, extensions, and modifications thereof, or any part thereof, now
      or
      hereafter owed to Bank by Borrower, and all interest accruing thereon and costs,
      expenses, and reasonable attorneys’ fees incurred in the enforcement or
      collection thereof, regardless of whether such indebtedness, obligation, and
      liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated,
      joint, several, joint and several, or arising pursuant to any of the Loan
      Documents and all renewals and extensions thereof, or any part thereof, and
      all
      present and future amendments thereto.

     

    “Inventory”
means
      all of Borrower’s inventory of every nature and description, including all
      goods, merchandise, raw materials, goods in process and finished goods now
      owned
      or hereafter acquired and held for sale or lease or furnished or to be furnished
      under contracts for service or used or consumed in Borrower’s businesses and all
      additions and accessions thereto and contracts with respect thereto and all
      documents of title evidencing or representing any part thereof, and all products
      and proceeds thereof, including insurance proceeds payable by reason of loss
      or
      damage to Borrower’s inventory.

     

    “Laws”
means
      all statutes, laws, ordinances, regulations, orders, writs, injunctions, or
      decrees of the United States, any city or municipality, state, commonwealth,
      nation, country, territory, possession, or any Tribunal.

     

    “Leases”
means
      those certain lease agreements between the owners of the real property on which
      any part of Borrower’s business is operated, as landlord, and Borrower, as
      tenant, pertaining to the lease of such real property.

     

    “Letter
      of Credit”
means
      any letter of credit issued by Bank for the account of or at the direction
      of
      Borrower pursuant to Article Two of this Agreement.

     

    “Letter
      of Credit Liabilities”
means,
      at any time, the aggregate face amounts of all outstanding Letters of Credit,
      plus any amounts drawn under any Letters of Credit for which Bank has not been
      fully reimbursed by Borrower (unless Bank, in its sole discretion, has cleared
      the drawn amount by means of an Advance under the Revolving Note, in which
      case
      the drawn amount would not constitute a Letter of Credit
      Liability).

     

    “Liabilities”
means,
      at any particular time, all amounts which in conformity with GAAP, would be
      included, on a consolidated basis, as liabilities on a balance sheet of a
      Person.

     

    “Lien”
means
      any lien, security interest, Tax lien, mechanic’s lien, materialman’s lien, or
      other encumbrance, whether arising by contract or under Law.

     

    “Litigation”
means
      any proceeding, claim, lawsuit, and/or investigation conducted or threatened
      by
      or before any Tribunal, including, but not limited to, proceedings, claims,
      lawsuits, and/or investigations under or pursuant to any environmental,
      occupational safety and health, antitrust, unfair competition, securities,
      Tax,
      or other Law, or under or pursuant to any agreement, document, or
      instrument.

     

    “Loan
      Documents”
mean
      this Agreement, the Note, the Security Agreement, any subordination agreement
      executed in connection with Subordinated Debt and any and all other agreements,
      documents, and instruments executed and delivered pursuant to the terms of
      this
      Agreement, and any future amendments hereto, or restatements hereof, or pursuant
      to the terms of any of the other loan documents, together with any and all
      renewals, extensions, and restatements of, and amendments and modifications
      to,
      any such agreements, documents, and instruments.

     

    “Loans”
mean
      the Revolving Loan.

     

    “Material
      Adverse Effect”
means
      any set of circumstances or event which (a) could reasonably be expected to
      have
      any adverse effect whatsoever upon the validity, performance, or enforceability
      of any Loan Document, (b) is or could reasonably be expected to become material
      and adverse to the financial condition, properties, or business operations
      of
      the Person in question, (c) could reasonably be expected to impair the ability
      of the Person in question to fulfill its obligations under the terms and
      conditions of the Loan Documents, or (d) could reasonably be expected to cause
      an Event of Default.

     

    “Maximum
      Rate”
means
      the maximum non-usurious rate of interest (or, if the context so requires,
      an
      amount calculated at such rate) which Bank is allowed to contract for, charge,
      take, reserve, or receive in this transaction under applicable federal or state
      (whichever is higher) Law from time to time in effect after taking into account,
      to the extent required by applicable federal or state (whichever is higher)
      Law
      from time to time in effect, any and all relevant payments or charges under
      the
      Loan Documents.

     

    “Note”
means
      the Revolving Note and any other note or notes entered into by Borrower in
      favor
      of Bank.

     

    “Obligated
      Party”
means
      any Person (other than Borrower) who is or becomes party to any agreement that
      guarantees or secures payment and performance of the Indebtedness and/or
      Obligations or any part thereof. 

     

    “Obligations”
means
      any and all of the covenants, conditions, warranties, representations and other
      obligations (other than to repay the Indebtedness) made or undertaken by
      Borrower or any Obligated Party to Bank as set forth in the Loan
      Documents.

     

    “Organizational
      Documents”
means
      (a) in the case of a corporation, its articles or certificate of incorporation
      and bylaws, (b) in the case of a general partnership, its partnership agreement,
      (c) in the case of a limited partnership, its certificate of limited partnership
      and partnership agreement, (d) in the case of a limited liability company,
      its
      articles of organization and operating agreement or regulations, and (e) in
      the
      case of any other entity, its organizational and governance documents and
      agreements.

     

    “Permitted
      Businesses”
mean,
      with respect to Borrower, those businesses in which Borrower was engaged as
      of
      the Closing Date and any other business reasonably related thereto.

     

    “Permitted
      Liens”
means
      all (a) Inchoate Liens, (b) Liens created by or pursuant to the Loan Documents
      in favor of Bank, and all renewals and extensions of the foregoing, (c)
      encumbrances consisting of minor easements, zoning restrictions, or other
      restrictions on the use of real property that do not (individually or in the
      aggregate) materially affect the value of the assets encumbered thereby or
      materially impair the ability of Borrower to use such assets in their respective
      businesses, and none of which is violated in any material respect by existing
      or
      proposed structures or land use, (d) Liens for taxes, assessments, or other
      governmental charges which are being contested in good faith and for which
      adequate reserves have been established, (e) Liens resulting from good faith
      deposits to secure payments of workmen’s compensation or other social security
      programs or to secure the performance of tenders, statutory obligations, surety
      and appeal bonds, bids, or contracts (other than for payment of Debt) made
      in
      the ordinary course of business, (f) Liens arising in connection with
      Subordinated Debt, and (g) purchase money liens or purchase money security
      interests not to exceed, in the aggregate, $250,000.00.

     

    “Person”
means
      any individual, firm, corporation, association, partnership, joint venture,
      trust, other entity, or a Tribunal.

     

    “Release”
means,
      as to any Person, any release, spill, emissions, leaking, pumping, injection,
      deposit, disposal, disbursement, leaching, or migration of Hazardous Materials
      into the indoor or outdoor environment or into or out of property owned by
      such
      Person, including, without limitation, the movement of Hazardous Materials
      through or in the air, soil, surface water, ground water, or
      property.

     

    “Remedial
      Action”
means
      all actions required to (a) clean up, remove, treat, or otherwise address
      Hazardous Materials in the indoor or outdoor environment, (b) prevent the
      Release or threat of Release or minimize the further Release of Hazardous
      Materials so that they do not migrate or endanger or threaten to endanger public
      health or welfare or the indoor or outdoor environment, or (c) perform
      pre-remedial studies and investigations and post-remedial monitoring and
      care.

     

    “Revolving
      Loan”
has
      the
      meanings set forth in Section
      2.1.

     

    “Revolving
      Note”
means
      the promissory note, dated the Closing Date, in the original principal amount
      of
      $2,000,000.00, executed by Borrower and payable to the order of Bank, in form
      and substance satisfactory to Bank, and all amendments, extensions, renewals,
      replacements, increases, and modifications thereof.

     

    “Revolving
      Principal Balance”
means
      the aggregate unpaid principal balance of the Revolving Note at the time in
      question.

     

    “Rights”
mean
      any remedies, powers, and privileges exercisable by Bank under the Loan
      Documents, at Law, equity, or otherwise.

     

    “Section”
and
      “Sections”
have
      the meanings set forth in Section
      1.5.

     

    “Security
      Agreement”
means
      the Pledge and Security Agreement dated the Closing Date, executed by Borrower
      in favor of Bank, in form and substance satisfactory to Bank, as the same may
      be
      amended, restated, supplemented or modified from time to time.

     

    “Subordinated
      Debt”
means
      all Debt of Borrower whether now existing or hereafter incurred which is
      subordinate in right of payment to the Indebtedness, pursuant to a written
      agreement in form and substance satisfactory to Bank.

     

    “Subsection”
and
      “Subsections”
have
      the meanings set forth in Section
      1.5.

     

    “Subsidiary(ies)”
means
      any entity more than twenty percent (20%) of whose ownership interest now or
      hereafter is owned directly or indirectly by Borrower or any Subsidiary or
      may
      be voted by Borrower or any Subsidiary.

     

    “Taxes”
means
      all taxes (including withholding), assessments, fees, levies, imposts, duties,
      deductions, withholdings, or other charges of any nature whatsoever from time
      to
      time or at any time imposed by any Laws or by any Tribunal, excluding state
      and
      local sales and use taxes.

     

    “Tribunal”
means
      any state, commonwealth, federal, foreign, territorial, or other court or
      governmental department, commission, board, bureau, agency, or
      instrumentality.

     

    “Tribunal
      Proceedings”
has
      the
      meaning set forth in Section
      5.4.

     

    “Unpaid
      Judgments”
has
      the
      meaning set forth in Section
      5.5.

     

    1.2  Accounting
      Matters.
      Any
      accounting term used in this Agreement or the other Loan Documents shall have,
      unless otherwise specifically provided therein, the meaning customarily given
      such term in accordance with GAAP, and all financial computations thereunder
      shall be computed, unless otherwise specifically provided therein, in accordance
      with GAAP consistently applied. That certain items or computations are
      explicitly modified by the phrase “in accordance with GAAP” shall in no way be
      construed to limit the foregoing.

     

    1.3  Headings.
      The
      headings, captions, and arrangements used in any of the Loan Documents are,
      unless specified otherwise, for convenience only and shall not be deemed to
      limit, amplify, or modify the terms of the Loan Documents no to affect the
      meaning thereof.

     

    1.4  Number
      and Gender of Words.
      Whenever herein the singular number is used, the same shall include the plural
      where appropriate, and words of any gender shall include each other gender
      where
      appropriate. Reference herein of Borrower shall mean, jointly and severally,
      each Person comprising same.

     

    1.5  Articles,
      Sections and Exhibits.
      All
      references herein to “Articles”,
      “Sections”
and
      “Subsections”
are,
      unless specified otherwise, references to articles, sections and subsections
      of
      this Agreement. All references herein to an “Exhibit”
or
      “Schedule”
are
      references to exhibits or schedules attached hereto, all of which are made
      a
      part hereof for all purposes, the same as if set forth herein verbatim, it
      being
      understood that if any exhibit or schedule attached hereto, which is to be
      executed and delivered, contains blanks, the same shall be completed correctly
      and in accordance with the terms and provisions contained and as contemplated
      herein prior to or at the time of the execution and delivery thereof. The words
      “herein,”
      “hereof,”
      “hereunder”
and
      other similar compounds of the word “here”
when
      used in this Agreement shall refer to the entire Agreement and not to any
      particular provision or section.

     

    Article
      Two  

     

     

    Commitment
      to Lend, Terms of Payment

     

    2.1  Revolving
      Loan.
      Subject
      to and upon the terms, covenants, and conditions of this Agreement, Bank agrees
      to make one or more Advances (hereinafter called the “Revolving
      Loan”)
      to
      Borrower for Approved Purposes in an aggregate principal amount at any one
      time
      outstanding up to but not exceeding the Borrowing Limit. Within the limit of
      the
      Borrowing Limit in effect from time to time, Borrower may borrow, repay, and
      reborrow at any time and from time to time from the Closing Date to the earlier
      of (a) the maturity of the Revolving Note, or (b) the termination of Bank’s
      Commitment hereunder. If, by virtue of payments made on the Revolving Note,
      the
      principal amount owed on the Revolving Note during its term reaches zero at
      any
      point, Borrower agrees that all of the Collateral and all of the Loan Documents
      shall remain in full force and effect to secure any Advances made thereafter,
      and Bank shall be fully entitled to rely on all of the Collateral and all of
      the
      Loan Documents unless an appropriate release of all or any part of the
      Collateral or all or any part of the Loan Documents has been executed by Bank.
      The Revolving Principal Balance may not exceed the Borrowing Limit at any
      time. 

     

    2.2  Revolving
      Note.
      The
      Revolving Loan shall be evidenced by, and be repayable in accordance with the
      Revolving Note. 

     

    2.3  Revolving
      Loan Borrowing Procedure.
      Borrower shall give Bank notice of each Revolving Loan by means of a written
      request containing the information required by Bank and delivered (by hand
      or by
      mechanically confirmed facsimile) to Bank no later than 10:00 a.m. (Dallas,
      Texas time) on the day on which the Revolving Loan is desired to be funded.
      Bank, at its option, may accept telephonic requests for such Advances, provided
      that such acceptance shall not constitute a waiver of Bank’s right to require
      delivery of a written request in connection with subsequent Revolving Loan.
      Any
      telephonic request for a Revolving Loan by Borrower shall be promptly confirmed
      by submission of a properly completed written request to Bank, but failure
      to
      deliver a written request shall not be a defense to payment of a Revolving
      Loan.
      Bank shall have no liability to Borrower for any loss or damage suffered by
      Borrower as a result of Bank’s honoring of any requests, execution of any
      instructions, authorizations or agreements or reliance on any reports
      communicated to it telephonically, by facsimile or electronically, and
      purporting to have been sent to Bank by Borrower and Bank shall have no duty
      to
      verify the origin of any such communication or the identity or authority of
      the
      Person sending it. Subject to the terms and conditions of this Agreement, each
      Revolving Loan shall be made available to Borrower by depositing the same,
      in
      immediately available funds, in an account of Borrower designated by Borrower
      maintained with Bank. To automate the Revolving Loan notification process,
      Borrower shall enter into a “Credit Sweep” facility or “loan manager” in
      connection with the Commitment and Borrower’s deposit accounts maintained with
      Bank.

     

    2.4  Payments.
      Borrower authorizes Bank to auto debit the amount of any scheduled payment
      under
      the Revolving Note when due from any deposit account or other account of
      Borrower with Bank.

     

    2.5  Prepayments. 

     

    (a)  Voluntary
      Prepayments.
      The
      Borrower may prepay all or any portion of the Note to the extent and in the
      manner provided for therein. 

     

    (b)  Mandatory
      Prepayment.
      The
      Borrower must immediately
      upon written notice of DEMAND pay
      the
      amount by which at any time the unpaid principal balance of the Revolving Loan
      exceeds the Borrowing Limit; provided, that if
      such
      excess is directly caused by a default of one or more Guarantors under a
      Guaranty Agreement or other Loan Document and the amount of such excess is
      less
      than $350,000.00, Borrower shall have thirty (30) days from the date of such
      notice to pay such excess amount or cause the replacement of the defaulting
      Guarantor with another Guarantor subject to documents and terms satisfactory
      to
      Bank.

     

    2.6  Purpose
      of Loans.
      Borrower represents that the proceeds of the Revolving Loan will be used only
      for Approved Purposes.

     

    2.7  Sale
      of Participations.
      Bank
      may, from time to time, sell or offer to sell the Indebtedness, or interests
      therein, to one or more participants and Bank is hereby authorized to
      disseminate and disclose any information (whether or not confidential or
      proprietary in nature) Bank now has or may hereafter obtain pertaining to
      Borrower, the Indebtedness or the Loan Documents (including, without limitation,
      any credit or other information regarding Borrower, any of its principals,
      or
      any other person or entity liable, directly or indirectly, for any part of
      the
      Loan, to (a) any participant or prospective participant, (b) any regulatory
      body
      having jurisdiction over Bank or the Indebtedness, and (c) any other persons
      or
      entities as may be necessary or appropriate in Bank’s reasonable judgment);
      provided, that, so long as no Event of Default has occurred, Bank shall be
      required to obtain the prior written consent of Borrower prior to entering
      into
      any such participation. Following the occurrence of an Event of Default, Bank,
      as a courtesy to Borrower, will endeavor to notify Borrower of any participants
      or prospective participants, to which Bank disseminates any of the information
      described above.

     

    2.8  Order
      of Application.
      Except
      as otherwise provided in the Loan Documents or otherwise agreed by Bank, all
      payments and prepayments of the Indebtedness, including proceeds from the
      exercise of any Rights under the Loan Documents or proceeds of any of the
      Collateral, shall be applied to the Indebtedness in the following order, any
      instructions from Borrower to the contrary notwithstanding: (a) to the expenses
      for which Bank shall not have been reimbursed under the Loan Documents, and
      then
      to all indemnified amounts due under the Loan Documents; (b) to fees then owed
      Bank hereunder; (c) to accrued interest on the portion of the Indebtedness
      being
      paid or prepaid; (d) to the portion of the principal being paid or prepaid;
      (e)
      to the remaining accrued interest on the Indebtedness; (f) to the remaining
      principal; and (g) to the remaining Indebtedness. All amounts remaining after
      the foregoing application of funds shall be paid to Borrower.

     

    2.9  Commitment
      Fee.
      Borrower
      shall pay to Bank a Commitment Fee of $25,000.00 on the date hereof. Such fee,
      as of the date of this Agreement, is fully earned and
      non-refundable. 

     

    2.10  Lockbox
      and Account Collections.
      Borrower will maintain under such written agreements as Bank requires, as
      security for the Indebtedness, a depository account with the Bank (“Depository
      Account”)
      and,
      upon request of Bank following an Event of Default, a lockbox (“Lockbox”).
      Upon
      the request of Bank following the occurrence of an Event of Default, Borrower
      will advise all of its account debtors to direct their payments to the Lockbox,
      at the address established by the Lockbox arrangements; all payments received
      into the Lockbox will be deposited into the Depository Account; and all payments
      from account debtors of Borrower not otherwise delivered to the Lockbox will
      be
      deposited directly into the Depository Account, and Bank is authorized to
      transfer to the Depository Account any funds which are account debtor payments
      but which have been deposited into any other depository account of Borrower
      at
      Bank. Upon the occurrence of an Event of Default, Borrower agrees that Bank
      will
      have all right, title and interest in and to all items and funds from time
      to
      time in the Depository Account. Checks received into the Depository Account
      will
      not be considered good funds until Bank has effected final settlement with
      respect thereto. After an Event of Default has occurred, Bank is authorized
      to
      apply any and all funds in the Depository Account at any time, and from time
      to
      time, to the Indebtedness (to the extent then due and payable) in any order
      Bank
      may elect.

     

    2.11  Letters
      of Credit.
      Subject
      to the terms and conditions of this Agreement and other Loan Documents, Bank
      may, in its reasonable discretion, issue one or more Letters of Credit for
      the
      account of Borrower from time to time. No Letter of Credit shall have an
      expiration date less than thirty (30) days before the Maturity Date of the
      Revolving Note unless Borrower provides cash Collateral satisfactory to Bank
      to
      secure any such Letter of Credit. Each Letter of Credit (i) must be satisfactory
      in form and substance to Bank, (ii) will be subject to the payment of such
      Letter of Credit fees as Bank may require, and (iii) shall be issued pursuant
      to
      such conditions, documents and instruments agreed to and/or executed by Borrower
      as Bank may require in its sole discretion. Each payment by Bank pursuant to
      a
      drawing under a Letter of Credit is due and payable ON DEMAND, and at the sole
      option of Bank, can be charged by Bank as a Revolving Loan by Bank to Borrower
      under the Revolving Note and this Agreement as of the day and time such payment
      is made by Bank and in the amount of such payment.

     

    Article
      Three  

     

     

    Collateral

     

    3.1  Security
      Interests.
      In
      order to secure payment and performance of the Indebtedness and Obligations,
      Borrower has granted to Bank a security interest in the Collateral by executing
      and delivering to Bank the Security Agreement. Borrower further agrees to
      execute and deliver to Bank from time to time such other security agreements,
      deeds of trust and similar documents covering the Collateral and further
      authorizes Bank to prepare and file such Financing Statements as Bank may
      reasonably require to perfect and maintain its perfected interest in the
      Collateral.

     

    Article
      Four  

     

     

    Conditions
      Precedent to Lending

     

    4.1  Initial
      Extension of Credit.
      The
      obligation of Bank to make the initial Advance under any Note or issue the
      initial Letter of Credit is subject to the condition precedent that Bank shall
      have received on or before the day of such Advance or Letter of Credit all
      of
      the following, each dated (unless otherwise indicated) the Closing Date, in
      form
      and substance satisfactory to Bank:

     

    (a)  Resolutions.
      Resolutions of the Board of Directors (or other governing body) of Borrower
      certified by the Secretary (or other custodian of records) of Borrower which
      authorize the execution, delivery, and performance by Borrower of this Agreement
      and the other Loan Documents to which Borrower is or is to be a
      party;

     

    (b)  Incumbency
      Certificate.
      A
      certificate of incumbency certified by an authorized officer or representative
      certifying the names of the individuals or other Persons authorized to sign
      this
      Agreement and the other Loan Documents to which Borrower is or is to be a party
      on behalf of Borrower together with specimen signatures of such
      Persons;

     

    (c)  Organizational
      Documents.
      The
      Organizational Documents for Borrower;

     

    (d)  Governmental
      Certificates.
      Certificates of the appropriate government officials of the state of
      incorporation or organization of Borrower as to the existence and good standing
      of Borrower, each dated within ten (10) days prior to the date of the initial
      Advance or Letter of Credit;

     

    (e)  Note.
      The
      Revolving Note executed by Borrower;

     

    (f)  Security
      Documents and Guaranty Agreement.
      The
      Loan Documents which create a Lien in and on the Collateral in favor of Bank
      executed by the owner of the Collateral and one or more Guaranty Agreements
      in
      form and substance satisfactory to Bank executed by the Guarantors;

     

    (g)  Insurance
      Matters.
      Copies
      of insurance certificates describing all insurance policies required by the
      Agreement and the other Documents, together with loss payable and lender
      endorsements in favor of Bank with respect to all insurance policies covering
      Collateral;

     

    (h)  Fees.
      Intentionally left blank;

     

    (i)  No
      Adverse Change.
      No
      Material Adverse Effect shall have occurred with respect to the financial
      condition or operations of Borrower or any predecessor entity or assets to
      be
      acquired by Borrower;

     

    (j)  Legal
      Opinion.
      Intentionally left blank;

     

    (k)  Subordination
      Agreement.
      One or
      more subordination agreements in connection with the Subordinated Debt;
      and

     

    (l)  Additional
      Items.
      The
      additional items set forth on Schedule One, if any, and such additional
      approvals, opinions, or documents as Bank may reasonably request.

     

    4.2  Conditions
      for Each Subsequent Advance.
      In
      addition to the conditions precedent stated elsewhere herein, Bank shall not
      be
      obligated to make any Advance or issue any Letter of Credit unless:

     

    (a)  Representations
      and Warranties.
      The
      representations and warranties made in Article Five of this Agreement are true
      and correct in all material respects at and as of the time the Advance is to
      be
      made, and the request for an Advance shall constitute the representation and
      warranty by Borrower that such representations and warranties are true and
      correct in all material respects at such time.

     

    (b)  No
      Event of Default.
      On the
      date of, and upon receipt of, the Advance, no Event of Default, and no event
      which, with the lapse of time or notice or both, could reasonably be expected
      to
      become an Event of Default, shall have occurred and be continuing.

     

    (c)  Advance
      Request.
      Bank
      has received a request for an Advance in the form required by Bank, as well
      as
      such other documents, opinions, certificates, agreements, instruments and
      evidences as Bank may reasonably request.

     

    (d)  Additional
      Documentation.
      Bank
      shall have received such additional approvals, opinions, or documents as Bank
      may reasonably request.

     

    Article
      Five  

     

     

    Representations
      and Warranties

     

    Borrower,
      except as set forth on Schedule Two, represents and warrants to Bank as
      follows:

     

    5.1  Existence.
      Borrower is a corporation duly organized, validly existing, and in good standing
      under the laws of the State of Delaware, and is duly qualified to transaction
      business as a foreign corporation in each jurisdiction where the nature and
      extent of its business and property requires the same.

     

    5.2  Authorization.
      Borrower possesses all requisite corporate authority, power, licenses, permits,
      and franchises to conduct its business and execute, deliver, and comply with
      the
      terms of the Loan Documents. The execution and delivery of this Agreement,
      the
      consummation of the transactions herein contemplated and compliance with the
      terms and provisions hereof, the making of the Loans, and the execution,
      issuance, and delivery of the Loan Documents have been duly authorized and
      approved by all necessary corporate action on the part of Borrower. No consent
      or approval of any Tribunal is required in order for Borrower to legally
      execute, deliver, and comply with the terms of the Loan Documents.

     

    5.3  Properties;
      Permitted Liens.
      Borrower has good and marketable title to all of its properties and assets,
      subject to no Liens except the Permitted Liens. All material leases under which
      Borrower is lessee are in full force and effect, and Borrower is not in default
      thereunder.

     

    5.4  Compliance
      with Laws and Documents.
      Borrower is not, nor will the execution, delivery, and performance of and
      compliance with the terms of the Loan Documents cause Borrower to be, in
      violation of any Laws or in default (nor has any event occurred which, with
      notice or lapse of time or both, could constitute such a default) under any
      contract in any respect which could have a Material Adverse Effect. During
      the
      past five (5) years, there have been no proceedings, claims, or (to Borrower’s
      knowledge) investigations against or involving Borrower by any Tribunal,
      including under or pursuant to any environmental, occupational safety and
      health, antitrust, unfair competition, securities, or other Laws which could
      have a Material Adverse Effect, except those described on Schedule
      Two
      attached
      hereto (the “Tribunal
      Proceedings”).

     

    5.5  Litigation.
      Except
      for Litigation in which Borrower is exclusively a plaintiff without a
      counterclaim, crossclaim, or similar action asserted against Borrower and except
      as set forth on Schedule
      Two
      attached
      hereto (the “Existing
      Litigation”),
      Borrower is not involved in, nor is Borrower aware of the threat of, any
      Litigation which could have a Material Adverse Effect, and there are no
      outstanding or unpaid judgments against Borrower (the “Unpaid
      Judgments”).

     

    5.6  Taxes.
      All
      federal, state, foreign, and other Tax returns of Borrower required to be filed
      have been filed, all federal, state, foreign, and other Taxes imposed upon
      Borrower which are due and payable have been paid, and no material amounts
      of
      Taxes not reflected on such returns are payable by Borrower, other than Taxes
      being contested in good faith by appropriate legal proceedings.

     

    5.7  Enforceability
      of Loan Documents.
      All
      Loan Documents when duly executed and delivered by Borrower will constitute
      legal, valid, and binding obligations of Borrower enforceable in accordance
      with
      their terms subject to Debtor Relief Laws and except that the availability
      of
      equitable remedies may be limited.

     

    5.8  Financial
      Statements.
      All
      financial statements of Borrower hereafter to be delivered to Bank shall be
      prepared in accordance with GAAP (subject to the absence of notes for interim
      financial statements), and do and shall, in all material respects, fairly
      represent the financial condition of Borrower as of the date of each such
      financial statement (subject to reasonable year end adjustments for interim
      financial statements). There are and shall be no material liabilities, direct
      or
      indirect, fixed or contingent, as of the date of each such financial statement
      which are not reflected therein or in the notes thereto and, since the date
      of
      the Current Financial Statements, there has been no material adverse change
      in
      the business, condition (financial or otherwise), operations, prospects, or
      properties of the Borrower. 

     

    5.9  Regulation
      U.
      The
      proceeds of the Advances are not and will not be used directly or indirectly
      for
      the purpose of purchasing or carrying, or for the purpose of extending credit
      to
      others for the purpose of purchasing or carrying, any “margin stock” as that
      term is defined in Regulation U of the Board of Governors of the Federal Reserve
      System.

     

    5.10  Subsidiaries.
      Borrower has no Subsidiaries as of the date of this Agreement except those
      described on Schedule Two.

     

    5.11  Other
      Debt.
      Except
      Subordinated Debt and as otherwise recorded in the financial statements of
      Borrower delivered to Bank, Borrower is not directly, indirectly, or
      contingently obligated with respect to any Debt as of the Closing Date. To
      the
      best of Borrower’s knowledge and belief, Borrower is not in default in the
      payment of the principal of or interest on any Debt.

     

    5.12  Regulatory
      Acts.
      Borrower is not an “investment company” within the meaning of the Investment
      Company Act of 1940, as amended, or is subject to regulation under the Public
      Utility Holding Act of 1935, the Federal Power Act, the Interstate Commerce
      Act,
      or any other Law (other than Regulation X of the Board of Governors of the
      Federal Reserve System) which regulates the incurring by Borrower of debt,
      including, but not limited to, Laws regulating common or contract carriers
      or
      the sale of electricity, gas, steam, water, or other public utility serves.
      All
      Inventory of Borrower has been and will hereafter be produced in compliance
      with
      all applicable Laws.

     

    5.13  Environmental
      Matters.
      Except
      as fully described and set forth in Schedule
      Two
      attached
      hereto (the “Existing
      Environmental Matters”),
      to
      the best knowledge of Borrower after due inquiry:

     

    (a)  Borrower
      and all of its properties, assets, and operations are, in all material respects,
      in full compliance with all Environmental Laws. Borrower is not aware of nor
      has
      Borrower received written notice of any past, present, or future conditions,
      events, activities, practices or incidents which may interfere with or prevent
      the compliance or continue compliance of Borrower and the Subsidiaries with
      all
      Environmental Laws; 

     

    (b)  Borrower
      has obtained all permits, licenses, and authorizations that are required under
      applicable Environmental Laws, and all such permits are in good standing and
      Borrower is in compliance with all of the terms and conditions of such
      permits;

     

    (c)  No
      Hazardous Materials exist on, about, or within or have been used, generated,
      stored, transported, disposed of on, or Released from any of the properties
      or
      assets of Borrower except in such quantities and in such manner as materially
      complies with Environmental Laws. The use which Borrower makes and intends
      to
      make of its properties and assets will not result in the use, generation,
      storage, transportation, accumulation, disposal, or Release of any Hazardous
      Material on, in, or from any of their properties or assets except in material
      compliance with Environmental Laws;

     

    (d)  Neither
      Borrower nor any of its currently or previously owned or leased properties
      or
      operations is subject to any outstanding or threatened order from or agreement
      with any Tribunal or other Person or subject to any judicial or docketed
      administrative proceeding with respect to (i) failure to comply with
      Environmental Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities
      arising from a Release or threatened Release;

     

    (e)  There
      are
      no conditions or circumstances associated with the currently or previously
      owned
      or leased properties or operations of Borrower that could reasonably be expected
      to give rise to any Environmental Liabilities;

     

    (f)  Borrower
      has not filed or failed to file any notice required under applicable
      Environmental Law reporting a Release; and

     

    (g)  No
      Lien
      arising under any Environmental Law has attached to any property or revenues
      of
      Borrower.

     

    5.14  General.
      There
      is no significant material fact or condition relating to the financial condition
      and business of Borrower, or the Collateral which has not been related in
      writing to Bank, and all writings heretofore or hereafter exhibited, made,
      or
      delivered to Bank by or on behalf of Borrower are and will be genuine and in
      all
      respects what they purport and appear to be.

     

    Article
      Six  

     

     

    Certain
      Affirmative Covenants

     

    So
      long
      as Bank is committed to make Advances hereunder, and thereafter until payment
      and performance in full of the Indebtedness and Obligations, Borrower covenants
      and agrees that:

     

    6.1  Reporting
      Requirements.
      Borrower shall provide, or cause to be provided, to Bank:

     

    (a)  Annual
      Financial Statements.
      Within
      one hundred twenty (120) days after the last day of each fiscal year of
      Borrower, beginning with the fiscal year that ends December 31, 2006,
      consolidated financial statements audited by a certified public accountant
      reasonably acceptable to Bank showing the financial position and results of
      operations of Borrower and its Subsidiaries as of, and for the year ended on,
      such last day, as filed or to be filed with the Securities and Exchange
      Commission, together with the certificate of the chief financial officer of
      Borrower that all of such financial statements present fairly, in all material
      respects, the financial position of Borrower and its Subsidiaries as of the
      last
      day of such fiscal year and the results of the operations and the cash flow
      of
      Borrower and its Subsidiaries for the fiscal year then ended in conformity
      with
      GAAP.

     

    (b)  Quarterly
      Financial Statements.
      Within
      forty-five (45) days after the last day of each fiscal quarter of Borrower,
      beginning with the month ending June 30, 2006, financial statements showing
      the
      financial position and results of operations of Borrower and its Subsidiaries
      as
      of, and for the quarter ended on, such last day, as filed or to be filed with
      the Securities and Exchange Commission, together with the certificate of the
      chief financial officer of Borrower that all of such financial statements
      present fairly, in all material respects, the financial position of Borrower
      and
      its Subsidiaries as of the last day of such month and the results of the
      operations and the cash flow of Borrower and its Subsidiaries for the month
      then
      ended in conformity with GAAP. 

     

    (c)  Compliance
      Certificate.
      Within
      forty-five (45) days after the end of each calendar quarter, a certificate
      of
      the chief financial officer of Borrower in the form of Exhibit
      A
      attached
      hereto or in such other form as Bank may reasonably require (i) stating that
      to
      the best of such Person’s knowledge, no Event of Default has occurred and is
      continuing, or if an Event of Default has occurred and is continuing, a
      statement as to the nature thereof and the action which is proposed to be taken
      with respect thereto and (ii) showing in reasonable detail the calculations
      demonstrating compliance with Article Eight.

     

    (d)  Periodic
      Reports.
      Promptly after their preparation, Borrower shall provide to Bank copies of
      any
      and all proxy statements, financial statements, and reports which Borrower
      sends
      to its shareholders, and copies of any and all periodic and special reports
      and
      registration statements which Borrower files with the Securities and Exchange
      Commission.

     

    6.2  Insurance.
      Borrower will maintain insurance with financially sound and reputable insurance
      companies in such amounts and covering such risks as is usually carried by
      corporations engaged in similar businesses and owning similar properties in
      the
      same general areas in which Borrower and the Subsidiaries operate, provided
      that
      in any event Borrower will maintain workmen’s compensation insurance, property
      insurance (including, without limitation, coverage of Inventory), comprehensive
      general liability insurance, products liability insurance, and business
      interruption insurance reasonably satisfactory to Bank. Each insurance policy
      covering Collateral shall name Bank as loss payee and shall provide that such
      policy will not be canceled or reduced without thirty (30) days prior written
      notice to Bank. Borrower shall maintain such other insurance on the Collateral
      for the benefit of Bank as Bank shall from time to time request, and furnish
      to
      Bank upon the request of Bank from time to time the originals of all policies
      of
      insurance on the Collateral and certificates with respect to such
      insurance.

     

    6.3  Payment
      of Debts.
      Borrower will pay or cause to be paid all of its Debt prior to the date on
      which
      penalties attach thereto (except to the extent and so long as the payment
      thereof is being properly contested in good faith by appropriate proceedings
      and
      adequate reserves have been established therefor).

     

    6.4  Taxes.
      Borrower will promptly pay or cause to be paid when due any and all Taxes due
      by
      Borrower, including, without limitation, all taxes, duties, fees, levies and
      other charges of whatsoever nature which have been or may be imposed by any
      government or by any department, agency, state, other political subdivision
      or
      taxing authority thereof or therein; provided that Borrower shall not be
      required to pay and discharge any such Taxes or charges so long as the validity
      thereof shall be contested in good faith by appropriate proceedings and Borrower
      shall set aside on its books adequate reserves with respect thereto and shall
      pay any such Taxes or charge before the property subject thereto shall be sold
      to satisfy any lien which has attached as security therefor.

     

    6.5  Expenses
      of Bank.
      Borrower will reimburse Bank for all reasonable out-of-pocket costs, fees,
      and
      expenses incident to the Loan Documents or any transactions contemplated
      thereby, including, without limitation, all recording fees, all recording taxes,
      and the reasonable fees and disbursements of special counsel for Bank for
      negotiation and preparation of the Loan Documents, preparation and review of
      other documents, and providing of other legal services, from time to time,
      in
      connection herewith up through the Closing Date, and thereafter for services
      (a)
      in connection with any subsequent Advance, (b) in connection with or in
      anticipation of an Event of Default or otherwise in the enforcement of the
      Loan
      Documents, (c) in connection with any amendment or waiver to any of the Loan
      Documents, or (d) in connection with any request or action initiated by
      Borrower, all of which shall be and become a part of the
      Indebtedness.

     

    6.6  Maintenance
      of Entity Existence, Assets and Business; Continuance of Present
      Business.
      Borrower will preserve and maintain its existence and all of its leases,
      licenses, permits, franchises, qualifications, and rights that are necessary
      or
      desirable in the ordinary conduct of its business. Borrower will conduct its
      business in an orderly and efficient manner in accordance with good business
      practices. Borrower will keep or cause to be kept all of Borrower’s assets which
      are useful and necessary in their respective businesses in good repair, working
      order and condition, normal wear and tear excepted, and will make or cause
      to be
      made all necessary repairs, renewals and replacements as may be reasonably
      required. Borrower will carry on and conduct its business in substantially
      the
      same fields as such business is now and has heretofore been carried
      on.

     

    6.7  Books
      and Records.
      Borrower will maintain proper books of record and account in which full, true,
      and correct entries in conformity with GAAP shall be made of all dealings and
      transactions in relation to its business and activities.

     

    6.8  Compliance
      with Applicable Laws and with Contracts.
      Borrower will comply with the requirements of all applicable material Laws,
      rules, regulations and orders of any governmental authority, except where
      contested in good faith and by proper proceedings. Borrower will comply in
      all
      material respects with all agreements, contracts, and instruments binding on
      it
      or affecting its properties or business.

     

    6.9  Comply
      with Agreement.
      Borrower will fully comply with the terms, provisions and conditions of this
      Agreement and of all documents executed pursuant hereto.

     

    6.10  Notice
      of Event of Default, Suits, and Material Adverse Effect.
      Upon
      discovery, Borrower will promptly notify Bank of any breach of or default under
      any Loan Document, or of the filing of any claim, action, suit or proceeding
      before any Tribunal agency against Borrower in which an adverse decision could
      have a Material Adverse Effect upon Borrower and advise Bank from time to time
      of the status thereof.

     

    6.11  Information
      and Inspection.
      Borrower will furnish to Bank as soon as available such information as may
      be
      pertinent to any provision of this Agreement or to Borrower’s business which
      Bank may reasonably request. Borrower shall permit an authorized representative
      of Bank to discuss the affairs, finances, and accounts of Borrower with the
      officers of Borrower and, upon reasonable notice, visit at reasonable times
      any
      of the properties of Borrower.

     

    6.12  Depository
      Relationship.
      To
      induce Bank to establish the interest rates provided for in the Note and if
      and
      to the extent permitted by applicable laws, Borrower will establish, within
      thirty (30) days of the date hereof, a depository and treasury management
      relationship with the Bank and thereafter use and maintain Bank as its principal
      depository bank with a full depository relationship, including for the
      maintenance of business, cash management, operating and administrative deposit
      accounts. In addition, Borrower shall open and maintain a “Credit Sweep”
facility.

     

    6.13  Additional
      Information.
      Borrower will promptly furnish, or cause to be furnished, to Bank such other
      information, not otherwise required herein, respecting the business affairs,
      assets and liabilities of Borrower, the Subsidiaries and the Collateral as
      Bank
      shall from time to time reasonably request.

     

    Article
      Seven  

     

     

    Certain
      Negative Covenants

     

    So
      long
      as Bank is committed to make Advances hereunder, and thereafter until payment
      and performance in full of the Indebtedness and Obligations, Borrower covenants
      and agrees that, without the prior written consent of Bank:

     

    7.1  Debt.
      Borrower will not incur, create, assume, or permit to exist, any Debt,
      except:

     

    (a)  Debt
      to
      Bank;

     

    (b)  Debt
      which exists on the Closing Date which has been disclosed to Bank in writing
      prior to the Closing Date;

     

    (c)  Subordinated
      Debt; and

     

    (d)  purchase
      money indebtedness not to exceed, in the aggregate, $250,000.00.

     

    7.2  Contingent
      Liabilities.
      Borrower will not assume, guarantee, endorse, contingently agree to purchase
      or
      otherwise become liable upon the obligation of any Person (other than Borrower)
      except by the endorsement of negotiable instruments for deposit or collection
      or
      similar transactions in the ordinary course of business.

     

    7.3  Limitation
      on Liens.
      Borrower will not incur, create, assume, or permit to exist any Lien upon any
      of
      its property, assets, or revenues, whether now owned or hereafter acquired,
      except the Permitted Liens.

     

    7.4  Mergers,
      Etc.
      Without
      the prior written consent of Bank, not to be unreasonably withheld, Borrower
      will not become a party to a merger, consolidation, reorganization or
      recapitalization, or purchase or otherwise acquire all or any part of the assets
      of any Person or any shares, or other evidence of beneficial ownership of any
      Person, or wind-up, dissolve, or liquidate.

     

    7.5  Restricted
      Payments.
      Borrower will not declare or pay any dividends or make any other payment or
      distribution (in cash, property, or obligations) on account of its equity
      interests, or redeem, purchase, retire, or otherwise acquire any of its equity
      interests, or set apart any money for a sinking or other analogous fund for
      any
      dividend or other distribution on its equity interests or for any redemption,
      purchase, retirement, or other acquisition of any of its equity interests;
      provided that, Borrower may declare or pay dividends and make other payments
      and
      distributions on account of its equity interests upon written notice to Bank
      in
      an amount not to exceed, in the aggregate, $500,000.00, and Borrower may make
      distributions in connection with its current PIPE (Private Investment in a
      Public Entity) offering upon prior or contemporaneous notice to Bank accompanied
      by any notice received by Borrower with regard to such distribution, if any
      (Borrower acknowledges that if such distribution is made in connection with a
      default by Borrower under the PIPE offering documents, such default shall
      constitute an Event of Default hereunder pursuant to Section 9.11).

     

    7.6  Loans
      and Investments.
      Without
      prior or contemporaneous written notice to Bank, Borrower will not make any
      advance, loan, extension of credit, or capital contribution to or investment
      in,
      or purchase, any stock, bonds, notes, debentures, or other securities of, any
      Person, except:

     

    (a)  readily
      marketable direct obligations of the United States of America or any agency
      thereof with maturities of one year or less from the date of
      acquisition;

     

    (b)  fully
      insured depository accounts maintained at a commercial bank operating in the
      United States of America having capital and surplus in excess of $50,000,000.00;
      and

     

    (c)  those
      existing on the date hereof and listed on Schedule Two.

     

    7.7  Transactions
      With Affiliates.
      Without
      prior or contemporaneous written notice to Bank, Borrower will not enter into
      any transaction, including, without limitation, the purchase, sale, or exchange
      of property or the rendering of any service, with any Affiliate of Borrower,
      except in the ordinary course of and pursuant to the reasonable requirements
      of
      Borrower’s business and upon fair and reasonable terms no less favorable to
      Borrower than would be obtained in a comparable arm’s-length transaction with a
      Person not an Affiliate of Borrower.

     

    7.8  Sale
      and Leaseback and Disposition of Assets.
      Borrower will not (a) enter into, and will not permit any Subsidiary to enter
      into, any arrangement with any Person pursuant to which it leases from such
      Person real or personal property that has been or is to be sold or transferred,
      directly or indirectly, by it to such Person or (b) sell, lease, assign,
      transfer, or otherwise dispose of any of its assets, except (i) dispositions
      of
      Inventory in the ordinary course of business or (ii) dispositions, for fair
      value, of worn-out and obsolete equipment not necessary to the conduct of its
      business; provided that Borrower may otherwise enter into such transactions
      so
      long as the total aggregate amount of such transactions involving tangible
      assets do not exceed $250,000.00, and provided further that Borrower may license
      its Intellectual Property rights so long as Borrower maintains 100% of the
      unrestricted ownership rights to such Intellectual Property.

     

    7.9  Nature
      of Business.
      Borrower will not engage in any business other than the businesses in which
      it
      is engaged as of the Closing Date and business reasonably relating thereto
      and
      will
      not purchase, lease or otherwise acquire assets not related to its
      business.

     

    7.10  Environmental
      Protection.
      Borrower will not (a) use (or permit any tenant to use) any of its respective
      properties or assets for the handling, processing, storage, transportation,
      or
      disposal of any Hazardous Material, (b) generate any Hazardous Material, (c)
      conduct any activity that is likely to cause a Release or threatened Release
      of
      any Hazardous Material, or (d) otherwise conduct any activity or use any of
      its
      respective properties or assets in any manner that is likely to violate any
      Environmental Law or create any Environmental Liabilities for which Borrower
      would be responsible.

     

    7.11  No
      Negative Pledge.
      Borrower will not enter into or permit to exist any arrangement or agreement,
      other than pursuant to this Agreement or any Loan Document, which directly
      or
      indirectly prohibits Borrower from creating or incurring a Lien on any of its
      assets.

     

    7.12  Judgments.
      Borrower will not allow any judgment for the payment of money in excess of
      $250,000.00 rendered against it to remain undischarged or unsuperseded for
      a
      period of thirty (30) days during which execution shall not be effectively
      stayed.

     

    Article
      Eight  

     

     

    Financial
      Covenants

     

    Borrower
      covenants and agrees that, as long as the Indebtedness or any part thereof
      is
      outstanding or Bank is under any obligation to make additional Advances under
      this Agreement, Borrower will, at all times, observe and perform the following
      financial covenants:

     

    8.1  Bookings.
      Borrower’s Bookings, as
      of and
      for the three (3) months ending on the last day of each June, September,
      December and March, commencing with the three (3) months ending December 31,
      2006, shall equal or exceed $1,000,000.00.

     

    Article
      Nine  

     

     

    Events
      of Default

     

    The
      term
“Event
      of Default”
as
      used
      herein shall mean the occurrence of any one or more of the following events
      (subject to all applicable grace and cure periods):

     

    9.1  Payment
      of Indebtedness.
      The
      failure of Borrower to punctually pay the Indebtedness, or any part thereof,
      within five (5) days of the date the same shall become due in accordance with
      the terms of the Loan Documents, including, without limitation, the failure
      or
      refusal of Borrower to punctually pay the principal of or the interest on any
      Loan.

     

    9.2  Misrepresentation.
      Any
      statement, representation, or warranty heretofore or hereafter made by Borrower
      or any Obligated Party in the Loan Documents or in any writing, or any statement
      or representation made in any certificate, report, or opinion delivered to
      Bank
      pursuant to the Loan Documents, is false, calculated to mislead, misleading,
      or
      erroneous in any material respect at the time made.

     

    9.3  Covenants.
      The
      failure or refusal of Borrower or any Obligated Party to properly perform,
      observe, and comply with any covenant or agreement contained in any of the
      Loan
      Documents (other than covenants to pay the Indebtedness and the financial
      covenant contained in Section 8.1 above), and such failure or refusal continues
      until the earlier to occur of either (a) thirty (30) days after an officer
      or
      responsible employee of the Borrower becomes aware of such failure or refusal
      or
      (b) thirty (30) days after Bank has given Borrower written notice
      thereof.

     

    9.4  Voluntary
      Debtor Relief.
      Borrower shall (a) execute an assignment for the benefit of creditors, or (b)
      become or be adjudicated as bankrupt or insolvent, or (c) admit in writing
      its
      inability to pay its debts generally as they become due, or (d) apply for or
      consent to the appointment of a conservator, receiver, trustee, or liquidator
      of
      it or all or a substantial part of its assets, or (e) file a voluntary petition
      seeking reorganization or an arrangement with creditors or to take advantage
      or
      seek any other relief under any Debtor Relief Law now or hereafter existing,
      or
      (f) file an answer admitting the material allegations of or consenting to,
      or
      default in, a petition filed against it in any liquidation, conservatorship,
      bankruptcy, reorganization, rearrangement, debtor’s relief, or other insolvency
      proceedings, or (g) institute or voluntarily be or become a party to any other
      judicial proceedings intended to effect a discharge of its debts, in whole
      or in
      part, or a postponement of the maturity or the collection thereof, or a
      suspension of any of the Rights or powers of Bank granted in any of the Loan
      Documents.

     

    9.5  Involuntary
      Proceedings.
      Borrower shall involuntarily (a) have an order, judgment, or decree entered
      against it by any Tribunal pursuant to any Debtor Relief Law that could suspend
      or otherwise affect any of the Rights granted to Bank in any of the Loan
      Documents, and such order, judgment, or decree is not permanently stayed,
      vacated, or reversed within sixty (60) days after the entry thereof, or (b)
      have
      a petition filed against it or any of its property seeking the benefit or
      benefits provided for by any Debtor Relief Law that would suspend or otherwise
      affect any of the Rights granted to Bank in any of the Loan Documents, and
      such
      petition is not discharged within sixty (60) days after the filing
      thereof.

     

    9.6  Attachment.
      The
      failure to have discharged within a period of thirty (30) days after the
      commencement thereof any attachment, sequestration, or similar proceedings
      against any of the material assets of Borrower.

     

    9.7  Other
      Obligations.
      Borrower shall default in the due and punctual payment of the principal of
      or
      the interest on any Debt having an aggregate unpaid principal balance
      outstanding (whether or not then due and payable) of $10,000.00 or more, secured
      or unsecured, or in the due performance or observance of any covenant or
      condition of any indenture or other agreement executed in connection therewith,
      and such default shall have continued beyond any period of grace or cure
      provided with respect thereto.

     

    9.8  Dissolution.
      The
      dissolution of Borrower for any reason whatsoever.

     

    9.9  Other
      Agreements with Bank.
      A
      default or event of default shall occur and be continuing after the expiration
      of any applicable grace, notice, and cure periods under any other written
      agreement (which is not a Loan Document) between Bank and Borrower.

     

    9.10  Cash
      Collateral.
      The
      failure by any Guarantor who enters into a Liquidity Maintenance and Control
      Agreement with Bank to maintain on deposit with, and subject to the control
      of,
      Bank the amount set forth therein to secure such Guarantor’s obligations under
      any Guaranty Agreement executed by such Guarantor in favor of Bank, or any
      default by Guarantor under any Guaranty Agreement or Liquidity Maintenance
      Agreement.

     

    9.11  Defaults
      on Other Debt or Agreements.
      Borrower fails to perform or comply with any covenant, agreement or other
      obligation to be performed, observed or complied with by Borrower for the
      benefit of a Person other than Bank (including, without limitation, under the
      terms of the Borrower’s current PIPE offering), subject to any grace and/or cure
      periods provided therein, which failure could reasonably be expected to have
      a
      Material Adverse Effect on the business, operations, condition (financial or
      otherwise), or assets of Borrower, the ability of Borrower to perform its
      Obligations under any Loan Document to which it is a party or by which it is
      bound or the enforceability of any Loan Document.

     

    9.12  Voluntary
      Debtor Relief.
      Any
      Obligated Party shall (a) execute an assignment for the benefit of creditors,
      or
      (b) become or be adjudicated as bankrupt or insolvent, or (c) admit in writing
      its inability to pay its debts generally as they become due, or (d) apply for
      or
      consent to the appointment of a conservator, receiver, trustee, or liquidator
      of
      it or all or a substantial part of its assets, or (e) file a voluntary petition
      seeking reorganization or an arrangement with creditors or to take advantage
      or
      seek any other relief under any Debtor Relief Law now or hereafter existing,
      or
      (f) file an answer admitting the material allegations of or consenting to,
      or
      default in, a petition filed against it in any liquidation, conservatorship,
      bankruptcy, reorganization, rearrangement, debtor’s relief, or other insolvency
      proceedings, or (g) institute or voluntarily be or become a party to any other
      judicial proceedings intended to effect a discharge of its debts, in whole
      or in
      part, or a postponement of the maturity or the collection thereof, or a
      suspension of any of the Rights or powers of Bank granted in any of the Loan
      Documents.

     

    9.13  Involuntary
      Proceedings.
      Any
      Obligated Party shall involuntarily (a) have an order, judgment, or decree
      entered against it by any Tribunal pursuant to any Debtor Relief Law that could
      suspend or otherwise affect any of the Rights granted to Bank in any of the
      Loan
      Documents, and such order, judgment, or decree is not permanently stayed,
      vacated, or reversed within sixty (60) days after the entry thereof, or (b)
      have
      a petition filed against it or any of its property seeking the benefit or
      benefits provided for by any Debtor Relief Law that would suspend or otherwise
      affect any of the Rights granted to Bank in any of the Loan Documents, and
      such
      petition is not discharged within sixty (60) days after the filing
      thereof.

     

    9.14  Right
      to Cure Events of Default under Sections 9.10, 9.12 and
      9.13.
      Notwithstanding
      the provisions of Sections 9.10, 9.12 and 9.13 above, upon the occurrence of
      an
      event thereunder in connection with one or more Guarantors who have, in the
      aggregate, guaranteed less than $350,000.00 of the Indebtedness, such occurrence
      shall not be deemed to be an Event of Default if, within thirty (30) days,
      Borrower
      (a) causes the replacement of the defaulting Guarantor with another Guarantor
      subject to documents and terms satisfactory to Bank or (b) makes a principal
      payment to Bank in an amount equal to the amount of Indebtedness guaranteed
      by
      the defaulting Guarantor, to the extent such principal amount is
      then-outstanding.

     

    9.15  Financial
      Covenant.
      The
      failure or refusal of Borrower to properly perform, observe, and comply with
      the
      covenant set forth in Section 8.1 above, and such failure continues for a period
      of forty-five (45) days from the end of the applicable calendar
      quarter.

     

    Article
      Ten  

     

     

    Certain
      Rights and Remedies of Bank

     

    10.1  Rights
      Upon Event of Default.
      If any
      Event of Default shall occur and be continuing, Bank may without notice
      terminate the Commitment and declare the Indebtedness or any part thereof to
      be
      immediately due and payable, and the same shall thereupon become immediately
      due
      and payable, without notice, demand, presentment, notice of dishonor, notice
      of
      acceleration, notice of intent to accelerate, notice of intent to demand,
      protest, or other formalities of any kind, all of which are hereby expressly
      waived by Borrower; provided, however, that upon the occurrence of an Event
      of
      Default under Section
      9.4
      or
Section
      9.5,
      the
      Commitment shall automatically terminate, and the Indebtedness shall become
      immediately due and payable without notice, demand, presentment, notice of
      dishonor, notice of acceleration, notice of intent to accelerate, notice of
      intent to demand, protest, or other formalities of any kind, all of which are
      hereby expressly waived by the Borrower. If any Event of Default shall occur
      and
      be continuing, Bank may exercise all rights and remedies available to it in
      law
      or in equity, under the Loan Documents, or otherwise.

     

    10.2  Setoff.
      At any
      time an Event of Default exists, Bank shall be entitled to exercise the Rights
      of setoff and/or banker’s lien against the interest of Borrower in and to each
      and every account and other property of Borrower which are in the possession
      of
      Bank to the extent of the full amount of the Indebtedness. 

     

    10.3  Performance
      by Bank.
      Should
      any covenant, duty, or agreement of Borrower fail to be performed in accordance
      with the terms of the Loan Documents, Bank may, at its option, perform or
      attempt to perform, such covenant, duty, or agreement on behalf of Borrower.
      In
      such event, or if Bank expends any sum pursuant to the exercise of any Right
      provided herein, Borrower shall, at the request of Bank, promptly pay to Bank
      any amount expended by Bank in such performance or attempted performance,
      together with interest thereon at the Maximum Rate from the date of such
      expenditure by Bank until paid. Notwithstanding the foregoing, it is expressly
      understood that Bank does not assume any liability or responsibility for the
      performance of any duties of Borrower hereunder or in connection with all or
      any
      part of the Collateral.

     

    10.4  Diminution
      in Collateral Value.
      Bank
      does not assume, and shall never have, any liability or responsibility for
      any
      loss or diminution in the value of all or any part of the
      Collateral.

     

    10.5  Bank
      Not In Control.
      None of
      the covenants or other provisions contained in this Agreement shall, or shall
      be
      deemed to, give Bank the Right to exercise control over the affairs and/or
      management of Borrower, the power of Bank being limited to the Right to exercise
      the remedies provided in the other Sections of this Article; provided that,
      if
      Bank becomes the owner of any ownership interest of any Person, whether through
      foreclosure or otherwise, Bank shall be entitled to exercise such legal Rights
      as it may have by virtue of being an owner of such Person.

     

    10.6  Waivers.
      The
      acceptance of Bank at any time and from time to time of part payment on the
      Indebtedness shall not be deemed to be a waiver of any Event of Default then
      existing. No waiver by Bank of any Event of Default shall be deemed to be a
      waiver of any other then-existing or subsequent Event of Default. No waiver
      by
      Bank of any of its Rights hereunder, in the other Loan Documents, or otherwise
      shall be considered a waiver of any other or subsequent Right of Bank. No delay
      or omission by Bank in exercising any Right under the Loan Documents shall
      impair such Right or be construed as a waiver thereof or any acquiescence
      therein, nor shall any single or partial exercise of any such Right preclude
      other or further exercise thereof, or the exercise of any other Right under
      the
      Loan Documents or otherwise.

     

    10.7  Cumulative
      Rights.
      All
      Rights available to Bank under the Loan Documents shall be cumulative of and
      in
      addition to all other Rights granted to Bank at Law or in equity, whether or
      not
      the Obligations be due and payable and whether or not Bank shall have instituted
      any suit for collection, foreclosure, or other action under or in connection
      with the Loan Documents.

     

    10.8  INDEMNIFICATION
      OF BANK.
      BORROWER SHALL INDEMNIFY BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE
      OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF
      THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES,
      PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE
      ATTORNEYS’ FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
      INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
      PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B)
      ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH
      BY
      BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED
      IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE,
      DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT,
      WITHIN OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR ANY
      SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND
      ALL
      TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON BANK OR ANY OF BANK’S
      CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION,
      LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
      INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE
      FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER
      LOAN
      DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON
      TO
      BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS
      AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
      DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES)
      ARISING OUT OF OR RESULTING FROM THE SOLE CONTRIBUTORY OR ORDINARY NEGLIGENCE
      OF
      SUCH PERSON; PROVIDED,
      HOWEVER,
      THE
      INDEMNITIES PROVIDED IN THIS SECTION
      10.8
      DO NOT
      EXTEND TO LOSSES, LIABILITIES, CLAIMS, OR DAMAGES CAUSED BY BANK’S GROSS
      NEGLIGENCE OR MISCONDUCT.

     

    10.9  Limitation
      of Liability.
      Neither
      Bank nor any Affiliate, officer, director, employee, attorney, or agent of
      Bank
      shall have any liability with respect to, and Borrower hereby waives, releases,
      and agrees not to sue any of them upon, any claim for any special, indirect,
      incidental, or consequential damages suffered or incurred by the Borrower in
      connection with, arising out of, or in any way related to, this Agreement or
      any
      of the other Loan Documents, or any of the transactions contemplated by this
      Agreement or any of the other Loan Documents. Borrower hereby waives, releases,
      and agrees not to sue Bank or any of Bank’s Affiliates, officers, directors,
      employees, attorneys, or agents for punitive damages in respect of any claim
      in
      connection with, arising out of, or in any way related to, this Agreement or
      any
      of the other Loan Documents, or any of the transactions contemplated by this
      Agreement or any of the other Loan Documents.

     

    Article
      Eleven  

     

     

    Miscellaneous

     

    11.1  Headings.
      The
      headings, captions, and arrangements used in any of the Loan Documents are,
      unless specified otherwise, for convenience only and shall not be deemed to
      limit, amplify, or modify the terms of the Loan Documents, nor affect the
      meaning thereof.

     

    11.2  Notices.
      Unless
      otherwise expressly provided herein, all notices and other communications
      provided for hereunder shall be in writing (including by facsimile transmission)
      and mailed, faxed, or delivered, to the address or facsimile number to the
      address specified for notices on the signature page below, or to such other
      address as shall be designated by such party in a notice to the other parties.
      All such other notices and other communications shall be deemed to have been
      given or made upon the earliest to occur of (a) actual receipt by the intended
      recipient or (b) (i) if delivered by hand or courier, when signed for by the
      designated recipient; (ii) if delivered by mail, four business days after
      deposit in the mail, postage prepaid; and (iii) if delivered by facsimile when
      sent and receipt has been confirmed by telephone. Electronic mail and internet
      websites may be used only to distribute only routine communications, such as
      financial statements and other information, and to distribute Loan Documents
      for
      execution by the parties thereto, and may not be used for any other
      purpose.

     

    11.3  Form
      and Number of Documents.
      Each
      agreement, document, instrument, or other writing to be furnished to Bank under
      any provision of this Agreement must be in form and substance and in such number
      of counterparts as may be satisfactory to Bank and its counsel.

     

    11.4  Survival.
      All
      covenants, agreements, undertakings, representations, and warranties made in
      any
      of the Loan Documents shall survive all closings under the Loan Documents and
      shall continue in full force and effect so long as any part of the Indebtedness
      remain and, except as otherwise indicated, shall not be affected by any
      investigation made by any party. Notwithstanding anything contained herein
      to
      the contrary, the covenants, agreements, undertakings, representations, and
      warranties made in Section
      6.5
      and
Section
      10.8
      shall
      survive the expiration or termination of this Agreement, regardless of the
      means
      of such expiration or termination.

     

    11.5  GOVERNING
      LAW; PLACE OF PERFORMANCE.
      THE
      LOAN DOCUMENTS ARE BEING EXECUTED AND DELIVERED, AND ARE INTENDED TO BE
      PERFORMED, IN THE STATE OF TEXAS, AND THE LAWS OF SUCH STATE AND OF THE UNITED
      STATES SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HERETO AND THE
      VALIDITY, CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THE LOAN DOCUMENTS,
      EXCEPT TO THE EXTENT OTHERWISE SPECIFIED IN ANY OF THE LOAN DOCUMENTS. THIS
      AGREEMENT, ALL OF THE OTHER LOAN DOCUMENTS, AND ALL OF THE OBLIGATIONS OF
      BORROWER UNDER ANY OF THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY,
      TEXAS. VENUE OF ANY LITIGATION INVOLVING THIS AGREEMENT OR ANY LOAN DOCUMENT
      SHALL BE MAINTAINED IN AN APPROPRIATE STATE OR FEDERAL COURT LOCATED IN DALLAS
      COUNTY, TEXAS, TO THE EXCLUSION OF ALL OTHER VENUES.

     

    11.6  Maximum
      Interest.
      It is
      expressly stipulated and agreed to be the intent of Borrower and Bank at all
      times to comply strictly with the applicable Texas law governing the maximum
      rate or amount of interest payable on the indebtedness evidenced by any Note
      or
      any Loan Document, and the Related Indebtedness (or applicable United States
      federal law to the extent that it permits Bank to contract for, charge, take,
      reserve or receive a greater amount of interest than under Texas law). If the
      applicable law is ever judicially interpreted so as to render usurious any
      amount (a) contracted for, charged, taken, reserved or received pursuant to
      any
      Note, any of the other Loan Documents or any other communication or writing
      by
      or between Borrower and Bank related to the transaction or transactions that
      are
      the subject matter of the Loan Documents, (b) contracted for, charged, taken,
      reserved or received by reason of Bank’s exercise of the option to accelerate
      the maturity of any Note and/or any and all indebtedness paid or payable by
      Borrower to Bank pursuant to any Loan Document other than any Note (such other
      indebtedness being referred to in this Section as the “Related
      Indebtedness”),
      or
      (c) Borrower will have paid or Bank will have received by reason of any
      voluntary prepayment by Borrower of any Note, then it is Borrower’s and Bank’s
      express intent that all amounts charged in excess of the Maximum Rate shall
      be
      automatically canceled, ab
      initio,
      and all
      amounts in excess of the Maximum Rate theretofore collected by Bank shall be
      credited on the principal balance of any Note and (or, if any Note has been
      or
      would thereby be paid in full, refunded to Borrower), and the provisions of
      any
      Note and the other Loan Documents shall immediately be deemed reformed and
      the
      amounts thereafter collectible hereunder and thereunder reduced, without the
      necessity of the execution of any new document, so as to comply with the
      applicable law, but so as to permit the recovery of the fullest amount otherwise
      called for hereunder and thereunder; provided,
      however,
      if any
      Note has been paid in full before the end of the stated term of any such Note,
      then Borrower and Bank agree that Bank shall, with reasonable promptness after
      Bank discovers or is advised by Borrower that interest was received in an amount
      in excess of the Maximum Rate, either refund such excess interest to Borrower
      and/or credit such excess interest against such Note and/or any Related
      Indebtedness then owing by Borrower to Bank. Borrower hereby agrees that as
      a
      condition precedent to any claim seeking usury penalties against Bank, Borrower
      will provide written notice to Bank, advising Bank in reasonable detail of
      the
      nature and amount of the violation, and Bank shall have sixty (60) days after
      receipt of such notice in which to correct such usury violation, if any, by
      either refunding such excess interest to Borrower or crediting such excess
      interest against the Note to which the alleged violation relates and/or the
      Related Indebtedness then owing by Borrower to Bank. All sums contracted for,
      charged, taken, reserved or received by Bank for the use, forbearance or
      detention of any debt evidenced by any Note and/or the Related Indebtedness
      shall, to the extent permitted by applicable law, be amortized or spread, using
      the actuarial method, throughout the stated term of such Note and/or the Related
      Indebtedness (including any and all renewal and extension periods) until payment
      in full so that the rate or amount of interest on account of any Note and/or
      the
      Related Indebtedness does not exceed the Maximum Rate from time to time in
      effect and applicable to such Note and/or the Related Indebtedness for so long
      as debt is outstanding. In no event shall the provisions of Chapter 346 of
      the
      Texas Finance Code (which regulates certain revolving credit loan accounts
      and
      revolving triparty accounts) apply to any Note and/or any of the Related
      Indebtedness. Notwithstanding anything to the contrary contained herein or
      in
      any of the other Loan Documents, it is not the intention of Bank to accelerate
      the maturity of any interest that has not accrued at the time of such
      acceleration or to collect unearned interest at the time of such
      acceleration.

     

    11.7  Ceiling
      Election.
      To the
      extent that Bank is relying on Chapter 303 of the Texas Finance Code to
      determine the Maximum Rate payable on any such Note and/or any other portion
      of
      the Indebtedness, Bank will utilize the weekly ceiling from time to time in
      effect as provided in such Chapter 303, as amended. To the extent federal law
      permits Bank to contract for, charge, take, receive or reserve a greater amount
      of interest than under Texas law, Bank will rely on federal law instead of
      such
      Chapter 303 for the purpose of determining the Maximum Rate. Additionally,
      to
      the extent permitted by applicable law now or hereafter in effect, Bank may,
      at
      its option and from time to time, utilize any other method of establishing
      the
      Maximum Rate under such Chapter 303 or under other applicable law by giving
      notice, if required, to Borrower as provided by applicable law now or hereafter
      in effect.

     

    11.8  Invalid
      Provisions.
      If any
      provision of any of the Loan Documents is held to be illegal, invalid, or
      unenforceable under present or future Laws effective during the term thereof,
      such provision shall be fully severable, the appropriate Loan Document shall
      be
      construed and enforced as if such illegal, invalid, or unenforceable provision
      had never comprised a part thereof; and the remaining provisions thereof shall
      remain in full force and effect and shall not be effected by the illegal,
      invalid, or unenforceable provision or by its severance therefrom. Furthermore,
      in lieu of such illegal, invalid, or unenforceable provision, there shall be
      added automatically as a part of such Loan Document a provision as similar
      in
      terms to such illegal, invalid, or unenforceable provision as may be possible
      and be legal, valid, and enforceable.

     

    11.9  Amendments.
      This
      Agreement may be amended only by an instrument in writing executed jointly
      by
      Borrower and Bank and supplemented only by documents delivered or to be
      delivered in accordance with the express terms hereof.

     

    11.10  Multiple
      Counterparts; Facsimiles.
      This
      Agreement has been executed in a number of identical counterparts, each of
      which
      constitutes an original and all of which constitute, collectively, one
      agreement; but in making proof of this Agreement, it shall not be necessary
      to
      produce or account for more than one such counterpart. Delivery
      of an executed counterpart of this Agreement by facsimile shall be equally
      as
      effective as delivery of an executed original counterpart and shall constitute
      a
      covenant to deliver an executed original counterpart, but the failure to do
      so
      shall not affect the validity, enforceability and binding effect of this
      Agreement. The foregoing shall apply to each other Loan Document mutatis
      mutandis.

     

    11.11  Parties
      Bound.
      This
      Agreement shall be binding upon and inure to the benefit of Borrower, Bank
      and
      their respective successors and assigns; provided that Borrower may not, without
      the prior written consent of Bank, assign any of its Rights, duties, or
      obligations hereunder. No term or provision of this Agreement shall inure to
      the
      benefit of any Person other than Borrower and Bank and their respective
      successors and assigns; consequently, no Person other than Borrower and Bank
      and
      their respective successors and assigns, shall be entitled to rely upon, or
      to
      raise as a defense, in any manner whatsoever, the failure of Borrower or Bank
      to
      perform, observe, or comply with any such term or provision.

     

    11.12  Bank’s
      Consent or Approval.
      Except
      where otherwise expressly provided in the Loan Documents, in any instance where
      the approval, satisfaction, consent or the exercise of judgment of Bank is
      required, the granting or denial of such approval, satisfaction or consent
      and
      the exercise of such judgment shall be (a) within the sole discretion of Bank,
      and (b) deemed to have been given only by a specific writing intended for the
      purpose and executed by Bank. Each provision for consent, approval,
      satisfaction, inspection, review, or verification by Bank is for Bank’s own
      purposes and benefit only.

     

    11.13  Loan
      Agreement Governs.
      In the
      event of any conflict between the terms of this Agreement and any terms of
      any
      other Loan Document, the terms of the Loan Document selected by Bank shall
      govern. All of the Loan Documents are by this reference incorporated into this
      Agreement.

     

    11.14  WAIVER
      OF JURY TRIAL.
      TO THE
      FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND
      EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
      COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT
      OF OR
      RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY
      OR THE ACTIONS OF BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT
      THEREOF.

     

    11.15  ENTIRE
      AGREEMENT.
      THIS
      AGREEMENT AND THE OTHER LOAN DOCUMENTS CONTAIN THE FINAL, ENTIRE AGREEMENT
      BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF
      AND
      ALL PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATIVE HERETO AND THERETO
      WHICH
      ARE NOT CONTAINED HEREIN OR THEREIN ARE SUPERSEDED AND TERMINATED HEREBY, AND
      THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED OR VARIED
      BY
      EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
      OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
      HERETO.

     

    

    [Remainder
      of page intentionally left blank.]

    IN
      WITNESS WHEREOF, the parties, intending to be legally bound hereby, have duly
      executed this Agreement as of the day and year first written above.

     

    BANK:

    

    BANK
      OF
      TEXAS, N.A.,

    a
      national banking association

    

    

    By:
       /s/Authorized
      Signatory   

    Name:
            

    Title:
            

    

    Address
      for Notices:

    Bank
      of
      Texas, N.A.

    4217
      Swiss Avenue

    Dallas,
      Texas 75204

    Attention:
       Ben
      Parkey, Assistant Vice President

    Fax
      No.:  (214)
      515-1750

    Telephone
      No.: (214)
      515-1748

    e-mail: bparkey@mail.bokf.com

    

    BORROWER:

    

    LIGHTING
      SCIENCE GROUP CORPORATION,

    a
      Delaware corporation

    

    

    By:
       /s/Stephen
      Hamilton    

    Name:
       Stephen
      Hamilton    

    Title:
       Chief
      Financial Officer   

    

    Address
      for Notices:

    Lighting
      Science Group Corporation

    2100
      McKinney Ave., Suite 1555

    Dallas,
      Texas 75201

    Attention:  Steve
      Hamilton

    Fax
      No.:  (214)
      382-3630

    Telephone
      No.: (214)
      382-3631

    email:  steve.hamilton@lsgc.com

    

    

    

     

    EXHIBIT
      A

     

    COMPLIANCE
      CERTIFICATE

     

    FOR
      QUARTER ENDED __________________________ (THE “SUBJECT
      QUARTER”)

     

    BANK:  BANK
      OF
      TEXAS, N.A.

    BORROWER: LIGHTING
      SCIENCE GROUP CORPORATION

     

    This
      Certificate is delivered under the Loan Agreement (the “Agreement”)
      dated
      as of June 29, 2006, between Borrower and Bank as such may have been amended,
      supplemented or replaced. Capitalized terms used in this Certificate shall,
      unless otherwise indicated, have the meanings set forth in the Agreement. On
      behalf of Borrower, the undersigned certifies to Bank on the date hereof that
      (a) no default or Event of Default has occurred and is continuing, (b) all
      representations and warranties of Borrower contained in the Agreement and in
      the
      other Loan Documents are true and correct in all material respects, and (c)
      the
      information set forth below hereto is true and correct as of the last day of
      the
      Subject Quarter:

     

    DESCRIPTION
      OF COVENANT   CALCULATION
      AS OF:_______________

     

    (1) Bookings
      (Section 8.1 of Agreement)  $___________________

    (to
      equal
      or exceed $1,000,000.00)

    

    In
      compliance    ____ ____

    yes no

     

    LIGHTING
      SCIENCE GROUP CORPORATION

     

    By:
           

    Name:     

    Title:
           

     

     

    

    SCHEDULE
      ONE

     

    ADDITIONAL
      CONDITIONS PRECEDENT

     

    1. Receipt
      by Bank of legal fees and expenses associated with documenting the
      transaction.

     

    

     

     

    SCHEDULE
      TWO

     

    DISCLOSURE
      SCHEDULENote

    REVOLVING
      PROMISSORY NOTE

     

    $2,000,000.00                                                                    June
      29,
      2006

     

    FOR
      VALUE
      RECEIVED, LIGHTING SCIENCE GROUP CORPORATION, a Delaware corporation (whether
      one or more, “Borrower”),
      having an address at 2100 McKinney Ave., Suite 1555, Dallas, Texas 75201, hereby
      promises to pay to the order of BANK OF TEXAS, N.A., a national banking
      association (together with its successors and assigns and any subsequent holders
      of this Promissory Note, the “Lender”),
      as
      hereinafter provided, the principal sum of TWO MILLION AND NO/100 DOLLARS
      ($2,000,000.00) or so much thereof as may be advanced by Lender from time to
      time hereunder to or for the benefit or account of Borrower, together with
      interest thereon at the Note Rate (as hereinafter defined), and otherwise in
      strict accordance with the terms and provisions hereof.

     

    ARTICLE
      I  

     

    DEFINITIONS

     

    Section
      1.1  Definitions.
      As used
      in this Promissory Note, the following terms shall have the following
      meanings:

     

    Applicable
      Margin:
      One
      percent (1%).

     

    Applicable
      Rate:
      The
      Base Rate plus the Applicable Margin.

     

    Base
      Rate:
      For any
      day, a rate of interest equal to the Prime Rate for such day.

     

    Charges:
      All
      fees, charges and/or any other things of value, if any, contracted for, charged,
      taken, received or reserved by Lender in connection with the transactions
      relating to this Note and the other Loan Documents, which are treated as
      interest under applicable law.

     

    Default
      Interest Rate:
      A rate
      per annum equal to the Note Rate plus four percent (4%), but in no event in
      excess of the Maximum Lawful Rate.

     

    Event
      of Default:
      Any
      event or occurrence described under Section
      3.1
      hereof.

     

    Loan
      Agreement:
      The
      certain Loan Agreement dated of even date herewith between Borrower and Lender,
      as may be amended from time to time.

     

    Loan
      Documents:
      As
      defined in the Loan Agreement.

     

    Maturity
      Date:
      June
      29, 2007.

     

    Maximum
      Lawful Rate:
      The
      maximum lawful rate of interest which may be contracted for, charged, taken,
      received or reserved by Lender in accordance with the applicable laws of the
      State of Texas (or applicable United States federal law to the extent that
      such
      law permits Lender to contract for, charge, take, receive or reserve a greater
      amount of interest than under Texas law), taking into account all Charges made
      in connection with the transaction evidenced by this Note and the other Loan
      Documents.

     

    
      D-1450141.v2
Note:
      This
      Promissory Note, as may be amended from time to time.

     

    Note
      Rate:
      The
      rate equal to the lesser of (a) the Maximum Lawful Rate or (b) the Applicable
      Rate.

     

    Payment
      Date:
      The
      earlier of the 30th
      day and
      last day of each and every calendar month during the term of this
      Note.

     

    Prime
      Rate:
      The
      rate of interest set by BOK Financial Corporation, in its sole discretion,
      on a
      daily basis as published by BOK Financial Corporation from time to time, which
      Borrower hereby acknowledges and agrees may not be the lowest interest rate
      charged by Lender, and which rate shall change as said prime rate
      changes.

     

    Any
      capitalized term used in this Note and not otherwise defined herein shall have
      the meaning ascribed to each such term in the Loan Agreement. All terms used
      herein, whether or not defined in Section
      1.1
      hereof,
      and whether used in singular or plural form, shall be deemed to refer to the
      object of such term whether such is singular or plural in nature, as the context
      may suggest or require.

     

    ARTICLE
      II  

     

    PAYMENT
      TERMS

     

    Section
      2.1  Payment
      of Principal and Interest.
      All
      accrued but unpaid interest on the principal balance of this Note outstanding
      from time to time shall be due and payable on each Payment Date, commencing
      on
      July 30, 2006. The then-outstanding principal balance of this Note and all
      accrued but unpaid interest thereon shall be due and payable on the Maturity
      Date or upon the earlier maturity hereof, whether by acceleration or otherwise.
      Borrower may from time to time during the term of this Note borrow, partially
      or
      wholly repay its outstanding borrowings, and reborrow, subject to all of the
      limitations, terms and conditions of this Note and of the Loan Documents;
      provided however, that the total outstanding borrowings under this Note shall
      not at any time exceed the Borrowing Base or the principal amount stated above.
      The unpaid principal balance of this Note at any time shall be the total amounts
      advanced hereunder by Lender less the amount of principal payments made hereon
      by or for Borrower, which balance may be endorsed hereon from time to time
      by
      Lender or otherwise noted in Lender’s records, which notations shall be, absent
      manifest error, conclusive evidence of the amounts owing hereunder from time
      to
      time.

     

    Section
      2.2  Application.
      Except
      as expressly provided herein to the contrary, all payments on this Note shall
      be
      applied in the following order of priority: (i) the payment or reimbursement
      of
      any expenses, costs or obligations (other than the outstanding principal balance
      hereof and interest hereon) for which either Borrower shall be obligated or
      Lender shall be entitled pursuant to the provisions of this Note or the other
      Loan Documents, (ii) the payment of accrued but unpaid interest hereon, and
      (iii) the payment of all or any portion of the principal balance hereof then
      outstanding hereunder. If an Event of Default exists under this Note or under
      any of the other Loan Documents, then Lender may, at the sole option of Lender,
      apply any such payments, at any time and from time to time, to any of the items
      specified in clauses (i), (ii) or (iii) above without regard to the order of
      priority otherwise specified in this Section
      2.

     

    Section
      2.3  Payments.
      All
      payments under this Note made to Lender shall be made in immediately available
      funds at 4217 Swiss Avenue, Dallas, Texas 75204 (or at such other place as
      Lender, in Lender’s sole discretion, may have established by delivery of written
      notice thereof to Borrower from time to time), without offset, in lawful money
      of the United States of America, which shall at the time of payment be legal
      tender in payment of all debts and dues, public and private. Payments by check
      or draft shall not constitute payment in immediately available funds until
      the
      required amount is actually received by Lender in full. Payments in immediately
      available funds received by Lender in the place designated for payment on a
      Business Day prior to 11:00 a.m. Dallas, Texas time at said place of payment
      shall be credited prior to the close of business on the Business Day received,
      while payments received by Lender on a day other than a Business Day or after
      11:00 a.m. Dallas, Texas time on a Business Day shall not be credited until
      the
      next succeeding Business Day. If any payment of principal or interest on this
      Note shall become due and payable on a day other than a Business Day, such
      payment shall be made on the next succeeding Business Day. Any such extension
      of
      time for payment shall be included in computing interest which has accrued
      and
      shall be payable in connection with such payment.

     

    Section
      2.4  Computation
      Period.
      Interest on the indebtedness evidenced by this Note shall be computed on the
      basis of a three hundred sixty (360) day year and shall accrue on the actual
      number of days elapsed for any whole or partial month in which interest is
      being
      calculated. In computing the number of days during which interest accrues,
      the
      day on which funds are initially advanced shall be included regardless of the
      time of day such advance is made, and the day on which funds are repaid shall
      be
      included unless repayment is credited prior to the close of business on the
      Business Day received as provided in Section
      2.3
      hereof.

     

    Section
      2.5  Prepayment.
      Borrower shall have the right to prepay, at any time and from time to time,
      upon
      five (5) days prior written notice to Lender, without fee, premium or penalty
      (except as noted below), all or any portion of the outstanding principal balance
      hereof, provided, however, that such prepayment shall also include any and
      all
      accrued but unpaid interest on the amount of principal being so prepaid through
      and including the date of prepayment, plus any other sums which have become
      due
      to Lender under the other Loan Documents on or before the date of prepayment,
      but which have not been fully paid. If at any time the outstanding principal
      balance hereunder exceeds
      the Borrowing Limit, Borrower shall immediately
      upon
      written notice of demand prepay
      such principal balance to the extent necessary to eliminate such excess;
      provided, that if such excess is directly caused by a default of one or more
      Guarantors under a Guaranty Agreement or other Loan Document and the amount
      of
      such excess is less than $350,000.00, Borrower shall have thirty (30) days
      from
      the date of such notice to pay such excess amount or cause the replacement
      of
      the defaulting Guarantor with another Guarantor subject to documents and terms
      satisfactory to Lender.

     

    Section
      2.6  Unconditional
      Payment.
      Borrower is and shall be obligated to pay all principal, interest and any and
      all other amounts which become payable under this Note or under any of the
      other
      Loan Documents absolutely and unconditionally and without any abatement,
      postponement, diminution or deduction whatsoever and without
      any
      reduction for counterclaim or setoff whatsoever. If at any time any payment
      received by Lender hereunder shall be deemed by a court of competent
      jurisdiction to have been a voidable preference or fraudulent conveyance under
      any Debtor Relief Laws, then the obligation to make such payment shall survive
      any cancellation or satisfaction of this Note or return thereof to Borrower
      and
      shall not be discharged or satisfied with any prior payment thereof or
      cancellation of this Note, but shall remain a valid and binding obligation
      enforceable in accordance with the terms and provisions hereof, and such payment
      shall be immediately due and payable upon demand.

     

    Section
      2.7  Partial
      or Incomplete Payments.
      Remittances in payment of any part of this Note other than in the required
      amount in immediately available funds at the place where this Note is payable
      shall not, regardless of any receipt or credit issued therefor, constitute
      payment until the required amount is actually received by Lender in full in
      accordance herewith and shall be made and accepted subject to the condition
      that
      any check or draft may be handled for collection in accordance with the practice
      of the collecting bank or banks. Acceptance by Lender of any payment in an
      amount less than the full amount then due shall be deemed an acceptance on
      account only, and the failure to pay the entire amount then due shall be and
      continue to be an Event of Default in the payment of this Note.

     

    Section
      2.8  Default
      Interest Rate, Etc.
      Upon
      the occurrence of a default or Event of Default under any of the Loan Documents,
      and for so long as such default or Event of Default exists, regardless of
      whether or not there has been an acceleration of the indebtedness evidenced
      by
      this Note, and at all times after the maturity of the indebtedness evidenced
      by
      this Note (whether by acceleration or otherwise), and in addition to all other
      rights and remedies of Lender hereunder, interest shall accrue on the
      outstanding principal balance hereof at the Default Interest Rate, and such
      accrued interest shall be immediately due and payable. Borrower acknowledges
      that it would be extremely difficult or impracticable to determine Lender’s
      actual damages resulting from any late payment or Event of Default, and such
      late charges and accrued interest are reasonable estimates of those damages
      and
      do not constitute a penalty. 

     

    ARTICLE
      III  

     

    EVENT
      OF DEFAULT AND REMEDIES

     

    Section
      3.1  Event
      of Default.
      The
      occurrence or happening, at any time and from time to time, of any one or more
      of the following shall immediately constitute an “Event
      of Default”
under
      this Note: (a) Borrower shall fail, refuse or neglect to pay and satisfy, in
      full and in the applicable method and manner required, any required payment
      of
      principal or interest or any other portion of the indebtedness evidenced by
      this
      Note,
      within
      five (5) days of the date the same shall become due and
      payable, whether at the stipulated due date thereof, at a date fixed for
      payment, or at maturity, by acceleration or otherwise; or (b) the occurrence
      of
      any default under this Note or the occurrence of any Event of Default as defined
      in or under the Loan Agreement or any other Loan Document that remains uncured
      under and pursuant to the provisions of the Loan Agreement or any other Loan
      Document.

     

    Section
      3.2  Remedies.
      Upon
      the occurrence of an Event of Default, Lender shall have the immediate right,
      at
      the sole discretion of Lender and without notice, demand, presentment, notice
      of
      nonpayment or nonperformance, protest, notice of protest, notice of intent
      to
      accelerate, notice of acceleration, or any other notice or any other action
      (ALL
      OF WHICH BORROWER HEREBY EXPRESSLY WAIVES AND RELINQUISHES)
      (i) to
      declare the entire unpaid balance of the indebtedness evidenced by this Note
      (including, without limitation, the outstanding principal balance hereof,
      including all sums advanced or accrued hereunder or under any other Loan
      Document, and all accrued but unpaid interest thereon) at once immediately
      due
      and payable (and upon such declaration, the same shall be at once immediately
      due and payable) and may be collected forthwith, whether or not there has been
      a
      prior demand for payment and regardless of the stipulated date of maturity,
      and
      (ii) to exercise any and all other rights and remedies available to the Lender
      in law or in equity, under the Loan Documents or otherwise.

     

    ARTICLE
      IV  

     

    GENERAL
      PROVISIONS

     

    Section
      4.1  No
      Waiver; Amendment.
      The
      failure to exercise any remedy available to Lender shall not be deemed to be
      a
      waiver of any rights or remedies of Lender under this Note or under any of
      the
      other Loan Documents, or at law or in equity. No extension of the time for
      the
      payment of this Note or any installment due hereunder, made by agreement with
      any person now or hereafter liable for the payment of this Note, shall operate
      to release, discharge, modify, change or affect the original liability of
      Borrower under this Note, either in whole or in part, unless Lender
      specifically, unequivocally and expressly agrees otherwise in writing. This
      Note
      may not be changed orally, but only by an agreement in writing signed by the
      party against whom enforcement of any waiver, change, or modification is
      sought.

     

    Section
      4.2  Interest
      Provisions.
      The
      provisions of Section 11.6 and 11.7 of the Loan Agreement are hereby
      incorporated by reference and shall apply to this Note as if fully set forth
      herein.

     

    Section
      4.3  Further
      Assurances and Corrections.
      From
      time to time, at the request of Lender, Borrower will (a) promptly correct
      any
      defect, error or omission which may be discovered in the contents of this Note
      or in any other Loan Document or in the execution or acknowledgment thereof;
      and
      (b) execute, acknowledge, deliver, record and/or file (or cause to be executed,
      acknowledged, delivered, recorded and/or filed) such further documents and
      instruments and perform such further acts and provide such further assurances
      as
      may be necessary, desirable, or proper, in Lender’s reasonable
      opinion.

     

    Section
      4.4  Governing
      Law.
      This
      Note is executed and delivered as an incident to a lending transaction
      negotiated and consummated in Dallas County, Texas, and shall be governed by
      and
      construed in accordance with the laws of the State of Texas. Borrower, for
      itself and its successors and assigns, hereby irrevocably (i) submits to the
      nonexclusive jurisdiction of the state and federal courts in Texas, (ii) waives,
      to the fullest extent permitted by law, any objection that it may now or in
      the
      future have to the laying of venue of any litigation arising out of or in
      connection with this Note or any Loan Document brought in the District Court
      of
      Dallas County, Texas, or in the United States District Court for the Northern
      District of Texas, Dallas Division, (iii) waives any objection it may now or
      hereafter have as to the venue of any such action or proceeding brought in
      such
      court or that such court is an inconvenient forum, and (iv) agrees that any
      legal proceeding against any party to any of the Loan Documents arising out
      of
      or in connection with any of the Loan Documents may be brought in one of the
      foregoing courts. Borrower hereby agrees that service of process upon Borrower
      may be made by certified or registered mail, return receipt requested, at its
      address specified herein. Nothing herein shall affect the right of Lender to
      serve process in any other manner permitted by law or shall limit the right
      of
      Lender to bring any action or proceeding against Borrower or with respect to
      any
      of Borrower’s property in courts in other jurisdictions. The scope of each of
      the foregoing waivers is intended to be all encompassing of any and all disputes
      that may be filed in any court and that relate to the subject matter of this
      transaction, including, without limitation, contract claims, tort claims, breach
      of duty claims, and all other common law and statutory claims. Borrower
      acknowledges that these waivers are a material inducement to Lender’s agreement
      to enter into the agreements and obligations evidenced by the Loan Documents,
      that Lender has already relied on these waivers and will continue to rely on
      each of these waivers in related future dealings. The waivers in this
Section
      4.4
      are
      irrevocable, meaning that they may not be modified either orally or in writing,
      and these waivers apply to any future renewals, extensions, amendments,
      modifications, or replacements in respect of any and all of the applicable
      Loan
      Documents. In connection with any litigation, this Note may be filed as a
      written consent to a trial by the court.

     

    Section
      4.5  Waiver
      of Jury Trial.
      BORROWER, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY KNOWINGLY,
      INTENTIONALLY, IRREVOCABLY, UNCONDITIONALLY AND VOLUNTARILY, WITH AND UPON
      THE
      ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT
      TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
      OR IN
      ANY WAY RELATING TO THIS NOTE OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR
      BORROWER, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES,
      AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER,
      IN
      EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
      OTHERWISE.

     

    Section
      4.6  Successors
      and Assigns.
      The
      terms and provisions hereof shall be binding upon and inure to the benefit
      of
      Borrower and Lender and their respective heirs, executors, legal
      representatives, successors, successors-in-title and assigns, whether by
      voluntary action of the parties, by operation of law or otherwise, and all
      other
      persons claiming by, through or under them. The terms “Borrower” and “Lender” as
      used hereunder shall be deemed to include their respective heirs, executors,
      legal representatives, successors, successors-in-title and assigns, whether
      by
      voluntary action of the parties, by operation of law or otherwise, and all
      other
      persons claiming by, through or under them. Borrower’s rights and obligations
      hereunder may not be assigned or otherwise transferred without the prior written
      consent of Lender.

     

    Section
      4.7  Controlling
      Agreement.
      In the
      event of any conflict between the provisions of this Note and the Loan
      Agreement, it is the intent of the parties hereto that the provisions of the
      Loan Agreement shall control. In the event of any conflict between the
      provisions of this Note and any of the other Loan Documents (other than the
      Loan
      Agreement), it is the intent of the parties hereto that the provisions of this
      Note shall control. The parties hereto acknowledge that they were represented
      by
      competent counsel in connection with the negotiation, drafting and execution
      of
      this Note and the other Loan Documents and that this Note and the other Loan
      Documents shall not be subject to the principle of construing their meaning
      against the party which drafted same.

     

    Section
      4.8  Notices.
      All
      notices or other communications required or permitted to be given pursuant
      to
      this Note shall be in writing and given as set forth in the Loan
      Agreement.

     

    Section
      4.9  Severability.
      If any
      provision of this Note or the application thereof to any person or circumstance
      shall, for any reason and to any extent, be invalid or unenforceable, then
      neither the remainder of this Note nor the application of such provision to
      other persons or circumstances nor the other instruments referred to herein
      shall be affected thereby, but rather shall be enforced to the greatest extent
      permitted by applicable law.

     

    Section
      4.10  Right
      of Setoff.
      In
      addition to all liens upon and rights of setoff against the money, securities,
      or other property of Borrower given to Lender that may exist under applicable
      law, Lender shall have and Borrower hereby grants to Lender a lien upon and
      a
      right of setoff against all money, securities, and other property of Borrower,
      now or hereafter in possession of or on deposit with Lender, whether held in
      a
      general or special account or deposit, for safe-keeping or otherwise, and every
      such lien and right of setoff may be exercised without demand upon or notice
      to
      Borrower. No lien or right of setoff shall be deemed to have been waived by
      any
      act or conduct on the part of Lender, or by any neglect to exercise such right
      of setoff or to enforce such lien, or by any delay in so doing, and every right
      of setoff and lien shall continue in full force and effect until such right
      of
      setoff or lien is specifically waived or released by an instrument in writing
      executed by Lender.

     

    Section
      4.11  Statement
      of Unpaid Balance.
      Intentionally left blank.

     

    Section
      4.12  Entire
      Agreement.
      THIS
      NOTE AND THE OTHER LOAN DOCUMENTS CONTAIN THE FINAL, ENTIRE AGREEMENT BETWEEN
      THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND ALL
      PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATIVE HERETO AND THERETO WHICH
      ARE
      NOT CONTAINED HEREIN OR THEREIN ARE SUPERSEDED AND TERMINATED HEREBY, AND THIS
      NOTE AND THE OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE
      OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
      PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
      HERETO.

     

    Section
      4.13  Joint
      and Several Liability.
      Each
      maker, signer, surety and endorser hereof, including without limitation each
      Borrower, as well as all heirs, successors and legal representatives of said
      parties, shall be directly and primarily, jointly and severally, liable for
      the
      payment of all indebtedness hereunder. Lender may release or modify the
      obligations of any of the foregoing persons or entities, or guarantors hereof,
      in connection with this loan without affecting the obligations of the others.
      

     

    Section
      4.14  Use
      of
      Funds.
      Borrower hereby warrants, represents and covenants that (i) the loan evidenced
      by this Note is made to Borrower solely for the purpose of acquiring or carrying
      on a business or commercial enterprise, (ii) all proceeds of this Note shall
      be
      used only for business and commercial purposes, and (iii) no funds disbursed
      hereunder shall be used for personal, family, agricultural or household
      purposes.

     

    Section
      4.15  Relationship
      of the Parties.
      Notwithstanding any prior business or personal relationship between Borrower
      and
      Lender, or any officer, director or employee of Lender, that may exist or have
      existed, the relationship between Borrower and Lender is solely that of debtor
      and creditor, Lender has no fiduciary or other special relationship with
      Borrower, Borrower and Lender are not partners or joint venturers, and no term
      or condition of any of the Loan Documents shall be construed so as to deem
      the
      relationship between Borrower and Lender to be other than that of debtor and
      creditor.

     

    [Remainder
      of page intentionally left blank]

    

     

    

     

    IN
      WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly
      executed this Note as of the day and year first written above.

     

    BORROWER:

    

    LIGHTING
      SCIENCE GROUP CORPORATION,

    a
      Delaware corporation

    

    

    By:
        /s/Stephen
      Hamilton   

    Name: Stephen
      Hamilton   

    Title: Chief
      Financial Officer

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