Document:

Unassociated Document

    CREDIT
      AND SECURITY AGREEMENT

     

    THIS
      CREDIT AND SECURITY AGREEMENT (the
      “Agreement”) is dated November 20, 2007 , and is entered into between
GVI
      Security, Inc.,
      a
      Delaware corporation (“Company”), and Wells
      Fargo Bank, National Association (as
      more
      fully defined in Exhibit A, “Wells Fargo”), acting through its Wells Fargo
      Business Credit operating
      division. 

     

    RECITALS

     

    Company
      has asked Wells Fargo to provide it with a $15,000,000 revolving line of credit
      (the “Line of Credit”) to repay certain indebtedness of Company, for working
      capital purposes and for facilitating the issuance of documentary
      or standby letters of credit. Wells
      Fargo is agreeable to meeting Company’s request, provided that Company agrees to
      the terms and conditions of this Agreement.

     

    For
      purposes of this Agreement, capitalized terms not otherwise defined in the
      Agreement shall have the meaning given them in Exhibit A.

     

    1. Amount
      and Terms of the Line of Credit

     

    1.1 Line
      of Credit; Limitations on Borrowings; Termination Date; Use of
      Proceeds.

     

    (a) Line
      of Credit and Limitations on Borrowing.
      Wells
      Fargo shall make advances (each an “Advance”, and collectively the “Advances”)
      to Company under the Line of Credit that, together with the L/C Amount, shall
      not at any time exceed in the aggregate the lesser
      of
      (i) $15,000,000 (the “Maximum Line Amount”), or (ii) the Borrowing
      Base limitations described in Section 1.2. Within these limits, Company may
      periodically borrow, prepay in whole or in part, and reborrow. Wells
      Fargo has no obligation to make an Advance during a Default Period or at any
      time Wells Fargo believes that an Advance would result in an Event of
      Default.

     

    (b) Maturity
      and Termination Dates.
      Company
      may request Advances from the date that the conditions set forth in Section
      3 of
      this Agreement are satisfied until the earlier of: (i) November 20, 2010
      (the “Maturity Date”), (ii) the date Company terminates the Line of Credit,
      or (iii) the date Wells Fargo terminates the Line of Credit following an
      Event of Default. (The earliest of these dates is the “Termination Date.”)

     

    (c) Use
      of
      Line of Credit Proceeds.
      Company
      shall use the proceeds of each Line of Credit Advance and each Letter of Credit
      for ordinary working capital purposes (including fees and expenses incurred
      in
      connection with this Agreement) and to repay certain indebtedness of
      Company.

     

    (d) Revolving
      Note.
      Company’s obligation to repay Advances on the Line of Credit, regardless of how
      the Advances were initiated under Section 1.3 of this Agreement, shall be
      evidenced by a revolving promissory note (as periodically renewed, amended
      or
      replaced, the “Revolving Note”). 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    1.2 Borrowing
      Base; Mandatory Prepayment. 

     

    (a) Borrowing
      Base.
      Aggregate unreimbursed Advances, plus the L/C Amount, shall not at any time
      exceed the borrowing base (the “Borrowing Base”), which is an amount equal to:
      (i) 85% of Eligible Accounts, plus
      (ii) the lesser of (A) 85% of Net Orderly Liquidation Value of
      Eligible Inventory, (B) $8,500,000 or (C) 60% of Eligible Inventory,
less
      (iii) the Borrowing Base Reserve, less
      (iv) Indebtedness that Company owes Wells Fargo that has not been advanced
      on the Revolving Note, less
      (v) Indebtedness that Wells Fargo in its sole discretion finds on the date
      of determination to be equal to Wells Fargo’s net credit exposure with respect
      to any swap, derivative, foreign exchange, hedge, deposit, treasury management
      or similar product or transaction extended to Company by Wells Fargo that do
      not
      otherwise constitute Advances under this Agreement.

     

    (b) Mandatory
      Prepayment; Overadvances.
      If
      unreimbursed Advances evidenced by the Revolving Note plus the L/C Amount exceed
      the Borrowing Base at any time, then Company shall immediately prepay the
      Revolving Note in an amount sufficient to eliminate the excess, and if payment
      in full of the Revolving Note is insufficient to eliminate this excess and
      the
      L/C Amount continues to exceed the Borrowing Base, then Company shall deliver
      cash to Wells Fargo in an amount equal to the remaining excess for deposit
      to
      the Special Account, unless in each case, Wells Fargo has delivered to Company
      an Authenticated Record consenting to the resulting Overadvance prior
      to its
      occurrence, in which event the Overadvance shall be temporarily permitted on
      such terms and conditions as Wells Fargo in its sole discretion may deem
      appropriate, including the payment of additional fees or interest, or
      both. 

     

    1.3 Procedures
      for Advances.

     

    (a) Line
      of Credit Advances to Operating Account.
      Line of
      Credit Advances shall be credited to Company’s operating account #4121160162
      maintained with Wells Fargo (the “Operating Account”), unless Wells Fargo and
      Company agree in a Record Authenticated by both parties to disburse to another
      account. 

     

    (i) Advances
      upon Company’s Request.
      Advances may be funded upon Company’s request. No request will be deemed
      received until Wells Fargo acknowledges receipt, and Company, if requested
      by
      Wells Fargo, confirms the request in an Authenticated Record. Company shall
      repay all Advances, even if the Person requesting the Advance on behalf of
      Company lacked authorization.

     

    (A) Floating
      Rate Advances.
      If
      Company wants a Floating Rate Advance, it shall make the request no later than
      11:59 a.m. Central Time on the Business Day on which it wants the Floating
      Rate
      Advance to be funded, which request shall specify the principal Advance amount
      being requested. 

     

    (B) LIBOR
      Advances.
      If
      Company wants a LIBOR Advance, it shall make the request no later than
11:59
      a.m. Central
      Time on the Business Day
      immediately preceding the Business Day on which it wants the LIBOR Advance
      to be
      funded, which request shall specify both the principal Advance amount and
      Interest Period being requested. No more than five separate LIBOR Advance
      Interest Periods may be outstanding at any time. Each LIBOR Advance shall be
      in
      multiples of $500,000 and the initial LIBOR Advance shall be in the minimum
      amount of at least $2,000,000 and thereafter, each LIBOR Advance shall be in
      the
      minimum amount of at least $1,000,000. LIBOR Advances shall not be available
      during Default Periods.

     

    
      
        
        

      

      
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    (b) Protective
      Advances; Advances to Pay Indebtedness Due.
      Wells
      Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole
      discretion for any reason at any time, without Company’s compliance with any of
      the conditions set forth in this Agreement, and (i) disburse the proceeds
      directly to third Persons in order to protect Wells Fargo’s interest in
      Collateral or to perform any of Company’s obligations under this Agreement, or
      (ii) apply the proceeds to the amount of any Indebtedness then due and payable
      to Wells Fargo. 

     

    1.3A LIBOR
      Advances.

     

    (a) Procedure
      for Converting Floating Rate Advances to LIBOR Advances.
      Company
      may convert all or any part of the principal amount of an outstanding Floating
      Rate Advance to a LIBOR Advance, provided that no Default Period is in effect,
      and that Company’s request is received by Wells Fargo no later than 11:59
      a.m. Central
      Time on the Business Day
      immediately preceding the Business Day on which Company wishes the conversion
      to
      become effective. Each request shall specify the principal amount of the
      Floating Rate Advance to be converted, the Business Day of conversion and
      Interest Period desired, and shall be confirmed in an Authenticated Record
      if
      requested by Wells Fargo. Each conversion to a LIBOR Advance shall be in
      multiples of $500,000 and the initial LIBOR Advance shall be in the minimum
      amount of at least $2,000,000 and thereafter, each LIBOR Advance shall be in
      the
      minimum amount of at least $1,000,000. 

     

    (b) Expiring
      LIBOR Advance Interest Periods.
      Unless
      Company requests a new LIBOR Advance in accordance with the procedures set
      forth
      below, or prepays the principal of an outstanding LIBOR Advance at the
      expiration of an Interest Period, Wells Fargo shall automatically convert each
      LIBOR Advance to a Floating Rate Advance on the last day of the expiring
      Interest Period. So long as no Default Period exists, Company may request that
      all or part of any expiring LIBOR Advance be renewed as a new LIBOR Advance,
      provided that Wells Fargo receives the request no later than 11:59
      a.m. Central
      Time on the Business Day
      immediately preceding the Business Day that constitutes the first day of the
      new
      Interest Period. Each request shall specify the principal amount of the expiring
      LIBOR Advance to be continued and Interest Period desired, and shall be
      confirmed in an Authenticated Record if requested by Wells Fargo. Each LIBOR
      Advance renewal shall be in multiples of $500,000.

     

    
      
        
        

      

      
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    (c) Quotation
      of LIBOR Advance Interest Rates.
      Wells
      Fargo shall, with respect to any request for a new or renewal LIBOR Advance,
      or
      the conversion of a Floating Rate Advance to a LIBOR Advance, provide Company
      with a LIBOR quote for each Interest Period identified by Company on the
      Business Day on which the request was made, if the request is received by Wells
      Fargo no later than 11:59
      a.m. Central
      Time on the Business Day
      immediately preceding the Business Day on which Company has requested that
      the
      LIBOR Advance be made effective. If Company does not immediately accept a LIBOR
      quote, the quoted rate shall expire and any subsequent request for a LIBOR
      quote
      shall be subject to redetermination by Wells Fargo.

     

    (d) Taxes
      and Regulatory Costs.
      Company
      shall pay on demand to Wells Fargo with respect to any LIBOR Advance, in
      addition to any other amounts due or to become due under this Agreement, all
      (i)
      withholdings, interest equalization taxes, stamp taxes or other taxes (except
      income and franchise taxes) imposed by any domestic or foreign governmental
      authority that is related to LIBOR, and (ii) future, supplemental, emergency
      or
      other changes in the LIBOR Reserve Percentage, assessment rates imposed by
      the
      Federal Deposit Insurance Corporation, or similar costs imposed by any domestic
      or foreign governmental authority or resulting from compliance by Wells Fargo
      with any request or directive (whether or not having the force of law) from
      any
      central bank or other governmental authority that is related to LIBOR to the
      extent they are not included in the calculation of LIBOR. In determining which
      of these amounts are attributable to an existing LIBOR Advance, any reasonable
      allocation made by Wells Fargo among its operations shall be conclusive and
      binding upon Company.

     

    1.4 Collection
      of Accounts and Application to Revolving Note.

     

    (a) Wells
      Fargo’s Collection Account.
      Company
      has granted a security interest to Wells Fargo in the Collateral, including
      all
      Accounts. Except as otherwise agreed by both parties in an Authenticated Record,
      all Proceeds of Accounts and other Collateral, upon receipt or collection,
      shall
      be deposited each Business Day into a non interest bearing demand deposit
      account owned by and maintained with Wells Fargo (the “Collection Account”).
      Funds so deposited (“Account Funds”) are the property of Wells Fargo, and may
      only be withdrawn from the Collection Account by Wells Fargo.

     

    (b) Payment
      of Accounts by Company’s Account Debtors.
      Company
      shall instruct all account debtors to pay Accounts owed to Company as follows:
      

     

    (i) Payments
      by Check.
      If
      account debtors are making payments by check, Company will instruct that all
      such payments be sent directly to Company’s post office box (the “Lockbox”), to
      which Wells Fargo has been given exclusive access by separate agreement, and
      Wells Fargo shall deposit all such payments received into the Lockbox directly
      to the Collection Account.

     

    (ii) Wire
      Transfers through Ready RemitSM
      Service.
      If
      Company has separately contracted with Wells Fargo to use the Wells Fargo Ready
      RemitSM
      service
      (“Ready Remit”), Company may instruct account debtors to make payments by wire
      transfer that conform to the requirements of Ready Remit, and all conforming
      payments shall be wire transferred directly to Wells Fargo’s general account.

     

    
      
        
        

      

      
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    (iii) All
      Other Forms of Payment.
      If
      account debtors are making payment by any means other than by check, or by
      check
      for delivery to Wells Fargo without initial delivery to the Lockbox, Company
      will instruct that all such payments be sent directly to Wells Fargo for deposit
      to the Collection Account pursuant to such other product or service agreed
      to by
      the parties in a service description to the Master Agreement for Treasury
      Management Services.

     

    If
      Company receives a payment or the Proceeds of Collateral directly, Company
      will
      promptly deposit the payment or Proceeds into the Collection Account. Until
      deposited, Company shall hold all such payments and Proceeds in trust for Wells
      Fargo as its property without commingling with other funds or property. All
      deposits held in the Collection Account shall constitute Proceeds of Collateral
      and shall not constitute the payment of Indebtedness.

     

    (c) Application
      of Payments to Revolving Note.

     

    (i) Payments
      Received into the Collection Account.
      Account
      Funds deposited to the Collection Account will be processed in accordance with
      the terms of the Collection Account service description to the Master Agreement
      for Treasury Management Services. Wells Fargo will withdraw Account Funds
      deposited to the Collection Account and pay down borrowings on the Line of
      Credit by applying them to the Revolving Note on the first Business Day
      following the Business Day of deposit to the Collection Account.

     

    (ii) Payments
      Received via Ready Remit.
      If
      Company uses Ready Remit, conforming wire transfers received directly by Wells
      Fargo shall be applied to the Revolving Note on the Business Day of receipt,
      if
      received no later than 12:30 p.m. Central Time, or the next Business Day if
      received after 12:30 p.m. Central Time.

     

    1.5 Liability
      Records. Wells
      Fargo shall maintain accounting and bookkeeping records of all Advances and
      payments under the Line of Credit and all other Indebtedness due to Wells Fargo
      in such form and content as Wells Fargo in its sole discretion deems
      appropriate. Wells Fargo’s calculation of current Indebtedness shall be presumed
      correct unless proven otherwise by Company. Upon Wells Fargo’s request, Company
      will admit and certify in a Record the exact principal balance of the
      Indebtedness that Company then believes to be outstanding. Any billing statement
      or accounting provided by Wells Fargo shall be conclusive and binding unless
      Company notifies Wells Fargo in a detailed Record of its intention to dispute
      the billing statement or accounting within 30 days of receipt.

     

    1.6 Floating
      Rate; LIBOR Advance Rate; Interest Related Matters; Application of
      Payments.

     

    (a) Floating
      Rate; LIBOR Advance Rate.
      Except
      as otherwise provided in this Agreement, the unpaid principal amount of each
      Advance evidenced by the Revolving Note shall accrue interest at either
      (i) an annual interest rate equal to the sum of the Prime Rate plus the
      applicable Margin, which interest rate shall change whenever the Prime Rate
      changes (the “Floating Rate”); or (ii) an annual interest rate equal to the
      sum of LIBOR plus the applicable Margin (the “LIBOR Advance Rate”). Multiple
      Advances may accrue interest at both the Floating Rate and at the LIBOR Advance
      Rate at the same time, subject to the limitations set forth in Section
      1.3(a)(i).

     

    
      
        
        

      

      
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    The
      Margins through and including the adjustment occurring as specified below shall
      be three-quarters of one percent (0.75%) for Floating Rate Advances, and three
      and one-quarter of one percent (3.25%) for LIBOR Advances. The Margins shall
      be
      adjusted to one-quarter of one percent (0.25%) for Floating Rate Advances,
      and
      two and three-quarters of one percent (2.75%) for LIBOR Advances if, and only
      if, Company’s Net Income as of the fiscal year ending December 31, 2008 is
      greater than or equal to $1,000,000.

     

    A
      reduction in the Margins will be made following receipt of Company’s financial
      statements required by Section
      5.1(a)
      this
      Agreement for the fiscal year ending December 31, 2008. The reduction in the
      Margin change shall become effective not more than 30 days after the date of
      Wells Fargo’s receipt of such financial statements. Notwithstanding the
      foregoing, no reduction in any Margin will be made if a Default Period
      exists at the time that such reduction would otherwise be made.

     

    If
      amended or restated financial statements would change previously calculated
      Margins, or if Wells Fargo determines that any financial statements have
      materially misstated Company’s financial condition, then Wells Fargo may, using
      the most accurate information available to it, recalculate the financial test
      or
      tests governing the Margins and retroactively increase the Margins from the
      date
      of receipt of such amended or restated financial statements and charge Company
      additional interest, which may be imposed on Company from the date on which
      the
      Margins had been decreased by Wells Fargo in reliance on the financial
      statements that have been amended or restated.

     

    (b) Default
      Interest Rate.
      Commencing on the day an Event of Default occurs, through and including the
      date
      (i) that the Event of Default has been waived or (ii) identified by Wells Fargo
      in a Record as the date that the Event of Default has been cured, (each such
      period a “Default Period”), or during a time period specified in Section 1.9 of
      this Agreement, or at any time following the Termination Date, in Wells Fargo’s
      sole discretion and without waiving any of its other rights or remedies, the
      principal amount of the Revolving Note shall bear interest at a rate that is
      two
      percent (2.0%) above the contractual rate set forth in Section 1.6(a) of this
      Agreement (the “Default Rate”), or any lesser rate that Wells Fargo may deem
      appropriate, starting on the first day of the month in which the Default Period
      begins through the last day of that Default Period, or any shorter time period
      to which Wells Fargo may agree in an Authenticated Record. 

     

    (c) Interest
      Accrual on Payments Applied to Revolving Note.
      Payments received by Wells Fargo other than by wire transfer shall be applied
      to
      the Revolving Note as provided in Section 1.4(c)(i) of this Agreement, but
      the
      principal amount paid down shall continue to accrue interest through the end
      of
      the first Business Day following the Business Day that the payment was applied
      to the Revolving Note. If Company uses Ready Remit, then payments received
      by
      Wells Fargo shall be applied to Indebtedness advanced on the Revolving Note
      as
      provided in Section 1.4(c)(ii) of this Agreement, but the amount of principal
      paid shall continue to accrue interest through the end of the first Business
      Day
      following the Business Day that the payment was applied to the Revolving
      Note.

     

    
      
        
        

      

      
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    (d) Usury.
      In any
      event no rate change shall be put into effect that would result in a rate
      greater than the highest rate permitted by law. Notwithstanding anything to
      the
      contrary contained in any Loan Document, all agreements which either now are
      or
      which shall become agreements between Company and Wells Fargo are hereby limited
      so that in no contingency or event whatsoever shall the total liability for
      payments in the nature of interest, additional interest and other charges exceed
      the applicable limits imposed by any applicable usury laws. If any payments
      in
      the nature of interest, additional interest and other charges made under any
      Loan Document are held to be in excess of the limits imposed by any applicable
      usury laws, it is agreed that any such amount held to be in excess shall be
      considered payment of principal hereunder, and the indebtedness evidenced hereby
      shall be reduced by such amount so that the total liability for payments in
      the
      nature of interest, additional interest and other charges shall not exceed
      the
      applicable limits imposed by any applicable usury laws, in compliance with
      the
      desires of Company and Wells Fargo. This provision shall never be superseded
      or
      waived and shall control every other provision of the Loan Documents and all
      agreements between Company and Wells Fargo, or their respective successors
      and
      assigns. Unless preempted by federal law or as permitted under the sentence
      immediately following this sentence, the Floating Rate, the LIBOR Advance Rate
      or the Default Rate, as applicable, from time to time in effect under this
      Agreement may not exceed the “weekly ceiling” from time to time in effect under
      Chapter 303 of the Texas Finance Code (Vernon’s Texas Code Annotated), as
      amended from time to time (the “Texas
      Finance Code”).
      If
      the applicable state or federal law is amended in the future to allow a greater
      rate of interest to be charged under this Agreement than is presently allowed
      by
      applicable state or federal law, then the limitation of interest hereunder
      shall
      be increased to the maximum rate of interest allowed by applicable state or
      federal law as amended, which increase shall be effective hereunder on the
      effective date of such amendment, and all interest charges owing to Wells Fargo
      by reason thereof shall be payable in accordance with Section
      1.6
      hereof.

     

    1.7 Fees.

     

    (a) Origination
      Fee.
      Company
      shall pay Wells Fargo a one time origination fee of $37,500, which shall be
      fully earned and payable upon the execution of this Agreement. 

     

    (b) Unused
      Line Fee.
       Company
      shall pay Wells Fargo an annual unused line fee of one-quarter of one percent
      (0.25%) of the daily average of the Maximum Line Amount reduced by outstanding
      Advances and the L/C Amount (the “Unused Amount”), from the date of this
      Agreement to and including the Termination Date, which unused line fee shall
      be
      payable monthly in arrears on the first day of each month and on the Termination
      Date. 

     

    
      
        
        

      

      
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    (c) Collateral
      Exam Fees.
      Company
      shall pay Wells Fargo fees in connection with any collateral exams, audits
      or
      inspections conducted by or on behalf of Wells Fargo at the current rates
      established from time to time by Wells Fargo as its collateral exam fees (which
      fees are currently $850 per eight-hour day per collateral examiner), together
      with all actual out-of-pocket costs and expenses incurred in conducting any
      collateral examination or inspection.

     

    (d) Termination
      and Line Reduction Fees.
      If (i)
      Wells Fargo terminates the Line of Credit during a Default Period, or if (ii)
      Company terminates the Line of Credit on a date prior to the Maturity Date,
      or
      if (iii) Company and Wells Fargo agree to reduce the Maximum Line Amount, then
      Company shall pay Wells Fargo as liquidated damages a termination or reduction
      fee in an amount equal to a percentage of the Maximum Line Amount (or the
      reduction of the Maximum Line Amount, as the case may be) calculated as follows:
      (A) two percent (2.0%) if the termination occurs on or before the first
      anniversary of the first Advance; (B) one percent (1.0%) if the termination
      or reduction occurs after the first anniversary of the first Advance, but on
      or
      before the second anniversary of the first Advance; and (C) one-quarter of
      one percent (0.25%) if the termination or reduction occurs after the second
      anniversary of the first Advance.

     

    (e) Letter
      of Credit Fees.
      Company
      shall pay a fee with respect to each Letter of Credit issued by Wells Fargo
      of
      two percent (2.0%) per annum of the aggregate undrawn amount of the Letter
      of
      Credit (the “Aggregate Face Amount”) accruing daily from and including the date
      the Letter of Credit is issued until the date that it either expires or is
      returned, which shall be payable monthly in arrears on the first day of each
      month and on the date that the Letter of Credit either expires or is returned;
      and following an Event of Default, this fee shall increase to four percent
      (4.0%) per annum of the Aggregate Face Amount, commencing on the first day
      of
      the month in which the Default Period begins and continuing through the last
      day
      of such Default Period, or any shorter time period that Wells Fargo in its
      sole
      discretion may deem appropriate, without waiving any of its other rights and
      remedies.

     

    (f) Letter
      of Credit Administrative Fees.
      Company
      shall pay all administrative fees charged by Wells Fargo in connection with
      the
      honoring of drafts under any Letter of Credit, and any amendments to or
      transfers of any Letter of Credit, and any other activity with respect to the
      Letters of Credit at the current rates published by Wells Fargo for such
      services rendered on behalf of its customers generally.

     

    (g) Other
      Fees and Charges.
      Wells
      Fargo may impose additional fees and charges during a Default Period for (i)
      waiving an Event of Default, or for (ii) the administration of Collateral by
      Wells Fargo. All such fees and charges shall be imposed at Wells Fargo’s sole
      discretion following oral notice to Company on either an hourly, periodic,
      or
      flat fee basis, and in lieu of or in addition to imposing interest at the
      Default Rate, and Company’s request for an Advance following such notice shall
      constitute Company’s agreement to pay such fees and charges.

     

    
      
        
        

      

      
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    (h) Contracted
      Funds Breakage Fees.
      Company
      may prepay the principal amount of the Revolving Note at any time in any amount,
      whether voluntarily or by acceleration, provided,
      however,
      that if
      the principal amount of any Revolving Note LIBOR Advance is prepaid, Company
      shall pay to Wells Fargo immediately upon demand a contracted funds breakage
      fee
      equal to the sum of the discounted monthly differences for each month from
      the
      month of prepayment through the month in which such Interest Period matures,
      calculated as follows for each such month:

     

    (i) Determine
      the
      amount of interest which would have accrued each month on the amount prepaid
      at
      the interest rate applicable to such amount had it remained outstanding until
      the last day of the applicable Interest Period.

     

    (ii) Subtract
      from the
      amount determined in (i) above the amount of interest which would have accrued
      for the same month on the amount prepaid for the remaining term of such Interest
      Period at LIBOR in effect on the date of prepayment for new loans made for
      such
      term in a principal amount equal to the amount prepaid.

     

    (iii) If
      the
      result obtained in (ii) for any month is greater than zero, discount that
      difference by LIBOR used in (ii) above.

     

    Company
      acknowledges that prepayment of the Revolving Note may result in Wells Fargo
      incurring additional costs, expenses or liabilities, and that it is difficult
      to
      ascertain the full extent of such costs, expenses or liabilities. Company
      therefore agrees to pay the above-described contracted funds breakage fee and
      agrees that said amount represents a reasonable estimate of the contracted
      funds
      breakage costs, expenses and/or liabilities of Wells Fargo.

     

    1.8 Interest
      Accrual; Principal and Interest Payments; Computation.

     

    (a) Interest
      Payments and Interest Accrual.
      Accrued
      and unpaid interest shall be due and payable on the first day of each month
      (each an “Interest Payment Date”) and on the Termination Date. Interest shall
      accrue from the most recent date to which interest has been paid or, if no
      interest has been paid, from the date of Advance to the Interest Payment Date.
      

     

    (b) Payment
      of Revolving Note Principal.
      The
      principal amount of the Revolving Note shall be paid from time to time as
      provided in Section 1.2(b), and shall be fully due and payable on the
      Termination Date. All payments of principal will be applied first to Floating
      Rate Advances and then to LIBOR Advances so as to avoid contracted funds
      breakage costs.

     

    (c) Payments
      Due on Non-Business Days.
      If an
      Interest Payment Date or the Termination Date falls on a day which is not a
      Business Day, payment shall be made on the next Business Day, and interest
      shall
      continue to accrue during that time period.

     

    (d) Computation
      of Interest and Fees.
      Interest accruing on the outstanding principal balance of the Revolving Note
      and
      fees payable under this Agreement shall be computed on the basis of the actual
      number of days elapsed in a year of 360 days.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    1.9 Termination,
      Reduction or Non-Renewal of Line of Credit by Company;
      Notice.

     

    (a) Termination
      by Company after Advance Notice.
      Company
      may terminate or reduce the Line of Credit at any time prior to the Maturity
      Date, if it (i) delivers an Authenticated Record notifying Wells Fargo of
      its intentions at least 30 days prior to the proposed Termination Date,
      (ii) pays Wells Fargo the termination fee set forth in Section 1.7(d) of
      this Agreement, and (iii) pays the Indebtedness in full or down to the reduced
      Maximum Line Amount.

     

    (b) Non-Renewal
      by Company; Notice.
      If
      Company does not wish Wells Fargo to consider renewal of the Line of Credit
      on
      the next Maturity Date, Company shall deliver an Authenticated Record to Wells
      Fargo at least 30 days prior to the Maturity Date notifying Wells Fargo of
      its
      intention not to renew. If Company fails to deliver to Wells Fargo such timely
      notice, then the Revolving Note shall accrue interest at the Default Rate
      commencing on the 30th
      day
      prior to the Maturity Date and continuing through the date that Wells Fargo
      receives delivery of an Authenticated Record giving it actual notice of
      Company’s intention not to renew.

     

    1.10 Letters
      of Credit

     

    (a) Issuance
      of Letters of Credit; Amount.
      Wells
      Fargo, subject to the terms and conditions of this Agreement, shall issue,
      on or
      after the date that Wells Fargo is obligated to make its first Advance under
      this Agreement and prior to the Termination Date, one or more irrevocable
      standby or documentary letters of credit (each, a “Letter of Credit”, and
      collectively, “Letters of Credit”) for Company’s account. Wells Fargo will not
      issue any Letter of Credit if the face amount of the Letter of Credit would
      exceed the lesser of: (i) $2,000,000 less the L/C Amount, or (ii) the Borrowing
      Base.

     

    (b) Additional
      Letter of Credit Documentation.
      Prior
      to requesting issuance of a Letter of Credit, Company shall first execute and
      deliver to Wells Fargo a Standby Letter of Credit Agreement, a Commercial Letter
      of Credit Agreement, an L/C Application, and any other documents that Wells
      Fargo may request, which shall govern the issuance of the Letter of Credit
      and
      Company’s obligation to reimburse Wells Fargo for any related Letter of Credit
      draws (the “Obligation of Reimbursement”). 

     

    (c) Expiration.
      No
      Letter of Credit shall be issued that has an expiry date that is later than
      one
      (1) year from the date of issuance, or the Maturity Date in effect on the date
      of issuance, whichever is earlier.

     

    (d) Obligation
      of Reimbursement During Default Periods.
      If
      Company is unable, due to the existence of a Default Period or for any other
      reason, to obtain an Advance to pay any Obligation of Reimbursement, Company
      shall pay Wells Fargo on demand and in immediately available funds, the amount
      of the Obligation of Reimbursement together with interest, accrued from the
      date
      presentment of the underlying draft until reimbursement in full at the Default
      Rate. Wells Fargo is authorized, alternatively and in its sole discretion,
      to
      make an Advance in an amount sufficient to discharge the Obligation of
      Reimbursement and pay all accrued but unpaid interest and fees with respect
      to
      the Obligation of Reimbursement.

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    1.11 Special
      Account. If
      the
      Line of Credit is terminated for any reason while a Letter of Credit is
      outstanding, or if after prepayment of the Revolving Note the L/C Amount
      continues to exceed the Borrowing Base, then Company shall promptly pay Wells
      Fargo in immediately available funds for deposit to the Special Account, an
      amount equal, as the case may be, to either (a) the L/C Amount plus any
      anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds
      the Borrowing Base. If Company fails to pay these amounts promptly, then Wells
      Fargo may in its sole discretion make an Advance to pay these amounts and
      deposit the proceeds to the Special Account. The Special Account shall be an
      interest bearing account maintained with Wells Fargo or any other
      financial institution acceptable to Wells Fargo. Wells Fargo may in its sole
      discretion apply amounts on deposit in the Special Account to the Indebtedness.
      Company may not withdraw amounts deposited to the Special Account until the
      Line
      of Credit has been terminated and all outstanding Letters of Credit have either
      been returned to Wells Fargo or have expired and the Indebtedness has been
      fully
      paid.

     

    2. Security
      Interest and Occupancy of Company’s Premises

     

    2.1 Grant
      of Security Interest.
      Company
      hereby pledges, assigns and grants to Wells Fargo, a first priority Lien and
      security interest (collectively referred to as the “Security Interest”) in the
      Collateral, as security for the payment and performance of the Indebtedness.
      Following request by Wells Fargo, Company shall grant Wells Fargo a Lien and
      security interest in all commercial tort claims that it may have against any
      Person. 

     

    2.2 Notifying
      Account Debtors and Other Obligors;
      Collection of Collateral.
      Wells
      Fargo may at any time that a Default Period exists and anytime Wells Fargo
      reasonably believes necessary deliver a Record giving an account debtor or
      other
      Person obligated to pay an Account, a General Intangible, or other amount due,
      notice that the Account, General Intangible, or other amount due has been
      assigned to Wells Fargo for security and must be paid directly to Wells Fargo.
      Company shall join in giving such notice and shall Authenticate any Record
      giving such notice upon Wells Fargo’s request. After Company or Wells Fargo
      gives such notice, Wells Fargo may, but need not, in Wells Fargo’s or in
      Company’s name, demand, sue for, collect or receive any money or property at any
      time payable or receivable on account of, or securing, such Account, General
      Intangible, or other amount due, or grant any extension to, make any compromise
      or settlement with or otherwise agree to waive, modify, amend or change the
      obligations (including collateral obligations) of any account debtor or other
      obligor. Wells Fargo may, in Wells Fargo’s name or in Company’s name, as
      Company’s agent and attorney-in-fact, notify the United States Postal Service to
      change the address for delivery of Company’s mail to any address designated by
      Wells Fargo, otherwise intercept Company’s mail, and receive, open and dispose
      of Company’s mail, applying all Collateral as permitted under this Agreement and
      holding all other mail for Company’s account or forwarding such mail to
      Company’s last known address.

     

    2.3 Assignment
      of Insurance.
      As
      additional security for the Indebtedness, Company hereby assigns to Wells Fargo
      all rights of Company under every policy of insurance covering the Collateral
      and all business records and other documents relating to it, and all monies
      (including proceeds and refunds) that may be payable under any policy, and
      Company hereby directs the issuer of each policy to pay all such monies directly
      to Wells Fargo. At any time, whether or not a Default Period then exists, Wells
      Fargo may (but need not), in Wells Fargo’s or Company’s name, execute and
      deliver proofs of claim, receive payment of proceeds and endorse checks and
      other instruments representing payment of the policy of insurance, and adjust,
      litigate, compromise or release claims against the issuer of any
      policy.
      Any
      monies in excess of $25,000 received under any insurance policy assigned to
      Wells Fargo, other than liability insurance policies, or received as payment
      of
      any award or compensation for condemnation or taking by eminent domain, shall
      be
      paid to Wells Fargo and, as determined by Wells Fargo in its sole discretion,
      either be applied to prepayment of the Indebtedness or disbursed to Company
      under staged payment terms reasonably satisfactory to Wells Fargo for
      application to the cost of repairs, replacements, or restorations which shall
      be
      effected with reasonable promptness and shall be of a value at least equal
      to
      the value of the items or property destroyed.

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    2.4 Company’s
      Premises

     

    (a) Wells
      Fargo’s Right to Occupy Company’s Premises.
      Company
      hereby grants to Wells Fargo the right, at any time during a Default Period
      and
      without notice or consent, to take exclusive possession of all
      locations where Company conducts its business or has any rights of possession,
      including the locations described on Exhibit B (the “Premises”), until the
      earlier of (i) payment in full and discharge of all Indebtedness and
      termination of the Line of Credit, or (ii) final sale or disposition of all
      items constituting Collateral and delivery of those items to
      purchasers.

     

    (b) Wells
      Fargo’s Use of Company’s Premises.
      Wells
      Fargo may use the Premises to store, process, manufacture, sell, use, and
      liquidate or otherwise dispose of items that are Collateral, and for any other
      incidental purposes deemed appropriate by Wells Fargo in good
      faith.

     

    (c) Company’s
      Obligation to Reimburse Wells Fargo.
      Wells
      Fargo shall not be obligated to pay rent or other compensation for the
      possession or use of any Premises, but if Wells Fargo elects to pay rent or
      other compensation to the owner of any Premises in order to have access to
      the
      Premises, then Company shall promptly reimburse Wells Fargo all such amounts,
      as
      well as all taxes, fees, charges and other expenses at any time payable by
      Wells
      Fargo with respect to the Premises by reason of the execution, delivery,
      recordation, performance or enforcement of any terms of this
      Agreement.

     

    2.5 License.
      Without
      limiting the generality of any other Security Document, Company hereby grants
      to
      Wells Fargo a non-exclusive, worldwide and royalty-free license to use or
      otherwise exploit all Intellectual Property Rights of Company for the purpose
      of: (a) completing the manufacture of any in-process materials during any
      Default Period so that such materials become saleable Inventory, all in
      accordance with the same quality standards previously adopted by Company for
      its
      own manufacturing and subject to Company’s reasonable exercise of quality
      control; and (b) selling, leasing or otherwise disposing of any or all
      Collateral during any Default Period.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    2.6 Financing
      Statements.
      Company
      authorizes Wells Fargo to file financing statements describing Collateral to
      perfect Wells Fargo’s Security Interest in the Collateral, and Wells Fargo may
      describe the Collateral as “all personal property” or “all assets” or describe
      specific items of Collateral including commercial tort claims as Wells Fargo
      may
      consider necessary or useful to perfect the Security Interest. All financing
      statements filed before the date of this Agreement to perfect the Security
      Interest were authorized by Company and are hereby re-authorized. Following
      the termination of the Line of Credit and payment of all Indebtedness, Wells
      Fargo shall, at Company’s expense and within the time periods required under
      applicable law, release or terminate any filings or other agreements that
      perfect the Security Interest.

     

    2.7 Setoff.
      Wells
      Fargo may at any time, in its sole discretion and without demand or notice
      to
      anyone, setoff any liability owed to Company by Wells Fargo against any
      Indebtedness, whether or not due. 

     

    2.8 Collateral.
      This
      Agreement does not contemplate a sale of Accounts or chattel paper, and, as
      provided by law, Company is entitled to any surplus and shall remain liable
      for
      any deficiency. Wells Fargo’s duty of care with respect to Collateral in its
      possession (as imposed by law) will be deemed fulfilled if it exercises
      reasonable care in physically keeping such Collateral, or in the case of
      Collateral in the custody or possession of a bailee or other third Person,
      exercises reasonable care in the selection of the bailee or third Person, and
      Wells Fargo need not otherwise preserve, protect, insure or care for such
      Collateral. Wells Fargo shall not be obligated to preserve rights Company may
      have against prior parties, to liquidate the Collateral at all or in any
      particular manner or order or apply the Proceeds of the Collateral in any
      particular order of application. Wells Fargo has no obligation to clean-up
      or
      prepare Collateral for sale. Company waives any right it may have to require
      Wells Fargo to pursue any third Person for any of the Indebtedness.

     

    2.9 Notices
      Regarding Disposition of Collateral.
      If
      notice to Company of any intended disposition of Collateral or any other
      intended action is required by applicable law in a particular situation, such
      notice will be deemed commercially reasonable if given in the manner specified
      in Section 7.4 at least ten calendar days before the date of intended
      disposition or other action.

     

    3. Conditions
      Precedent

     

    3.1 Conditions
      Precedent to Initial Advance
      and Issuance of Initial Letter of Credit.
      Wells
      Fargo’s obligation to make the initial Advance or issue the first Letter of
      Credit shall be subject to the condition that Wells Fargo shall have received
      this Agreement and each of the Loan Documents, fees, and other documents and
      information described in Exhibit C, duly executed and in form and content
      satisfactory to Wells
      Fargo.

     

    3.2 Additional
      Conditions Precedent to All Advances and Letters of Credit.
      Wells
      Fargo’s obligation to make any Advance (including the initial Advance) or issue
      any Letter of Credit shall be subject to the further additional conditions:
      (a)
      that
      the representations and warranties described in Exhibit D are correct on the
      date of the Advance or the issuance of the Letter of Credit, except to the
      extent that such representations and warranties relate solely to an earlier
      date; and (b)
      that
      no event has occurred and is continuing, or would result from the requested
      Advance or issuance of the Letter of Credit that would result in an Event of
      Default.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    4. Representations
      and Warranties 

     

    To
      induce
      Wells Fargo to enter into this Agreement, Company makes the representations
      and
      warranties described in Exhibit D. Any request for an Advance will be deemed
      a
      representation by Company that all representations and warranties described
      in
      Exhibit D are true and correct as of the time of the request, unless they relate
      exclusively to an earlier date. Company shall promptly deliver a Record
      notifying Wells Fargo of any change in circumstance that would affect the
      accuracy of any representation or warranty, unless the representation and
      warranty specifically relates to an earlier date.

     

    5. Covenants
      

     

    So
      long
      as the Indebtedness remains unpaid, or the Line of Credit has not been
      terminated, Company shall comply with each of the following covenants, unless
      Wells Fargo shall consent otherwise in an Authenticated Record delivered to
      Company. 

     

    5.1 Reporting
      Requirements.
      Company
      shall deliver to Wells Fargo the following information, compiled where
      applicable using GAAP consistently applied, in form and content acceptable
      to
      Wells Fargo:

     

    (a) Annual
      Financial Statements.
      As soon
      as available and in any event within 120 days after Company’s fiscal year
      end, financial statements of Parent audited by an independent certified public
      accountant firm reasonably acceptable to Wells Fargo (it being acknowledged
      that
      Weinberg & Company P.A. is acceptable), which shall
      include Parent’s balance sheet, income statement, and statement of retained
      earnings and cash flows prepared on a consolidated basis to include all
      Subsidiaries of Parent, and, if requested by Wells Fargo, on a consolidating
      basis to include all Subsidiaries of Parent. The
      annual financial statements shall be accompanied by a Compliance Certificate
      in
      the form of Exhibit E that is signed by Company’s chief financial officer.

     

    Each
      Compliance Certificate that accompanies an annual financial statement shall
      also
      be accompanied by copies of all management letters prepared by Company’s
      accountants.

     

    (b) Monthly
      Financial Statements.
      As soon
      as available and in any event within 30 days after the end of each month, a
      Company prepared balance sheet, income statement, and statement of retained
      earnings prepared for that month and for the year-to-date period then ended,
      prepared, on a consolidated basis to include all Subsidiaries of Parent, and,
      if
      requested by Wells Fargo, on a consolidating basis to include all Subsidiaries
      of Parent, and stating in comparative form the figures for the corresponding
      date and periods in the prior fiscal year, subject to year-end adjustments.
      The
      financial statements shall be accompanied
      by a Compliance Certificate in the form of Exhibit E that is signed by Company’s
      chief financial officer.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    (c) Collateral
      Reports.
      No
      later than 10 days after each month end (or more frequently if Wells Fargo
      shall
      request it), detailed agings of Company’s accounts receivable and accounts
      payable,
      a
      detailed inventory report, an inventory certification report and a calculation
      of Company’s Accounts, Eligible Accounts, Inventory and Eligible Inventory as of
      the end of that month or shorter time period requested by Wells
      Fargo.

     

    (d) Projections.
      No
      later than 30 days after approval by Company’s Directors, Company’s projected
      balance sheet and income statement and statement of cash flows for each month
      of
      the next fiscal year, accompanied by a certificate of Company’s chief financial
      officer to the effect that such projections have been prepared in good faith
      on
      the basis of reasonable assumptions.

     

    (e) Supplemental
      Reports.
      Weekly,
      or more frequently if Wells Fargo requests, Company’s standard form of “daily
      collateral report”, together with receivables schedules, collection reports, and
      copies of invoices, shipment documents and delivery receipts for goods sold
      to
      account debtors.

     

    (f) Litigation.
      No
      later than three days after discovery, a Record notifying Wells Fargo of any
      litigation or other proceeding before any court or governmental agency
which
      seeks a monetary recovery against Company in excess of $50,000.

     

    (g) Intellectual
      Property.
      (i)
      No
      later than 30 days before it acquires material Intellectual Property Rights,
      a
      Record notifying Wells Fargo of Company’s intention to acquire such rights; (ii)
      except for transfers permitted under Section 5.17, no later than 15 days before
      it disposes of material Intellectual Property Rights, a Record notifying Wells
      Fargo of Company’s intention to dispose of such rights, along with copies of all
      proposed documents and agreements concerning the disposal of such rights as
      requested by Wells Fargo; (iii) promptly upon knowledge thereof, a Record
      notifying Wells Fargo of (A) any material Infringement of Company’s Intellectual
      Property Rights by any Person, (B) claims that Company is materially Infringing
      another Person’s Intellectual Property Rights and (C) any threatened
      cancellation, termination or limitation of Company’s material Intellectual
      Property Rights; and (iv) promptly upon receipt, copies of all registrations
      and
      filings with respect to Company’s Intellectual Property Rights.

     

    (h) Defaults.
      No
      later than three days after learning of the probable occurrence of any Event
      of
      Default, a Record describing in detail the Event of Default and the steps being
      taken by Company to cure the
      Event
      of Default.

     

    (i) Disputes.
      Promptly upon discovery, a Record notifying Wells Fargo of (i) any disputes
      or claims by Company’s customers involving sums in excess of $50,000;
      (ii) credit memos not previously reported in Section 5.1(e) involving sums
      in excess of $50,000; and (iii) any goods returned to or recovered by
      Company outside of the ordinary course of business
      with a
      value in excess of $50,000.

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    (j) Changes
      in Responsible Officers and Directors.
      Promptly following occurrence, a Record notifying Wells Fargo of any change
      in
      the persons constituting Company’s Responsible Officers and
      Directors.

     

    (k) Collateral.
      Promptly upon discovery, a Record notifying Wells Fargo of any loss of or
      material damage to any Collateral or of any substantial adverse change in any
      Collateral or the prospect of its payment.

     

    (l) Commercial
      Tort Claims.
      Promptly upon discovery, a Record notifying Wells Fargo of any commercial tort
      claims brought by Company against any Person, including the name and address
      of
      each defendant, a summary of the facts, an estimate of Company’s damages, copies
      of any complaint or demand letter submitted by Company, and such other
      information as Wells Fargo may request.

     

    (m) Reports
      to Stockholders.
      Promptly upon distribution, copies of all financial statements, reports, proxy
      statements and filings with the Securities and Exchange Commission which Parent
      shall have sent to its stockholders.

     

    (n) Tax
      Returns of Company.
      No
      later than five days after they are required to be filed, copies of
      Company’s signed and dated state and federal income tax returns and all related
      schedules, and copies of any extension requests.

     

    (o) Violations
      of Law.
      No
      later than three days after discovery of any violation, a Record notifying
      Wells
      Fargo of Company’s violation of any law, rule or regulation, the non-compliance
      with which could materially and adversely affect the financial condition,
      properties or operations of Company.

     

    (p) Other
      Reports.
      From
      time to time, with reasonable promptness, all receivables schedules, inventory
      reports, collection reports, deposit records, equipment schedules, invoices
      to
      account debtors, shipment documents and delivery receipts for goods sold, and
      such other materials, reports, records or information as Wells Fargo may
      reasonably request. 

     

    5.2 Financial
      Covenants.
      Company
      agrees to comply with the financial covenants described below, which shall
      be
      calculated using GAAP consistently applied, except as they may be otherwise
      modified by the following capitalized definitions:

     

    (a) Minimum
      Net Income.
      Company
      shall achieve Net Income for (a) the quarter ending December 31, 2007 of not
      less than $150,000, (b) the quarter ending March 31, 2008 of not less than
      $<60,000>, and (c) for each fiscal quarter ending thereafter of not less
      than $75,000 (numbers appearing between “< >“ are negative).

     

    (b) Minimum
      Debt Service Coverage Ratio.
      Company
      shall maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.0,
      measured as of the last day of each quarter for the four quarters then most
      recently ended. 

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    (c) Capital
      Expenditures.
      Company
      shall not incur or contract to incur Capital Expenditures of more than $100,000
      from the Closing Date through December 31, 2007 and, thereafter, $500,000
      in the aggregate during any fiscal year. 

     

    5.3 Other
      Liens and Permitted Liens.
      

     

    (a) Other
      Liens; Permitted Liens.
      Company
      shall not create, incur or suffer to exist any Lien upon any of its assets,
      now
      owned or later acquired, as security for any indebtedness, with the exception
      of
      the following (each a “Permitted Lien”; collectively, “Permitted
      Liens”):
      (i) In
      the case of real property, covenants, restrictions, rights, easements and minor
      irregularities in title which do not materially interfere with Company’s
      business or operations as presently conducted; (ii) Liens in existence on the
      date of this Agreement that are described in Exhibit F and secure indebtedness
      for borrowed money permitted under Section 5.4; (iii) The Security Interest
      and
      Liens created by the Security Documents; (iv) Purchase money Liens relating
      to
      the acquisition of Equipment not exceeding the lesser of cost or fair market
      value and so long as no Default Period is then in existence and none would
      exist
      immediately after such acquisition, (v) Liens for taxes not yet due or which
      are
      being contested in good faith if adequate reserves with respect thereto are
      maintained on Company’s books; (vi) Carriers’, warehousemen’s, mechanic’s,
      materialmen’s, repairmen’s or other like Liens arising in the ordinary course of
      business which are not overdue or which are being contested in good faith,
      and
      (vii) Pledges or deposits in the ordinary course of business in connection
      with
      workers’ compensation, unemployment insurance and other social security
      legislation. 

     

    (b) Financing
      Statements.
      Company
      shall not authorize the filing of any financing statement by any Person as
      Secured Party with respect to any of Company’s assets, other than Wells Fargo,
      except with respect to Permitted Liens. Company shall not amend any financing
      statement filed by Wells Fargo as Secured Party except as permitted by
      law.

     

    5.4 Indebtedness.
      Company
      shall not incur, create, assume or permit to exist any indebtedness or liability
      on account of deposits or letters of credit issued on Company’s behalf, or
      advances or any indebtedness for borrowed money of any kind, whether or not
      evidenced by an instrument, except: (a)
      indebtedness arising under this Agreement; (b)
      indebtedness of Company described in Exhibit F; (c)
      indebtedness secured by Permitted Liens; and (d) indebtedness on terms and
      conditions acceptable to Wells Fargo that is subordinated to the indebtedness
      under this Agreement pursuant to a Subordination Agreement in form and substance
      acceptable to Wells Fargo in its sole discretion. 

     

    5.5 Guaranties.
      Company
      shall not assume, guarantee, endorse or otherwise become directly or
      contingently liable for the obligations of any Person, except: (a)
      the
      endorsement of negotiable instruments by Company for deposit or collection
      or
      similar transactions in the ordinary course of business; and (b)
      guaranties, endorsements and other direct or contingent liabilities in
      connection with the obligations of other Persons in existence on the date of
      this Agreement and described in Exhibit F.

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    5.6 Investments
      and Subsidiaries.
      Company
      shall not make or permit to exist any loans or advances to, or make any
      investment or acquire any interest whatsoever in, any Person or Affiliate,
      including any partnership or joint venture, nor purchase or hold beneficially
      any stock or other securities or evidence of indebtedness of any Person or
      Affiliate, except:

     

    (a) Investments
      in direct obligations of the United States of America or any of its political
      subdivisions whose obligations constitute the full faith and credit obligations
      of the United States of America and have a maturity of one year or less,
      commercial paper issued by U.S. corporations rated “A-1” or “A-2” by
      Standard & Poor’s Ratings Services or “P-1” or “P-2” by Moody’s
      Investors Service or certificates of deposit or bankers’ acceptances having a
      maturity of one year or less issued by members of the Federal Reserve System
      having deposits in excess of $100,000,000 (which certificates of deposit or
      bankers’ acceptances are fully insured by the Federal Deposit Insurance
      Corporation);

     

    (b) Travel
      advances or loans to Company’s Officers and employees not exceeding at any one
      time an aggregate of
      $50,000;

     

    (c) Prepaid
      rent not exceeding one month or security deposits; 

     

    (d) Current
      investments in those Subsidiaries in existence on the date of this Agreement
      which are identified on Exhibit D;
      and

     

    (e) Other
      investments made after the date hereof not to exceed an aggregate amount of
      $100,000.

     

    5.7 Dividends
      and Distributions.
      Except
      as set forth in this Agreement,
      Company
      shall not declare or pay any dividends (other than dividends payable solely
      in
      stock of Company) on any class of its stock, or make any payment on account
      of
      the purchase, redemption or retirement of any shares of its stock, or other
      securities or evidence of its indebtedness or make any distribution regarding
      its stock, either directly or indirectly. 

     

    5.8 Salaries.
      Company
      shall not pay excessive or unreasonable salaries, bonuses, commissions,
      consultant fees or other compensation; or increase the salary, bonus,
      commissions, consultant fees or other compensation of any Director, Officer
      or
      consultant, or any member of their families, by more than 20% in any one year,
      either individually or for all such Persons in the aggregate unless such amount
      has been approved by the compensation committee of the Parent, or pay such
      an
      increase from any source other than profits earned in the year of
      payment.

     

    5.9 Books
      and Records; Collateral
      Examination; Inspection and Appraisals.

     

    (a) Books
      and Records; Inspection.
      Company
      shall keep complete and accurate books and records with respect to the
      Collateral and Company’s business and financial condition and any other matters
      that Wells Fargo may reasonably request, in accordance with GAAP. Company shall
      permit any employee, attorney, accountant or other agent of Wells Fargo to
      audit, review, make extracts from and copy any of its books and records at
      any
      time during ordinary business hours and, so long as no Default Period exists,
      upon reasonable advance notice, and to discuss Company’s affairs with any of its
      Directors, Officers, employees, or agents. 

     

    
      
        
        

      

      
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    (b) Authorization
      to Company’s Agents to Make Disclosures to Wells Fargo.
      Company
      authorizes all accountants and other Persons acting as its agent to disclose
      and
      deliver to Wells Fargo’s employees, accountants, attorneys and other Persons
      acting as its agent, at Company’s expense, all financial information, books and
      records, work papers, management reports and other information in their
      possession regarding Company. 

     

    (c) Collateral
      Exams and Inspections.
      Company
      shall permit Wells Fargo’s employees, accountants, attorneys or other Persons
      acting as its agent, to examine and inspect any Collateral or any other property
      of Company at any time during ordinary business hours, but generally once each
      quarter and no less than three times each calendar year. If Company maintains
      an
      average excess Borrowing Base availability of at least $3,000,000 over the
      applicable prior three-month period and Company is in compliance with all
      covenants and terms of the Loan Documents, then Wells Fargo, in its sole
      discretion, may waive the next scheduled Collateral exam.

     

    (d) Collateral
      Appraisals.
      Wells
      Fargo may also obtain, from time to time, but no less than one time each
      calendar year, at Company’s expense, a
      Collateral Appraisal by an appraiser acceptable to Wells Fargo in its sole
      discretion. 

     

    5.10 Account
      Verification;
      Payment of Permitted Liens.

     

    (a) Account
      Verification.
      Wells
      Fargo or its agents may (i) contact account debtors and other obligors at any
      time to verify Company’s Accounts; and (ii) require Company to send requests for
      verification of Accounts or send notices of assignment of Accounts to account
      debtors and other obligors.

     

    (b) Covenant
      to Pay Permitted Liens.
      Company
      shall pay when due each account payable due to any Person holding a Permitted
      Lien (as a result of such payable) on any Collateral. 

     

    5.11 Compliance
      with Laws.

     

    (a) General
      Compliance with Applicable Law; Use of Collateral.
      Company
      shall (i) comply, and cause each Subsidiary to comply, with the
      requirements of applicable laws and regulations, the non-compliance with which
      would materially and adversely affect its business or its financial condition
      and (ii) use and keep the Collateral, and require that others use and keep
      the Collateral, only for lawful purposes, without violation of any federal,
      state or local law, statute or ordinance.

     

    (b) Compliance
      with Federal Regulatory Laws.
      Company shall (i) prohibit and cause each Subsidiary to prohibit, any Person
      that is an Officer from being listed on the Specially Designated Nationals
      and
      Blocked Person List or other similar lists maintained by the Office of Foreign
      Assets Control (“OFAC”), the Department of the Treasury or included in any
      Executive Orders, (ii) not permit the proceeds of the Line of Credit or any
      other financial accommodation extended by Wells Fargo to be used in any way
      that
      violates any foreign asset control regulations of OFAC or other applicable
      law,
      (iii) comply, and cause each Subsidiary to comply, with all applicable Bank
      Secrecy Act laws and regulations, as amended from time to time, and (iv)
      otherwise comply with the USA Patriot Act and Wells Fargo’s related policies and
      procedures.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

    5.12 Payment
      of Taxes and Other Claims.
      Company
      shall pay or discharge, when due, and cause each Subsidiary to pay or discharge,
      when due, (a) all taxes, assessments and governmental charges levied or
      imposed upon it or upon its income or profits, upon any properties belonging
      to
      it (including the Collateral) or upon or against the creation, perfection or
      continuance of the Security Interest, prior to the date on which penalties
      attach, (b) all federal, state and local taxes required to be withheld by
      it, and (c) all lawful claims for labor, materials and supplies which, if
      unpaid, might by law become a Lien upon any properties of Company, although
      Company shall not be required to pay any such tax, assessment, charge or claim
      whose amount, applicability or validity is being contested in good faith by
      appropriate proceedings and for which proper reserves have been
      made.

     

    5.13 Maintenance
      of Collateral and Properties.

     

    (a) Company
      shall keep and maintain the Collateral and all of its other properties necessary
      or useful in its business in good condition, repair and working order (normal
      wear and tear excepted) and will from time to time replace or repair any worn,
      defective or broken parts, although Company may discontinue the operation and
      maintenance of any properties if Company believes that such discontinuance
      is
      desirable to the conduct of its business and not disadvantageous in any material
      respect to Wells Fargo. Company
      shall take all commercially reasonable steps necessary to protect and maintain
      its Intellectual Property material to its business.

     

    (b) Company
      shall defend the Collateral against all Liens, claims and demands of all third
      Persons claiming any interest in the Collateral. Company shall keep all
      Collateral free and clear of all Liens except permitted Liens. Company shall
      take all commercially reasonable steps necessary to prosecute any Person
      Infringing its Intellectual Property Rights and to defend itself against any
      Person accusing it of Infringing any Person’s Intellectual Property Rights.

     

    5.14 Insurance.
      Company
      shall at all times maintain insurance with insurers acceptable to Wells Fargo,
      in such amounts, on such terms (including any deductibles) and against such
      risks as Wells Fargo may reasonably require, in such amounts and against such
      risks as is usually carried by companies engaged in similar business and owning
      similar properties in the same geographical areas in which Company operates.
      Company shall also, at all times and without limitation maintain business
      interruption insurance (including force majeure coverage) and keep all tangible
      Collateral insured against risks of fire (including so-called extended
      coverage), theft, collision (for Collateral consisting of motor vehicles) and
      such other risks and in such amounts as Wells Fargo may reasonably request,
      with
      any loss payable to Wells Fargo to the extent of its interest, and all policies
      of such insurance shall contain a lender’s loss payable endorsement for Wells
      Fargo’s benefit. 

     

    
      
        
        

      

      
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    5.15 Preservation
      of Existence.
      Company
      shall preserve and maintain its existence and all of its rights, privileges
      and
      franchises necessary or desirable in the normal conduct of its
      business.

     

    5.16 Delivery
      of Instruments, etc.
      Upon
      request by Wells Fargo, Company shall promptly deliver to Wells Fargo in pledge
      all instruments, documents and chattel paper constituting Collateral, duly
      endorsed or assigned by Company.

     

    5.17 Sale
      or Transfer of Assets; Suspension of Business Operations.
      Company
      shall not sell, lease, assign, transfer or otherwise dispose of (a) the
      stock of any Subsidiary, (ii), (b) all or a substantial part of its assets,
      or (c) any Collateral or any interest in Collateral (whether in one
      transaction or in a series of transactions) to any other Person other than
      the
      sale of Inventory in the ordinary course of business and shall not liquidate,
      dissolve or suspend business operations, other than for dispositions of obsolete
      or worn out property in the ordinary course of business. Company
      shall not transfer any part of its ownership interest in any Intellectual
      Property Rights and shall not permit its rights as licensee of Licensed
      Intellectual Property to lapse, except that Company may transfer such rights
      or
      permit them to lapse if it has reasonably determined that such Intellectual
      Property Rights are no longer useful or material to its business. If Company
      transfers any Intellectual Property Rights for value, Company shall pay the
      Proceeds to Wells Fargo for application to the Indebtedness. Company shall
      not
      license any other Person to use any of Company’s Intellectual Property Rights,
      except that Company may grant licenses in the ordinary course of its business
      in
      connection with sales of Inventory or the provision of services to its
      customers. 

     

    5.18 Consolidation
      and Merger; Asset Acquisitions.
      Company
      shall not consolidate with or merge into any other entity, or permit any other
      entity to merge into it, or acquire (in a transaction analogous in purpose
      or
      effect to a consolidation or merger) all or substantially all of the assets
      of
      any other entity.

     

    5.19 Sale
      and Leaseback.
      Company
      shall not enter into any arrangement, directly or indirectly, with any other
      Person or entity whereby Company shall sell or transfer any real or personal
      property, whether owned now or acquired in the future, and then rent or lease
      all or part of such property or any other property which Company intends to
      use
      for substantially the same purpose or purposes as the property being sold or
      transferred.

     

    5.20 Restrictions
      on Nature of Business.
      Company
      will not engage in any line of business materially different from that presently
      engaged in by Company, and will not purchase, lease or otherwise acquire any
      material assets not related to its business.

     

    5.21 Accounting.
      Company
      will not adopt any material change in accounting principles except as required
      by GAAP, consistently applied. Company will not change its fiscal
      year.

     

    5.22 Discounts,
      etc.
      After
      notice from Wells Fargo, Company will not grant any discount, credit or
      allowance to any customer of Company or accept any return of goods sold, except
      for such discounts, credits, allowances or returns, provided by Company in
      the
      ordinary course of business consistent with past practice. Company will not
      at
      any time modify, amend, subordinate, cancel or terminate any Account except
      in
      the ordinary course of business consistent with past practice.

     

    
      
        
        

      

      
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    5.23 Place
      of Business; Name.
      Without
      60 days prior written notice to Wells Fargo, Company will not (i) transfer
      its
      chief executive office or principal place of business, or move, relocate, close
      or sell any business Premises, or (ii) permit any tangible Collateral or any
      records relating to the Collateral to be located in any state or area in which,
      in the event of such location, a financing statement covering such Collateral
      would be required to be, but has not in fact been, filed in order to perfect
      the
      Security Interest. Without 30 days prior written notice to Wells Fargo, Company
      will not change its name or jurisdiction of organization.

     

    5.24 Constituent
      Documents; S Corporation Status.
      Company
      will not materially amend its Constituent Documents without first obtaining
      the
      prior written consent of Wells Fargo. Within 10 days of any immaterial amendment
      to its Constituent Documents, Company will deliver to Wells Fargo a copy of
      such
      amendment. Company will not become an S Corporation.

     

    5.25 Performance
      by Wells
      Fargo.
      If
      Company fails to perform or observe any of its obligations under this Agreement
      at any time, Wells Fargo may, but need not, perform or observe them on behalf
      of
      Company and may, but need not, take any other actions which Wells Fargo may
      reasonably deem necessary to cure or correct this failure; and Company shall
      pay
      Wells Fargo upon demand the amount of all costs and expenses (including
      reasonable attorneys’ fees and legal expense) incurred by Wells Fargo in
      performing these obligations, together with interest on these amounts at the
      Default Rate. 

     

    5.26 Wells
      Fargo Appointed as Company’s Attorney in Fact.
      To
      facilitate Wells Fargo’s performance or observance of Company’s obligations
      under this Agreement, Company hereby irrevocably appoints Wells Fargo and Wells
      Fargo’s agents, as Company’s attorney in fact (which appointment is coupled with
      an interest) with the right (but not the duty) to create, prepare, complete,
      execute, deliver, endorse or file on behalf of Company any instruments,
      documents, assignments, security agreements, financing statements, applications
      for insurance and any other agreements required to be obtained, executed,
      delivered or endorsed by Company in accordance with the terms of this
      Agreement.

     

    5.27 Post-Closing
      Matters

     

    (a) Rapor
      Dissolution.
      Company
      shall use commercially reasonable efforts to complete the liquidation and
      dissolution of Rapor, Inc., a Florida corporation (“Rapor”), in accordance with
      all applicable law, on or before December 20, 2007 (the "Rapor Dissolution");
      provided, that prior to the Rapor Dissolution, Company shall not permit Rapor
      to
      own, lease, manage or operate any properties or assets (including cash) at
      any
      time; provided,
      further
      that; to
      the extent that the Rapor Dissolution has not occurred on or before December
      20,
      2007, Company shall deliver to Wells Fargo such additional Security Documents
      as
      Wells Fargo shall request in its sole discretion, including, but not limited
      to
      a Guaranty and a Guarantor Security Agreement, each executed on behalf of
      Rapor.

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    (b) Samsung
      Collateral Assignment.
      Company
      shall use commercially reasonable efforts to deliver to Wells Fargo on or before
      December 20, 2007 the collateral assignment of the Samsung Agreement, whereby
      Company shall assign all of Company’s rights in the Samsung Agreement to Wells
      Fargo, such collateral assignment to be in form and substance satisfactory
      to
      Wells Fargo in its sole discretion.

     

    (c) Landlord
      Waiver.
      Company
      shall deliver to Wells Fargo on or before December 20, 2007 a landlord waiver
      or
      subordination, in form and substance reasonably acceptable to Wells Fargo,
      executed by the landlord and Company for the property located at 2801 Trade
      Center Drive, #120, Carrollton, Texas 75007 and a true and correct copy of
      the
      lease related to such property.

     

    6. Events
      of Default and Remedies

     

    6.1 Events
      of Default.
      An
“Event of Default” means any of the following: 

     

    (a) Company
      fails to pay any Indebtedness as it becomes due and payable;

     

    (b) Company
      fails to observe or perform any covenant or agreement of Company set forth
      in
      this Agreement or in any Loan Document; provided,
      that
      with respect to an Event of Default of Sections
      5.11
      and
5.13,
      such
      Event of Default continues unremedied for more than two Business Days and with
      respect to an Event of Default of Sections 5.1,
      5.10
      and
5.12,
      such
      Event of Default continues unremedied for more than ten Business
      Days; 

     

    (c) [Reserved].

     

    (d) A
      Change
      of Control shall occur;

     

    (e) Company
      or any Guarantor becomes insolvent or admits in a Record an inability to pay
      debts as they mature, or Company or any Guarantor makes an assignment for the
      benefit of creditors; or Company or any Guarantor applies for or consents to
      the
      appointment of any receiver, trustee, or similar officer for the benefit of
      Company or any Guarantor, or for any of their properties; or any receiver,
      trustee or similar officer is appointed without the application or consent
      of
      Company or such Guarantor; or any judgment, writ, warrant of attachment or
      execution or similar process is issued or levied against a substantial part
      of
      the property of Company or any Guarantor;

     

    (f) Company
      or any Guarantor files a petition under any chapter of the United States
      Bankruptcy Code or under the laws of any other jurisdiction naming Company
      or
      such Guarantor as debtor; or any such petition is instituted against Company
      or
      any such Guarantor; or Company or any Guarantor institutes (by petition,
      application, answer, consent or otherwise) any bankruptcy, insolvency,
      reorganization, debt arrangement, dissolution, liquidation or similar proceeding
      under the laws of any jurisdiction; or any such proceeding is instituted (by
      petition, application or otherwise) against Company or any such
      Guarantor
      and is
      not dismissed within 30 days;

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    (g) Any
      representation or warranty made by Company in this Agreement or by any Guarantor
      in any Guaranty, or by Company (or any of its Officers) or any Guarantor in
      any
      agreement, certificate, instrument or financial statement or other statement
      delivered to Wells Fargo in connection with this Agreement or pursuant to such
      Guaranty is untrue or misleading in any material respect when delivered to
      Wells
      Fargo;

     

    (h) A
      final,
      non-appealable arbitration award, judgment, or decree or order for the payment
      of money in an amount in excess of $50,000 which is not insured or subject
      to
      indemnity, is entered against Company which is not immediately stayed or
      appealed;

     

    (i) Company
      is in default with respect to any bond, debenture, note or other evidence of
      material indebtedness issued by Company that is held by any third Person other
      than Wells Fargo, or under any instrument under which any such evidence of
      indebtedness has been issued or by which it is governed, or under any material
      lease or other contract (including without limitation the Samsung Agreement),
      and the applicable grace period, if any, has expired;

     

    (j) Company
      liquidates, dissolves, terminates or suspends its business operations or
      otherwise fails to operate its business in the ordinary course, or merges with
      another Person; or sells or attempts to sell all or substantially all of its
      assets;

     

    (k) Company
      fails to pay any indebtedness or obligation in excess of $10,000 owed to Wells
      Fargo which is unrelated to the Line of Credit or this Agreement as it becomes
      due and payable;

     

    (l) Any
      Guarantor repudiates or purports to revokes the Guarantor’s Guaranty, or fails
      to perform any obligation under such Guaranty, or any individual Guarantor
      dies
      or becomes incapacitated, or any other Guarantor ceases to exist for any
      reason;

     

    (m) Company
      engages in any act prohibited by any Subordination Agreement, or makes any
      payment on Subordinated Indebtedness (as defined in the Subordination Agreement)
      that the Subordinated Creditor was not contractually entitled to
      receive;

     

    (n) Any
      event
      or circumstance occurs that Wells Fargo in good faith believes may impair the
      prospect of payment of all or part of the Indebtedness, or Company’s ability to
      perform material obligations under any of the Loan Documents, or there occurs
      any material adverse change in the business or financial condition of Company.
      

     

    (o) Any
      Director, Responsible Officer, Guarantor or stockholder who owns at least 20%
      of
      the issued and outstanding common stock of
      Company is indicted for a felony offence under state or federal law, or Company
      hires a Responsible Officer or appoints a Director who has been convicted of
      any
      such felony offense, or a Person becomes stockholder who owns at least 20%
      of
      the issued and outstanding common stock of
      Company who has been convicted of any such felony offense. 

     

    6.2 Rights
      and Remedies.
      During
      any Default Period, Wells Fargo may exercise any or all of the following rights
      and remedies:

     

    (a) Wells
      Fargo may terminate the Line of Credit;

     

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    (b) Wells
      Fargo may declare the Indebtedness to be immediately due and payable and
      accelerate payment of the Revolving Note, and all Indebtedness shall immediately
      become due and payable, without presentment, notice of dishonor, protest or
      further notice of any kind, all of which Company hereby expressly
      waives;

     

    (c) Wells
      Fargo may, without notice to Company, apply any money owing by Wells Fargo
      to
      Company to payment of the Indebtedness;

     

    (d) Wells
      Fargo may exercise and enforce any rights and remedies available upon default
      to
      a secured party under the UCC, including the right to take possession of
      Collateral, proceeding with or without judicial process (without a prior hearing
      or notice of hearing, which Company hereby expressly waives) and sell, lease
      or
      otherwise dispose of Collateral (with or without giving any warranties as to
      the
      Collateral, title to the Collateral or similar warranties), and Company will
      upon Wells Fargo’s demand assemble the Collateral and make it available to Wells
      Fargo at any place designated by Wells Fargo which is reasonably convenient
      to
      both parties;

     

    (e) Wells
      Fargo may exercise and enforce its rights and remedies under the Loan Documents;
      

     

    (f) Company
      will pay Wells Fargo upon demand in immediately available funds an amount equal
      to the Aggregate Face Amount plus any anticipated costs and fees for deposit
      to
      the Special Account pursuant to Section 1.11;

     

    (g) Wells
      Fargo may for any reason apply for the appointment of a receiver of the
      Collateral, to which appointment Company hereby consents; and

     

    (h) Wells
      Fargo may exercise any other rights and remedies available to it by law or
      agreement.

     

    Upon
      the
      occurrence of an Event of Default
      described in Section 6.1(e) or (f), Company’s Indebtedness shall immediately and
      automatically become due and payable without presentment, demand, protest or
      notice of any kind. 

     

    7. miscellaneous

     

    7.1 No
      Waiver; Cumulative Remedies.
      No
      delay or any single or partial exercise by Wells Fargo of any right, power
      or
      remedy under the Loan Documents shall constitute a waiver of any other right,
      power or remedy under the Loan Documents. No notice to or demand on Company
      in
      any circumstance shall entitle Company to any additional notice or demand in
      any
      other circumstances. The remedies provided in the Loan Documents are cumulative
      and not exclusive of any remedies provided by law. Wells Fargo may comply with
      applicable law in connection with a disposition of Collateral, and such
      compliance will not be considered to adversely affect the commercial
      reasonableness of any sale of the Collateral.

     

    
      
        
        

      

      
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    7.2 Amendment
      of Loan Documents; Consents and Waivers; Authentication.
      No
      amendment or modification of any Loan Documents, or consent to or waiver of
      any
      Event of Default, or consent to or waiver of the application of any covenant
      or
      representation set forth in any of the Loan Documents, or any release of Wells
      Fargo’s Security Interest in any Collateral, shall be effective unless it has
      been agreed to by Wells Fargo and memorialized in a Record that: (a)
      specifically states that it is intended to amend or modify specific Loan
      Documents, or waive any Event of Default or the application of any covenant
      or
      representation of any terms of specific Loan Documents, or is intended to
      release Wells Fargo’s Security Interest in specific Collateral; and (b) is
      Authenticated by the signature of an authorized employee of both parties, or
      by
      an authorized employee of Wells Fargo with respect to a consent or waiver.
      The
      terms of an amendment, consent or waiver memorialized in any Record shall be
      effective only to the extent, and in the specific instance, and for the limited
      purpose to which Wells Fargo has agreed. 

     

    7.3 Execution
      in Counterparts; Delivery of Counterparts.
      This
      Agreement and all other Loan Documents, and any amendment or modification to
      them may be Authenticated by the parties in any number of counterparts, each
      of
      which, once authenticated and delivered in accordance with the terms of this
      Section 7.3, will be deemed an original, and all such counterparts, taken
      together, shall constitute one and the same instrument. Delivery by fax or
      by
      encrypted e-mail or e-mail file attachment of any counterpart to any Loan
      Document Authenticated by an authorized signature will be deemed the equivalent
      of the delivery of the original Authenticated instrument. Company shall send
      the
      original Authenticated counterpart to Wells Fargo by first class U.S. mail
      or by
      overnight courier, but Company’s failure to deliver a Record in this form shall
      not affect the validity, enforceability, and binding effect of this Agreement
      or
      the other Loan Documents.

     

    7.4 Notices,
      Requests, and Communications; Confidentiality.
      Except
      as otherwise expressly provided in this Agreement: 

     

    (a) Delivery
      of Notices, Requests and Communications.
      Any
      notice, request, demand, or other communication by either party that is required
      under the Loan Documents to be in the form of a Record (but excluding any Record
      containing information Company must report to Wells Fargo under Section 5.1
      of
      this Agreement) may be delivered (i) in person, (ii) by first class U.S.
      mail, (iii) by overnight courier of national reputation, or (iv) by fax, or
      the Record may be sent as an Electronic Record and delivered (v) by an encrypted
      e-mail, or (vi) through Wells Fargo’s Commercial
      Electronic Office®
      (“CEO®”)
      portal or other secure electronic channel to which the parties have agreed.
      

     

    (b) Addresses
      for Delivery.
      Delivery of any Record under this Section 7.4 shall be made to the appropriate
      address set forth on the last page of this Agreement (which either party may
      modify by a Record sent to the other party), or through Wells Fargo’s
CEO
      portal
      or other secure electronic channel to which the parties have agreed.

     

    (c) Date
      of Receipt.
      Each
      Record sent pursuant to the terms of this Section 7.4 will be deemed to have
      been received on (i) the date of delivery if delivered in person,
      (ii) two Business Days after the date deposited in the mail if sent by
      mail, (iii) one Business Day after the date delivered to the courier if
      sent by overnight courier, (iv) the date of transmission if sent by fax, or
      (v) the date of transmission, if sent as an Electronic Record by electronic
      mail or through Wells Fargo’s CEO
      portal
      or
      similar secure electronic channel to which the parties have agreed; except
      that
      any
      request for an Advance or any other notice, request, demand or other
      communication from Company required under Section 1 of this Agreement, and
      any
      request for an accounting under Section 9-210 of the UCC, will not be deemed
      to
      have been received until actual receipt by Wells Fargo on a Business Day by
      an
      authorized employee of Wells Fargo. 

     

    
      
        
        

      

      
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    (d) Confidentiality
      of Unencrypted E-mail.
      Company
      acknowledges that if it sends an Electronic Record to Wells Fargo without
      encryption by e-mail or as an e-mail file attachment, there is a risk that
      the
      Electronic Record may be received by unauthorized Persons, and that by so doing
      it will be deemed to have accepted this risk and the consequences of any such
      unauthorized disclosure. 

     

    7.5 Company
      Information Reporting; Confidentiality.
      Except
      as otherwise expressly provided in this Agreement: 

     

    (a) Delivery
      of Company Information Records.
      Any
      information that Company is required to deliver under Section 5.1 in the form
      of
      a Record may be delivered to Wells Fargo (i) in person, or by (ii) first
      class U.S. mail, (iii) overnight courier of national reputation, or
      (iv) fax, or the Record may be sent as an Electronic Record (v) by
      encrypted e-mail, or (vi) through the file upload service of Wells Fargo’s
CEO
      portal
      or other secure electronic channel to which the parties have agreed.

     

    (b) Addresses
      for Delivery.
      Delivery of any Record to Wells Fargo under this Section 7.5 shall be made
      to
      the appropriate address set forth on the last page of this Agreement (which
      Wells Fargo may modify by a Record sent to Company), or through Wells Fargo’s
CEO
      portal
      or other secure electronic channel to which the parties have agreed.

     

    (c) Date
      of Receipt.
      Each
      Record sent pursuant to this Section will be deemed to have been received on
      (i)
      the date of delivery, if delivered in person, (ii) two Business Days after
      the
      date deposited in the mail if sent by mail, (iii) one Business Day after the
      date delivered by courier if sent by overnight courier, (iv) the date of
      transmission if sent by fax, or (v) the date of transmission, if sent as an
      Electronic Record by electronic mail or through Wells Fargo’s CEO
      portal
      or
      similar secure electronic channel to which the parties have agreed.

     

    (d) Authentication
      of Company Information Records.
      Company
      shall Authenticate any Record delivered (i) in person, or by U.S. mail,
      overnight courier, or fax, by the signature of the Officer or employee of
      Company who prepared the Record; (ii) as an Electronic Record sent via encrypted
      e-mail, by the signature of the Officer or employee of Company who prepared
      the
      Record by any file format signature that is acceptable to Wells Fargo, or by
      a
      separate certification signed and sent by fax; or (iii) as an Electronic Record
      via the file upload service of Wells Fargo’s CEO
      portal
      or
      similar secure electronic channel to which the parties have agreed, through
      such
      credentialing process as Wells Fargo and Company may agree to under the
CEO
      agreement.

     

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    (e) Certification
      of Company Information Records.
      Any
      Record (including any Electronic Record) Authenticated and delivered to Wells
      Fargo under this Section 7.5 will be deemed to have been certified as materially
      true, correct, and complete by Company and each Officer or employee of Company
      who prepared and Authenticated the Record, and may be legally relied upon by
      Wells Fargo without regard to method of delivery or transmission. 

     

    (f) Confidentiality
      of Company Information Records Sent by Unencrypted E-mail.
      Company
      acknowledges that if it sends an Electronic Record to Wells Fargo without
      encryption by e-mail or as an e-mail file attachment, there is a risk that
      the
      Electronic Record may be received by unauthorized Persons, and that by so doing
      it will be deemed to have accepted this risk and the consequences of any such
      unauthorized disclosure. Company acknowledges that it may deliver Electronic
      Records containing Company information to Wells Fargo by e-mail pursuant to
      any
      encryption tool acceptable to Wells Fargo and Company, or through Wells Fargo’s
CEO
      portal
      file upload service without risk of unauthorized disclosure.

     

    7.6 Further
      Documents.
      Company
      will from time to time execute, deliver, endorse and authorize the filing of
      any
      instruments, documents, conveyances, assignments, security agreements, financing
      statements, control agreements and other agreements that Wells Fargo may
      reasonably request in order to secure, protect, perfect or enforce the Security
      Interest or Wells Fargo’s rights under the Loan Documents (but any failure to
      request or assure that Company executes, delivers, endorses or authorizes the
      filing of any such item shall not affect or impair the validity, sufficiency
      or
      enforceability of the Loan Documents and the Security Interest, regardless
      of
      whether any such item was or was not executed, delivered or endorsed in a
      similar context or on a prior occasion).

     

    7.7 Costs
      and Expenses.
      Company
      shall pay on demand all costs and expenses, including reasonable attorneys’
fees, incurred by Wells Fargo in connection with the Indebtedness, this
      Agreement, the Loan Documents, or any other document or agreement related to
      this Agreement, and the transactions contemplated by this Agreement, including
      all such costs, expenses and fees incurred in connection with the negotiation,
      preparation, execution, amendment, administration, performance, collection
      and
      enforcement of the Indebtedness and all such documents and agreements and the
      creation, perfection, protection, satisfaction, foreclosure or enforcement
      of
      the Security Interest.

     

    7.8 Indemnity.
      In
      addition to its obligation to pay Wells Fargo’s expenses under the terms of this
      Agreement, Company shall indemnify, defend and hold harmless Wells Fargo, its
      parent Wells Fargo & Company, and any of its affiliates and successors, and
      all of their present and future officers, directors, employees, attorneys and
      agents (the “Indemnitees”) from and against any of the following (collectively,
“Indemnified Liabilities”):

     

    (a) Any
      and
      all transfer taxes, documentary taxes, assessments or charges made by any
      governmental authority by reason of the execution and delivery of the Loan
      Documents or the making of the Advances;

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

    (b) Any
      claims, loss or damage to which any Indemnitee may be subjected if any
      representation or warranty contained in Exhibit D proves to be incorrect in
      any
      respect or as a result of any violation of the covenants contained in Section
      5.12; and

     

    (c) Any
      and
      all other liabilities (INCLUDING ALL STRICT LIABILITIES), losses, damages,
      penalties, judgments, suits, claims, costs and expenses of any kind or nature
      whatsoever (including the reasonable fees and disbursements of counsel) in
      connection with this Agreement and any other investigative, administrative
      or
      judicial proceedings, whether or not such Indemnitee shall be designated a
      party
      to such proceedings, which may be imposed on, incurred by or asserted against
      any such Indemnitee, in any manner related to or arising out of or in connection
      with the making of the Advances and the Loan Documents or the use or intended
      use of the proceeds of the Advances, with the exception of any Indemnified
      Liability caused by the gross negligence or willful misconduct of an
      Indemnitee.

     

    If
      any
      investigative, judicial or administrative proceeding described in this Section
      is brought against any Indemnitee, upon the Indemnitee’s request, Company, or
      counsel designated by Company and satisfactory to the Indemnitee, will resist
      and defend the action, suit or proceeding to the extent and in the manner
      directed by the Indemnitee, at Company’s sole cost and expense. Each Indemnitee
      will use its best efforts to cooperate in the defense of any such action, suit
      or proceeding. If this agreement to indemnify is held to be unenforceable
      because it violates any law or public policy, Company shall nevertheless make
      the maximum contribution to the payment and satisfaction of each of the
      Indemnified Liabilities to the extent permissible under applicable law.
      Company’s obligations under this Section shall survive the termination of this
      Agreement and the discharge of Company’s other obligations under this Agreement.
IT
      IS THE INTENTION OF COMPANY AND COMPANY AGREES THAT THE INDEMNITIES CONTAINED
      IN
      THIS AGREEMENT SHALL APPLY WITH RESPECT TO THE INDEMNIFIED MATTERS, WHICH MAY
      BE
      IN WHOLE OR IN PART CAUSED BY OR MAY ARISE OUT OF THE SOLE, CONTRIBUTORY OR
      COMPARATIVE NEGLIGENCE OR ANY STRICT LIABILITY OF ANY
      INDEMNITEE;
      HOWEVER,
      SUCH INDEMNITIES SHALL NOT EXTEND TO AN OTHERWISE INDEMNIFIED MATTER TO THE
      EXTENT THAT IT ARISES OUT OF THE INDEMNITEE’S GROSS NEGLIGENCE OR WILLFUL
      MISCONDUCT. 

     

    7.9 Retention
      of Company’s Records.
      Wells
      Fargo shall have no obligation to maintain Electronic Records or retain any
      documents, schedules, invoices, agings, or other Records delivered to Wells
      Fargo by Company in connection with the Loan Documents for more than 30 days
      after receipt by Wells Fargo.
      If there
      is a special need to retain specific Records, Company must notify Wells Fargo
      of
      its need to retain or return such Records with particularity, which notice
      must
      be delivered to Wells Fargo in accordance with the terms of this Agreement
      at
      the time of the initial delivery of the Record to Wells Fargo.

     

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

    7.10 Binding
      Effect; Assignment; Complete Agreement.
      The
      Loan Documents shall be binding upon and inure to the benefit of Company and
      Wells Fargo and their respective successors and assigns, except that Company
      shall not have the right to assign its rights under this Agreement or any
      interest in this Agreement without Wells Fargo’s prior consent, which must be
      confirmed in a Record Authenticated by Wells Fargo. To the extent permitted
      by
      law, Company waives and will not assert against any assignee any claims,
      defenses or set-offs which Company could assert against Wells Fargo. This
      Agreement shall also bind all Persons who become a party to this Agreement
      as a
      borrower. This Agreement, together with the Loan Documents, comprises the
      complete and integrated agreement of the parties on the subject matter of this
      Agreement and supersedes all prior agreements, whether oral or evidenced in
      a
      Record AND
      WITHOUT LIMITING THE FOREGOING, COMPANY AGREES THAT THIS AGREEMENT AND THE
      OTHER
      LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
      BE
      CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
      OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
      PARTIES.
      To the
      extent that any provision of this Agreement contradicts other provisions of
      the
      Loan Documents other than this Agreement, this Agreement shall control.

     

    7.11 Sharing
      of Information.
      Wells
      Fargo may share any information that it may have regarding Company and its
      Affiliates with its accountants, lawyers, and other advisors, and Wells Fargo
      and each direct and indirect subsidiary of Wells Fargo & Company may also
      share any information that they have with each other, and Company waives any
      right of confidentiality it may have with respect to the sharing of all such
      information as provided under this Section 7.11.

     

    7.12 Severability
      of Provisions.
      Any
      provision of this Agreement which is prohibited or unenforceable shall be
      ineffective to the extent of such prohibition or unenforceability without
      invalidating the remaining terms of this Agreement.

     

    7.13 Headings.
      Section
      and subsection headings in this Agreement are included for convenience of
      reference only and shall not constitute a part of this Agreement for any other
      purpose.

     

    7.14 Governing
      Law; Jurisdiction, Venue; Waiver of Jury Trial.
      The
      Loan Documents shall be governed by and construed in accordance with the
      substantive laws (other than conflict laws) of the State of Texas. The parties
      to this Agreement (a) consent to the personal jurisdiction of the state and
      federal courts located in the State of Texas in connection with any controversy
      related to this Agreement; (b) waive any argument that venue in any such
      forum is not convenient; (c) agree that any litigation initiated by Wells
      Fargo or Company in connection with this Agreement or the other Loan Documents
      may be venued in either the state or federal courts located in the City of
      Dallas, County of Dallas, Texas and (d) agree that a final judgment in any
      such suit, action or proceeding shall be conclusive and may be enforced in
      other
      jurisdictions by suit on the judgment or in any other manner provided by
      law. 

     

    7.15 Non-applicability
      of Chapter 346.
      Company
      and Purchaser hereby agree that, except for Section 346.004 thereof, the
      provisions of Chapter 346 of the Texas Finance Code (regulating certain
      revolving credit loans and revolving tri-party accounts)
      shall not apply to this Agreement or any of the other Loan
      Documents.

     

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

    7.16 Company’s
      Waiver of Rights Under Texas Deceptive Trade Practices
      Act.
      COMPANY
      HEREBY WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES—CONSUMER PROTECTION
      ACT, SECTION § 17.41 ET
      SEQ.
      TEXAS
      BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
      PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF COMPANY’S OWN SELECTION, THE
      COMPANY VOLUNTARILY CONSENTS TO THIS WAIVER. COMPANY EXPRESSLY WARRANTS AND
      REPRESENTS THAT COMPANY (A) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
      POSITION RELATIVE TO WELLS FARGO, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL
      IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

     

    

 

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

     

    
      	
              COMPANY
                AND LENDER WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW
                OR IN
                EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS
                AGREEMENT
                OR ANY OTHER LOAN DOCUMENT. 

               

            
	
               

              GVI SECURITY, INC. 

               

              By: /s/
                Joseph
                Restivo                               
                

              Joseph Restivo  

              Chief Financial Officer  

            	
               

              WELLS
                FARGO BANK, NATIONAL
                ASSOCIATION

               

              By:
                /s/
                John
                Wattinger                                  
                

              John
                Wattinger

              Vice
                President

            

    

    

    THE
      PARTIES TO THIS AGREEMENT have
      executed this Agreement through their duly authorized officers as of the date
      set forth above.

     

    
      	
              WELLS
                FARGO BANK, 

              NATIONAL
                ASSOCIATION 

               

              By:
                /s/
                John
                Wattinger                                             
                

              John
                Wattinger

              Vice
                President

            	
              GVI
                SECURITY, INC.

               

               

              By:
                /s/ Joseph
                Restivo                                             
                

              Joseph
                Restivo

              Chief
                Financial Officer

            
	 	 
	
              MAC-T5322-021

              4975
                Preston Park Blvd., Ste. 270

              Plano,
                Texas 75093

              Fax:
                (972) 867-7838

              Attention:
                John Wattinger

              e-mail:
                john.wattinger@wellsfargo.com

            	
              2801
                Trade Center Dr., #120

              Carrollton,
                Texas 75007

              Fax:
                (972) 245-7333

              Attention:
                Joseph Restivo, CFO

              e-mail:
                jrestivo@gviss.com 

              Federal
                Employer Identification No.:

              77-0436410

              Organizational
                Identification No.: 3196283

            

    

     

    Credit
      and
      Security Agreement - Short Form (Committed).doc 8/21/2007 5:51:29
      PM

    

     

     

    
      
        
          SIGNATURE
            PAGE TO CREDIT AND SECURITY AGREEMENT

        

      

      
        
        

        
          

        

      

      
        
        

      

    

    REVOLVING
      NOTE

     

     

    
      	
              $15,000,000.00
                

            	
              November
                20
                2007

            

    

     

    FOR
      VALUE
      RECEIVED,
      the
      undersigned, GVI SECURITY, INC., a Delaware corporation (the “Company”), hereby
      promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells
      Fargo”), acting through its WELLS
      FARGO BUSINESS
      CREDIT operating division, on the Termination Date described in the Credit
      and
      Security Agreement dated November 20, 2007 (as amended from time to time, the
      “Agreement”) and entered into between Wells Fargo and Company, at Wells Fargo’s
      office at 4975 Preston Park Blvd., Suite 270, Plano, Texas 75093, or at any
      other place designated at any time by the holder, in lawful money of the United
      States of America and in immediately available funds, the principal sum of
      FIFTEEN MILLION DOLLARS ($15,000,000.00) or the aggregate unpaid principal
      amount of all Advances made by Wells Fargo to Company under the terms of the
      Agreement, together with interest on the principal balance computed on the
      basis
      of actual days elapsed in a 360-day year, from the date of this Revolving Note
      until this Revolving Note is fully paid at the rate from time to time in effect
      under the terms of the Agreement. Principal and interest accruing on the unpaid
      principal balance of this Revolving Note shall be due and payable as provided
      in
      the Agreement. This Revolving Note may be prepaid only in accordance with the
      Agreement.

     

    This
      Revolving Note is the Revolving Note referred to in the Agreement, and is
      subject to the terms of the Agreement, which provides, among other things,
      for
      the acceleration of this Revolving Note. This Revolving Note is secured, among
      other things, by the Agreement and the Security Documents as defined in the
      Agreement, and by any other security agreements, mortgages, deeds of trust,
      assignments or other instruments or agreements that may subsequently be given
      for good and valuable consideration as security for this Revolving
      Note.

     

    Company
      shall pay all costs of collection, including reasonable attorneys’ fees and
      legal expenses if this Revolving Note is not paid when due, whether or not
      legal
      proceedings are commenced.

     

    Presentment
      or other demand for payment, notice of dishonor and protest are expressly
      waived.

     

     

    
      	 	
              GVI
                SECURITY, INC.

            
	 	 
	 	 
	 	
              By:                                                                    
                

            
	 	
              Name:                                                               
                

            
	 	
              Its:
                President

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      A to Credit and Security Agreement

     

    DEFINITIONS

     

    “Account
      Funds” is defined in Section 1.4(a).

     

    “Accounts”
      shall have the meaning given it under the UCC.

     

    “Advance”
      and “Advances” is defined in Section 1.1(a).

     

    “Affiliate”
      or “Affiliates” means Parent and
      any
      other Person controlled by, controlling or under common control with Company,
      including any Subsidiary of Company. For purposes of this definition, “control,”
when used with respect to any specified Person, means the power to direct the
      management and policies of such Person, directly or indirectly, whether through
      the ownership of 25% or more of the voting securities of such Person, by
      contract or otherwise.

     

    “Aggregate
      Face Amount” means the aggregate amount that may then be drawn under each
      outstanding Letter of Credit, assuming compliance with all conditions for
      drawing.

     

    “Agreement”
      means this Credit and Security Agreement.

     

    “Authenticated”
      means (a) to have signed; or (b) to have executed or to have otherwise adopted
      a
      symbol, or have encrypted or similarly processed a Record in whole or in part,
      with the present intent of the authenticating Person to identify the Person
      and
      adopt or accept a Record.

     

    “Borrowing
      Base” is defined in Section 1.2(a).

     

    “Borrowing
      Base Reserve” means, as of any date of determination, an amount or a percent of
      a specified category or item that Wells Fargo establishes in its sole discretion
      from time to time to reduce availability under the Borrowing Base (a) to reflect
      events, conditions, contingencies or risks which affect the assets, business
      or
      prospects of Company, or the Collateral or its value, or the enforceability,
      perfection or priority of Wells Fargo’s Security Interest in the Collateral, as
      the term “Collateral” is defined in this Agreement, or (b) to reflect Wells
      Fargo’s judgment that any collateral report or financial information relating to
      Company and furnished to Wells Fargo may be incomplete, inaccurate or misleading
      in any material respect.

     

    “Business
      Day” means a day on which the Federal Reserve Bank of New York is open for
      business.

     

    “Capital
      Expenditures” means for a period, any expenditure of money during such period
      for the purchase or construction of assets, or for improvements or additions
      to
      such assets, in each case, which are capitalized on Company’s balance sheet,
      excluding Company expenditures for the lease of its offices and
      warehouse.

     

    “CEO”
is
      defined in Section 7.4(a).

     

    
      
        
        

      

      
        A-1

        
          

        

      

      
        
        

      

    

    “Change
      of Control” means the occurrence of any of the following events:

     

    (a) Any
      Person, entity or “group” (as such term is used in Sections 13(d) and 14(d) of
      the Securities Exchange Act of 1934) who does not have an ownership interest
      in
      Company on the date of the initial Advance is or becomes the “beneficial owner”
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
      except that any such Person, entity or group will be deemed to have “beneficial
      ownership” of all securities that such Person, entity or group has the right to
      acquire, whether such right is exercisable immediately or only after the passage
      of time), directly or indirectly, of more than twenty-five percent (25%) of
      the
      voting power of all classes of ownership of Company;

     

    (b) During
      any consecutive two-year period, individuals who at the beginning of such period
      constituted the board of Directors of Company (together with any new Directors
      whose election to such board of Directors, or whose nomination for election
      by
      the stockholders of Company, was approved by a vote of two thirds of the
      Directors then still in office who were either directors at the beginning of
      such period or whose election or nomination for election was previously so
      approved) cease for any reason to constitute a majority of the board of
      Directors of Company then in office; and

     

    (c) The
      failure of Steve Walin and Joseph Restivo to be involved in the senior
      management of Company, unless, within 90 days of termination of their
      involvement, they are replaced with management acceptable to Wells Fargo in
      its
      reasonable discretion.

     

    “Collateral”
      means all of Company’s Accounts, chattel paper and electronic chattel paper,
      deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
      Inventory, Investment Property, Intellectual Property Rights, letter-of-credit
      rights, letters of credit, all sums on deposit in any Collection Account, and
      any items in any Lockbox; together with (a) all substitutions and
      replacements for and products of such property; (b) in the case of all
      goods, all accessions; (c) all accessories, attachments, parts, Equipment
      and repairs now or subsequently attached or affixed to or used in connection
      with any goods; (d) all warehouse receipts, bills of lading and other
      documents of title that cover such goods now or in the future; (e) all
      collateral subject to the Lien of any of the Security Documents; (f) any
      money, or other assets of Company that come into the possession, custody, or
      control of Wells Fargo now or in the future; (g) Proceeds of any of the
      above Collateral; (h) books and records of Company, including all mail or e-mail
      addressed to Company; and (i) all of the above Collateral, whether now owned
      or
      existing or acquired now or in the future or in which Company has rights now
      or
      in the future.

     

    “Collection
      Account” is defined in Section 1.4(a), and though owned by Wells Fargo as both
      depositor and as depository bank, the Collection Account is maintained in
      accordance with the terms of Wells Fargo’s Commercial Account Agreement in
      effect for demand deposit accounts.

     

    “Compliance
      Certificate” is defined in Section 5.1(a) and is in the form of Exhibit
      E.

     

    
      
        
        

      

      
        A-2

        
          

        

      

      
        
        

      

    

    “Commercial
      Letter of Credit Agreement” means an agreement governing the issuance of
      documentary letters of credit entered into between Company as applicant and
      Wells Fargo as issuer.

     

    “Constituent
      Documents” means with respect to any Person, as applicable, that Person’s
      certificate of incorporation, articles of incorporation, by-laws, certificate
      of
      formation, articles of organization, limited liability company agreement,
      management agreement, operating agreement, shareholder agreement, partnership
      agreement or similar document or agreement governing such Person’s existence,
      organization or management or concerning disposition of ownership interests
      of
      such Person or voting rights among such Person’s owners.

     

    “Current
      Maturities of Long Term Debt” means, during a period beginning and ending on
      designated dates, the amount of Company’s long-term debt and capitalized leases
      which become due during the that period (other than leases of Company’s offices
      and warehouse). 

     

    “Debt”
      means of a Person as of a given date, all items of indebtedness or liability
      which in accordance with GAAP would be included in determining total liabilities
      as shown on the liabilities side of a balance sheet for such Person and shall
      also include the aggregate payments required to be made by such Person at any
      time under any lease that is considered a capitalized lease under
      GAAP.

     

    “Debt
      Service Coverage Ratio” means (a) the sum of (i) Funds from Operations
plus
      (ii) Interest Expense minus
      (iii) unfinanced Capital Expenditures divided by (b) the sum of
      (i) Current Maturities of Long Term Debt plus
      (ii) Interest Expense.

     

    “Default
      Period” is defined in Section 1.6(b).

     

    “Default
      Rate” is defined in Section 1.6(b).

     

    “Director”
      means a director if Company is a corporation, or a governor or manager if
      Company is a limited liability company.

     

    “Electronic
      Record” means a Record that is created, generated, sent, communicated, received,
      or stored by electronic means, but does
      not
      include
      any Record that is sent, communicated, or received by fax. 

     

    “Eligible
      Accounts” means all unpaid Accounts of Company arising from the sale or lease of
      goods or the performance of services, net of any credits, but
      excluding:

     

    (a) That
      portion of Accounts unpaid 90 days or more after the invoice
      date;

     

    (b) That
      portion of Accounts related to goods or services with respect to which Company
      has received notice of a claim or dispute, which are subject to a claim of
      offset or a contra account, or which reflect a reasonable reserve for warranty
      claims or returns;

     

    (c) That
      portion of Accounts not yet earned by the final delivery of goods or that
      portion of Accounts not yet earned by the final rendition of services by Company
      to the account debtor, including with respect to both goods and services,
      progress billings, and that portion of Accounts for which an invoice has not
      been sent to the applicable account debtor;

     

    
      
        
        

      

      
        A-3

        
          

        

      

      
        
        

      

    

    (d) Accounts
      constituting (i) Proceeds of copyrightable material unless such
      copyrightable material shall have been registered with the United States
      Copyright Office, or (ii) Proceeds of patentable inventions unless such
      patentable inventions have been registered with the United States Patent and
      Trademark Office;

     

    (e) Accounts
      owed by any unit of government, whether foreign or domestic (except that there
      shall be included in Eligible Accounts that portion of Accounts owed by such
      units of government for which Company has provided evidence satisfactory to
      Wells Fargo that (i) Wells Fargo’s Security Interest constitutes a
      perfected first priority Lien in such Accounts, and (ii) such Accounts may
      be enforced by Wells Fargo directly against such unit of government under all
      applicable laws); 

     

    (f) Accounts
      denominated in any currency other than United States Dollars;

     

    (g) Accounts
      owed by an account debtor located outside the United States which are not
      (i) backed by a bank letter of credit naming Wells Fargo as beneficiary or
      assigned to Wells Fargo, in Wells Fargo’s possession or control, and with
      respect to which a control agreement concerning the letter-of-credit rights
      is
      in effect, and acceptable to Wells Fargo in all respects, in its sole
      discretion, or (ii) covered by a foreign receivables insurance policy
      acceptable to Wells Fargo in its sole discretion;

     

    (h) Accounts
      owed by an account debtor that is insolvent, the subject of bankruptcy
      proceedings or has gone out of business;

     

    (i) Accounts
      owed by any Subsidiary, Affiliate, Officer or employee of Company;

     

    (j) Accounts
      not subject to the Security Interest or which are subject to any Lien in favor
      of any Person other than Wells Fargo;

     

    (k) That
      portion of Accounts that has been restructured, extended, amended or
      modified;

     

    (l) That
      portion of Accounts that constitutes advertising, finance charges, service
      charges or sales or excise taxes;

     

    (m) Accounts
      owed by an account debtor (other than Accounts owed by Wal-Mart Stores, Inc.
      or ADI,
      regardless of whether otherwise eligible, to the extent that the aggregate
      balance of such Accounts exceeds 15% of or, in the case of Wal-Mart Stores,
      Inc., to the extent that the aggregate balance of such Accounts exceeds 20%
      of
      or, in the case of ADI, to the extent that the aggregate balance of such
      Accounts exceeds 35% of the aggregate amount of all Accounts; 

     

    (n) Accounts
      owed by an account debtor, regardless of whether otherwise eligible, if 25%
      or
      more of the total amount of Accounts due from such debtor is ineligible under
      clauses (a), (b), or (k) above; and 

     

    
      
        
        

      

      
        A-4

        
          

        

      

      
        
        

      

    

    (o) Accounts,
      or portions of Accounts, otherwise deemed ineligible by Wells Fargo in its
      sole
      discretion. 

     

    “Eligible
      Inventory” means all Inventory of Company, valued at the lower of cost or market
      in accordance with GAAP; but excluding Inventory having any of the following
      characteristics:

     

    (a) Inventory
      that is: other than with respect to in-transit inventory, not located at 2801
      Trade Center Drive, Carrollton, Texas 75007 or located at any warehouse, job
      site or other premises not approved by Wells Fargo in an Authenticated Record
      delivered to Company; not subject to a duly perfected first priority Lien in
      Wells Fargo’s favor; covered by any negotiable or non-negotiable warehouse
      receipt, bill of lading or other document of title; on consignment from any
      consignor; or on consignment to any consignee or subject to any bailment unless
      the consignee or bailee has executed an agreement with Wells Fargo;

     

    (b) Inventory
      in-transit not covered by insurance policies, documents of title and other
      documentation satisfactory to Wells Fargo and all other Inventory in-transit
      in
      excess of $2,000,000;

     

    (c) Supplies,
      fabricated parts packaging, parts or sample Inventory, or customer supplied
      parts of Inventory;

     

    (d) Work-in-process
      Inventory;

     

    (e) Inventory
      that is damaged, defective, obsolete (including Inventory with respect to which
      Company has had the SKU on hand longer than one year from purchase without
      any
      sales of such Inventory), slow moving (including Inventory with respect to
      which
      Company has more than a one-year supply on hand of the SKU based on the previous
      12-month sales, to the extent of such excess supply, but excluding Inventory
      that Company has carried for less than 12 months) or not currently saleable
      in
      the normal course of Company’s operations, or the amount of such Inventory that
      has been reduced by shrinkage;

     

    (f) Inventory
      that Company has returned, has attempted to return, is in the process of
      returning or intends to return to the vendor of the Inventory;

     

    (g) Inventory
      that is perishable or live;

     

    (h) Inventory
      manufactured or acquired by Company pursuant to a license agreement unless
      the
      applicable licensor has agreed in a Record that has been Authenticated by
      licensor to permit Wells Fargo to exercise its rights and remedies against
      such
      Inventory;

     

    (i) Inventory
      that is subject to a Lien in favor of any Person other than Wells Fargo;

     

    (j) Inventory
      otherwise deemed ineligible by Wells Fargo in its sole discretion. 

     

    “Equipment”
      shall have the meaning given it under the Uniform Commercial Code in effect
      in
      the state whose laws govern this Agreement.

     

    
      
        
        

      

      
        A-5

        
          

        

      

      
        
        

      

    

    “Event
      of
      Default” is defined in Section 6.1.

     

    “Floating
      Rate” is defined in Section 1.6(a).

     

    “Floating
      Rate Advance” means an Advance bearing interest at the Floating Rate.

     

    “Funds
      from Operations” means for a given period, the sum of (a) Net Income,
      (b) depreciation and amortization, (c) any increase (or decrease) in
      deferred income taxes, (d) any increase (or decrease) in lifo reserves, and
      (e) other non-cash items, each as determined for such period in accordance
      with GAAP.

     

    “GAAP”
      means generally accepted accounting principles, applied on a basis consistent
      with the accounting practices applied in the financial statements described
      on
      Exhibit D.

     

    “General
      Intangibles” shall have the meaning given it under the UCC.

     

    “Guarantor(s)”
      means Parent and any other Person now or in the future guaranteeing the
      Indebtedness through the issuance of a Guaranty.

     

    “Guarantor
      Security Agreement(s)” means a security agreement executed by a Guarantor in
      favor of Wells Fargo.

     

    “Guaranty”
      means an unconditional continuing guaranty executed by a Guarantor in favor
      of
      Wells Fargo (if more than one, the “Guaranties”).

     

    “Indebtedness”
      is used in its most comprehensive sense and means any debts, obligations and
      liabilities of Company to Wells Fargo, whether incurred in the past, present
      or
      future, whether voluntary or involuntary, and however arising, and whether
      due
      or not due, absolute or contingent, liquidated or unliquidated, determined
      or
      undetermined, and including without limitation indebtedness arising under any
      swap, derivative, foreign exchange, hedge, deposit, treasury management or
      any
      similar transaction or arrangement that Company may enter into at any time
      with
      Wells Fargo, whether or not Company may be liable individually or jointly with
      others, or whether recovery upon such Indebtedness may subsequently become
      unenforceable.

     

    “Indemnified
      Liabilities” is defined in Section 7.8.

     

    “Indemnitees”
      is defined in Section 7.8. 

     

    “Intellectual
      Property Rights” means all actual or prospective rights arising in connection
      with any intellectual property or other proprietary rights, including all rights
      arising in connection with copyrights, patents, service marks, trade dress,
      trade secrets, trademarks, trade names or mask works.

     

    “Interest
      Expense” means for a fiscal year-to-date period, Company’s total gross interest
      expense during such period (excluding interest income), and shall in any event
      include (a) interest expensed (to the extent paid or payable in cash) on
      all Debt, (b) the amortization of all cash fees payable in connection with
      the incurrence of Debt to the extent included in interest expense, and
      (c) the portion of any capitalized lease obligation allocable to interest
      expense; provided
      that,
      Interest Expense shall not include non-cash expenses in respect of original
      issuance discounts or “PIK” interest.

     

    
      
        
        

      

      
        A-6

        
          

        

      

      
        
        

      

    

    “Interest
      Payment Date” is defined in Section 1.8(a).

     

    “Interest
      Period” means the period that commences on (and includes) the Business Day on
      which either a LIBOR Advance is made or continued or on which a Floating Rate
      Advance is converted to a LIBOR Advance, and ending on (but excluding) the
      Business Day numerically corresponding to that date that falls one, three,
      six
      months or one year afterward (as designated by Company), during which period
      the
      outstanding principal amount of the LIBOR Advance shall bear interest at the
      LIBOR Advance Rate; provided,
      however,
      that:

     

    (a) If
      an
      Interest Period would otherwise end on a day which is not a Business Day, then
      it shall end on the next Business Day, unless that day is the first Business
      Day
      of a month, in which case the Interest Period shall end on the last Business
      Day
      of the preceding month;

     

    (b) No
      Interest Period applicable to an Advance may end later than the Maturity Date;
      and

     

    (c) In
      no
      event shall Company select Interest Periods with respect to LIBOR Advances
      which
      would result in the payment of a contracted funds breakage fee under this
      Agreement in order to make required principal payments.

     

    “Inventory”
      shall have the meaning given it under the UCC.

     

    “Inventory
      Appraisal” shall mean an appraisal of Company’s Inventory delivered in
      accordance with Section
      5.9(d),
      satisfactory to Wells Fargo in its sole discretion.

     

    “Investment
      Property” shall have the meaning given it under the UCC.

     

    “L/C
      Amount” means the sum of (a) the Aggregate Face Amount of any outstanding
      Letters of Credit, plus (b) the amount of each Obligation of Reimbursement
      that either remains unreimbursed or has not been paid through an Advance on
      the
      Line of Credit.

     

    “L/C
      Application” means an application for the issuance of standby or documentary
      Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement
      or Commercial Letter of Credit Agreement, in form acceptable to Wells Fargo.
      

     

    “Letter
      of Credit” and “Letters of Credit” are each defined in Section
      1.10(a).

     

    “LIBOR”
      means the rate per annum (rounded upward, if necessary, to the nearest whole
      1/8th
      of one
      percent (1%)) determined pursuant to the following formula:

     

    

    
      	
              LIBOR
                =

            	
              Base
                LIBOR

            	 
	 	
              100%
                - LIBOR Reserve Percentage

            	 

    

    

    
      
        
        

      

      
        A-7

        
          

        

      

      
        
        

      

    

    (a) “Base
      LIBOR” means the rate per annum for United States dollar deposits quoted by
      Wells Fargo as the Inter-Bank Market Offered Rate, with the understanding that
      such rate is quoted by Wells Fargo for the purpose of calculating effective
      rates of interest for loans making reference to it, on the first day of an
      Interest Period for delivery of funds on that date for a period of time
      approximately equal to the number of days in that Interest Period and in an
      amount approximately equal to the principal amount to which that Interest Period
      applies. Company understands and agrees that Wells Fargo may base its quotation
      of the Inter-Bank Market Offered Rate upon such offers or other market
      indicators of the Inter-Bank Market as Wells Fargo in its discretion deems
      appropriate including the rate offered for U.S. dollar deposits on the London
      Inter-Bank Market.

     

    (b) “LIBOR
      Reserve Percentage” means the reserve percentage prescribed by the Board of
      Governors of the Federal Reserve System (or any successor) for “Eurocurrency
      Liabilities” (as defined in Regulation D of the Federal Reserve Board, as
      amended), adjusted by Wells Fargo for expected changes in such reserve
      percentage during the applicable Interest Period.

     

    “LIBOR
      Advance” means an Advance bearing interest at the LIBOR Advance Rate.

     

    “LIBOR
      Advance Rate” is defined in Section 1.6(a).

     

    “Lien”
      means any security interest, mortgage, deed of trust, pledge, lien, charge,
      encumbrance, title retention agreement or analogous instrument or device,
      including the interest of each lessor under any capitalized lease and the
      interest of any bondsman under any payment or performance bond, in, of or on
      any
      assets or properties of a Person, whether now owned or subsequently acquired
      and
      whether arising by agreement or operation of law.

     

    “Line
      of
      Credit” is defined in the Recitals.

     

    “Loan
      Documents” means this Agreement, the Revolving Note, each Guaranty, each
      Subordination Agreement, each Patent and Trademark Security Agreement, each
      Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement,
      any L/C Applications, and the Security Documents, together with every other
      agreement, note, document, contract or instrument to which Company now or in
      the
      future may be a party and which may be required by Wells Fargo.

     

    “Lockbox”
      is defined in Section 1.4(b)(i), and is subject to the terms of the Lockbox
      service description to the Master Agreement for Treasury Management
      Services.

     

    “Margin”
      means a rate per annum, expressed as a percentage, as more fully described
      in
      Section 1.6(a).

     

    “Master
      Agreement for Treasury Management Services” means the Master Agreement for
      Treasury Management Services, the related Acceptance of Services, and each
      and
      every service description governing all deposit and treasury management products
      offered by Wells Fargo to Company.

     

    “Material
      Adverse Effect” means any of the following:

     

    
      
        
        

      

      
        A-8

        
          

        

      

      
        
        

      

    

    (a) A
      material adverse effect on the business, operations, results of operations,
      prospects, assets, liabilities or financial condition of Company;

     

    (b) A
      material adverse effect on the ability of Company to perform its obligations
      under the Loan Documents;

     

    (c) A
      material adverse effect on the ability of Wells Fargo to enforce the
      Indebtedness or to realize the intended benefits of the Security Documents,
      including a material adverse effect on the validity or enforceability of any
      Loan Document or of any rights against any Guarantor, or on the status,
      existence, perfection, priority (subject to Permitted Liens) or enforceability
      of any Lien securing payment or performance of the Indebtedness; or

     

    (d) Any
      claim
      against Company or threat of litigation which if determined adversely to Company
      would cause Company to be liable to pay an amount exceeding $10,000 or would
      result in the occurrence of an event described in clauses (a), (b) and (c)
      above.

     

    “Maturity
      Date” is defined in Section 1.1(b).

     

    “Maximum
      Line Amount” is defined in Section 1.1(a).

     

    “Net
      Income” means with respect to any period, after-tax and after-stockholder
      dividends and distributions net income from continuing operations, excluding
      extraordinary losses and extraordinary gains, all as determined in accordance
      with GAAP, plus all non-cash expense in respect of equity awards and issuances,
      original issuance discount expense and other non-cash interest
      expense.

     

    “Net
      Orderly Liquidation Value” shall mean, at any time, the value of the Company’s
      Inventory, at such time in an orderly liquidation, taking into account all
      costs, fees and expenses estimated to be incurred by Wells Fargo in connection
      with such liquidation, based upon the most recent Inventory
      Appraisal.

     

    “Obligation
      of Reimbursement” is defined in Section 1.10(b).

     

    “OFAC”
is
      defined in Section 5.12(b).

     

    “Officer”
      means an officer of Company.

     

    “Operating
      Account” is defined in Section 1.3(a), and maintained in accordance with the
      terms of Wells Fargo’s Commercial Account Agreement in effect for demand deposit
      accounts.

     

    “Overadvance”
      means the amount, if any, by which the outstanding principal balance of the
      Revolving Note , plus the L/C Amount, is in excess of the then-existing
      Borrowing Base.

     

    “Owned
      Intellectual Property” is defined in Exhibit D.

     

    “Parent”
      means GVI Security Solutions, Inc., a Delaware corporation.

     

    
      
        
        

      

      
        A-9

        
          

        

      

      
        
        

      

    

    “Patent
      and Trademark Security Agreement” means each Patent and Trademark Security
      Agreement entered into between Company and Wells Fargo.

     

    “Permitted
      Lien” and “Permitted Liens” are defined in Section 5.3(a).

     

    “Person”
      means any individual, corporation, partnership, joint venture, limited liability
      company, association, joint-stock company, trust, unincorporated organization
      or
      government or any agency or political subdivision of a governmental
      entity.

     

    “Premises”
      is defined in Section 2.4(a).

     

    “Prime
      Rate” means at any time the rate of interest most recently announced by Wells
      Fargo at its principal office as its Prime Rate, with the understanding that
      the
      Prime Rate is one of Wells Fargo’s base rates, and serves as the basis upon
      which effective rates of interest are calculated for those loans making
      reference to it, and is evidenced by its recording in such internal publication
      or publications as Wells Fargo may designate. Each change in the rate of
      interest shall become effective on the date each Prime Rate change is announced
      by Wells Fargo. 

     

    “Proceeds”
      shall have the meaning given it under the UCC.

     

    “Rapor”
      is defined in Section 5.27.

     

    “Rapor
      Dissolution” is defined in Section 5.27.

     

    “Ready
      Remit” is defined in Section 1.4(b)(ii), and is subject to the terms of the
      Ready Remit service description to the Master Agreement for Treasury Management
      Services.

     

    “Record”
      means information that is inscribed on a tangible medium or that is stored
      in an
      electronic or other medium and is retrievable in perceivable form, and includes
      all information that is required to be reported by Company to Wells Fargo
      pursuant to Section 5.1. 

     

    “Responsible
      Officer” means with respect to Company, its president, chief executive officer,
      chief financial officer, chief operating officer, secretary, treasurer or any
      other executive officer.

     

    “Revolving
      Note” is defined in Section 1.1(d).

     

    “Samsung
      Agreement” means that certain Distribution Agreement dated
      October 2, 2006 between Samsung Electronics Co., Ltd. and
      Company.

     

    “Security
      Documents” means this Agreement, the Patent and Trademark Security Agreement(s),
      the Guarantor Security Agreement(s), the Pledge Agreement(s) and any other
      document delivered to Wells Fargo from time to time to secure the
      Indebtedness.

     

    “Security
      Interest” is defined in Section 2.1.

     

    
      
        
        

      

      
        A-10

        
          

        

      

      
        
        

      

    

    “Special
      Account” means a specified cash collateral account maintained with Wells Fargo
      or another financial institution acceptable to Wells Fargo in connection with
      each undrawn Letter of Credit issued by Wells Fargo, as more fully described
      in
      Section 1.11.

     

    “Standby
      Letter of Credit Agreement” means an agreement governing the issuance of standby
      letters of credit by Wells Fargo entered into between Company as applicant
      and
      Wells Fargo as issuer.

     

    “Subordinated
      Creditor(s)” means any Person now or in the future subordinating indebtedness of
      Company held by that Person to the payment of the Indebtedness.

     

    “Subordination
      Agreement” means a subordination agreement executed by a Subordinated Creditor
      in favor of Wells Fargo (if more than one, the “Subordination
      Agreements”).

     

    “Subsidiary”
      means any Person of which more than 50% of the outstanding ownership interests
      having general voting power under ordinary circumstances to elect a majority
      of
      the board of directors or the equivalent of such Person, irrespective of whether
      or not at the time ownership interests of any other class or classes shall
      have
      or might have voting power by reason of the happening of any contingency, is
      at
      the time directly or indirectly owned by Company, by Company and one or more
      other Subsidiaries, or by one or more other Subsidiaries.

     

    “Termination
      Date” is defined in Section 1.1(b).

     

    “Texas
      Finance Code” is defined in Section 1.6(d).

     

    “UCC”
      means the Uniform Commercial Code in effect in the state designated in this
      Agreement as the state whose laws shall govern this Agreement, or in any other
      state whose laws are held to govern this Agreement or any portion of this
      Agreement.

     

    “Unused
      Amount” is defined in Section 1.7(b). 

     

    “Wells
      Fargo” means Wells Fargo Bank, National Association in its broadest and most
      comprehensive sense as a legal entity, and is not limited in its meaning to
      the
      Wells Fargo Business Credit operating division, or to any other operating
      division of Wells Fargo.

     

    

    
      
        
        

      

      
        A-11

        
          

        

      

      
        
        

      

    

    Exhibit
      B to Credit and Security Agreement

     

    

    PREMISES

     

    The
      Premises referred to in the Credit and Security Agreement are legally described
      as follows:

     

    2801
      Trade Center Dr., #120

    Carrollton,
      TX 75007

    

    

    
      
        
        

      

      
        B-1

        
          

        

      

      
        
        

      

    

    Exhibit
      C to Credit and Security Agreement

     

    CONDITIONS
      PRECEDENT

     

    

     

    
      	 	
              (a)

            	
              The
                Revolving Note.

            

    

     

    
      	 	
              (b)

            	
              The
                Master Agreement for Treasury Management Services, the Acceptance
                of
                Services, and related service description for each credit related
                product
                or service that is described in this Agreement.

            

    

     

    
      	 	
              (c)

            	
              A
                Standby Letter of Credit Agreement and a Commercial Letter of Credit
                Agreement, and a separate L/C Application for each Letter of Credit
                that
                Company has requested that Wells Fargo
                issue.

            

    

     

    
      	 	
              (d)

            	
              A
                Guaranty of each Guarantor, pursuant to which each Guarantor
                unconditionally guarantees the full and prompt payment of all
                Indebtedness.

            

    

     

    
      	 	
              (e)

            	
              A
                Guarantor Security Agreement of each Guarantor, pursuant to which
                each
                Guarantor grants a security interest in favor of Wells
                Fargo.

            

    

     

    
      	 	
              (f)

            	
              The
                Pledge Agreement (along with the original stock certificates pledged
                thereunder, with stock powers endorsed in
                blank).

            

    

     

    
      	 	
              (g)

            	
              A
                true and correct copy of every agreement pursuant to which Company’s
                property is in the possession of a Person other than Company, together
                with, in the case of any goods held by such Person for resale, (i) a
                consignee’s acknowledgment and waiver of Liens, (ii) UCC financing
                statements sufficient to protect Company’s and Wells Fargo’s interests in
                such goods, and (iii) UCC searches showing that no other secured
                party has filed a financing statement against such Person and covering
                property similar to Company’s other than Company, or if there exists any
                such secured party, evidence that each such party has received notice
                from
                Company and Wells Fargo sufficient to protect Company’s and Wells Fargo’s
                interests in Company’s goods from any claim by such secured
                party.

            

    

     

    
      	 	
              (h)

            	
              A
                true and correct copy of any agreements pursuant to which Company’s
                property is in the possession of any Person other than Company, together
                with (i) an Acknowledgment and Waiver of Liens from each landlord or
                mortgagee who has or may in the future have possession of Company’s goods
                from time to time, (ii) UCC financing statements sufficient to
                protect Company’s and Wells Fargo’s interests in such goods, and
                (iii) UCC searches showing that no other secured party has filed a
                financing statement covering such Person’s property other than Company, or
                if there exists any such secured party, evidence that the secured
                party
                has received notice from Company and Wells Fargo sufficient to protect
                Company’s and Wells Fargo’s interests in Company’s goods from any claim by
                such secured party.

            

    

     

    
      	 	
              (i)

            	
              Current
                searches of appropriate filing offices showing that (i) no Liens have
                been filed and remain in effect against Company except Permitted
                Liens or
                Liens held by Persons who have agreed in an Authenticated Record
                that upon
                receipt of proceeds of the initial Advances, they will satisfy, release
                or
                terminate such Liens in a manner satisfactory to Wells Fargo, and
                (ii) Wells Fargo has duly filed all financing statements necessary to
                perfect the Security Interest, to the extent the Security Interest
                is
                capable of being perfected by
                filing.

            

    

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (j)

            	
              A
                certificate of Company’s secretary or assistant secretary certifying that
                attached to such certificate are (i) the resolutions of Company’s
                Directors and, if required, stockholders, authorizing the execution,
                delivery and performance of the Loan Documents, (ii) true, correct
                and complete copies of Company’s Constituent Documents, and
                (iii) examples of the signatures of Company’s Officers or agents
                authorized to execute and deliver the Loan Documents and other
                instruments, agreements and certificates, including Advance requests,
                on
                Company’s behalf.

            

    

     

    
      	 	
              (k)

            	
              A
                current certificate of good standing or status issued by the secretary
                of
                state or other appropriate authority for Company’s state of
                organization.

            

    

     

    
      	 	
              (l)

            	
              Evidence
                that Company is duly licensed or qualified to transact business in
                all
                jurisdictions where the character of the property owned or leased
                or the
                nature of the business transacted by it makes such licensing or
                qualification necessary.

            

    

     

    
      	 	
              (m)

            	
              A
                certificate of an appropriate Officer of Company confirming, the
                representations and warranties set forth in this
                Agreement.

            

    

     

    
      	 	
              (n)

            	
              Certificates
                of the insurance required under this Agreement, with all hazard insurance
                containing a lender’s loss payable endorsement in Wells Fargo’s favor and
                with all liability insurance naming Wells Fargo as an additional
                insured.

            

    

     

    
      	 	
              (o)

            	
              The
                Patent and Trademark Security
                Agreement(s).

            

    

     

    
      	 	
              (p)

            	
              Payment
                of fees and commissions due under this Agreement through the date
                of
                initial Advance, and any expenses incurred by Wells Fargo through
                such
                date and payable by Company, including all legal expenses incurred
                through
                the date of this Agreement.

            

    

     

    
      	 	
              (q)

            	
              Evidence
                that after making the initial Advance, satisfying all obligations
                owed to
                Company’s prior lender, satisfying all trade payables older than 30 days
                from invoice date, book overdrafts and closing costs, availability
                as
                measured by subtracting the initial Advance from the Maximum Line
                Amount
                or the Borrowing Base shall be not less than
                $1,000,000.

            

    

     

    
      	 	
              (r)

            	
              A
                Customer Identification Information form and such other forms and
                verification as Wells Fargo may need to comply with the U.S.A. Patriot
                Act. 

            

    

     

    
      	 	
              (s)

            	
              Payment
                of the fees due under Section 1.7 through the date of the initial
                Advance
                or issuance of a Letter of Credit, plus reimbursement of and costs
                and
                expenses incurred by Wells Fargo through such date that are required
                to be
                paid by Company under Section 7.7, including any legal expenses incurred
                through such date.

            

    

     

    
      	 	
              (t)

            	
              Evidence
                that there has been no material adverse change in the financial condition
                or otherwise of Company since September 30,
                2007.

            

    

     

    
      	 	
              (u)

            	
              Wells
                Fargo shall have received a satisfactory Inventory
                Appraisal.

            

    

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (v)

            	
              Wells
                Fargo shall have conducted and been satisfied with the results of
                such
                other due diligence (including customer and vendor references, background
                checks and other confirmations), as it in its sole discretion may
                require.

            

    

     

    
      	 	
              (w)

            	
              Such
                other documents as Wells Fargo in its sole discretion may
                require.

            

    

     

    

    
      
        
        

      

      
        C-3

        
          

        

      

      
        
        

      

    

    Exhibit
      D to Credit and Security Agreement

     

    REPRESENTATIONS
      AND WARRANTIES

     

    Company
      represents and warrants to Wells Fargo as follows:

     

    (a) Existence
      and Power; Name; Chief Executive Office; Inventory and Equipment Locations;
      Federal Employer Identification Number and Organizational Identification
      Number.
      Company
      is a corporation duly organized, validly existing and in good standing under
      the
      laws of the State of Delaware and is duly licensed or qualified to transact
      business in all jurisdictions where the character of the property owned or
      leased or the nature of the business transacted by it makes such licensing
      or
      qualification necessary, except where the failure to be so qualified would
      not
      be material. Company has all requisite power and authority to conduct its
      business, to own its properties and to execute and deliver, and to perform
      all
      of its obligations under, the Loan Documents. During its existence, Company
      has
      done business solely under the names set forth below in addition to its correct
      legal name. Company’s chief executive office and principal place of business is
      located at the address set forth below, and all of Company’s records relating to
      its business or the Collateral are kept at that location. All Inventory and
      Equipment is located at that location or at one of the other locations set
      forth
      below. Company’s name, Federal Employer Identification Number and Organization
      Identification Number are correctly set forth at the end of the Agreement next
      to Company’s signature.

     

    
      	
              Trade
                Names

            
	
               

              GVI
                Security Inc. d/b/a Samsung CCTV

              [GVI
                d/b/a Samsung CCTV]

            

    

    

    
      	
              Chief
                Executive Office / Principal Place of Business

            
	
               

              2801
                Trade Center Dr., #120

              Carrollton,
                Texas 75007

            

    

    

    
      	
              Other
                Inventory and Equipment Locations

            
	
               

              None

            

    

    

    (b) Ownership.
      Company
      is a wholly-owned subsidiary of Parent. 

     

    (c) Authorization
      of Borrowing; No Conflict as to Law or Agreements.
      The
      execution, delivery and performance by Company of the Loan Documents and
      borrowing under the Line of Credit have been duly authorized and do not
      (i) require the consent or approval of Company’s stockholders;
      (ii) require the authorization, consent or approval by, or registration,
      declaration or filing with, or notice to, any governmental agency or
      instrumentality, whether domestic or foreign, or any other Person, except to
      the
      extent obtained, accomplished or given prior to the date of this Agreement;
      (iii) violate any provision of any law, rule or regulation (including
      Regulation X of the Board of Governors of the Federal Reserve System) or of
      any order, writ, injunction or decree presently in effect having applicability
      to Company or of Company’s Constituent Documents; (iv) result in a breach
      of or constitute a default or event of default under any indenture or loan
      or
      credit agreement or any other material agreement, lease or instrument to which
      Company is a party or by which it or its properties may be bound or affected;
      or
      (v) result in, or require, the creation or imposition of any Lien (other
      than the Security Interest) upon or with respect to any of the properties now
      owned or subsequently acquired by Company.

     

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

    (d) Legal
      Agreements.
      This
      Agreement constitutes and, upon due execution by Company, the other Loan
      Documents will constitute the legal, valid and binding obligations of Company,
      enforceable against Company in accordance with their respective
      terms.

     

    (e) Subsidiaries
      and Affiliates.
      Company
      does not have any Subsidiaries. 

     

    (f) Financial
      Condition; No Adverse Change.
      Company
      has furnished to Wells Fargo Parent’s audited financial statements for its
      fiscal year ended December 31, 2006 and unaudited financial statements for
      the
      fiscal-year-to-date period ended September 30, 2007 and those statements fairly
      present Company’s financial condition as of those dates and the results of
      Company’s operations and cash flows for the periods then ended and were prepared
      in accordance with GAAP. Since the date of the most recent financial statements,
      there has been no material adverse change in Company’s business, properties or
      condition (financial or otherwise).

     

    (g) Litigation.
      There
      are no actions, suits or proceedings pending or, to Company’s knowledge,
      threatened against or affecting Company, Parent or any of Parent’s Subsidiaries
      or the properties of Company, Parent or any of Parent’s Subsidiaries before any
      court or governmental department, commission, board, bureau, agency or
      instrumentality, domestic or foreign, which, if determined adversely to Company,
      Parent or any of Parent’s Subsidiaries, would result in a final judgment or
      judgments against Company, Parent or any of Parent’s Subsidiaries in an amount
      in excess of $10,000, apart from those matters specifically set forth
      below.

     

    
      	
              Litigation
                Matters in Excess of $10,000

            
	
               

              Mark
                Iversen vs. GVI Security, Inc. dba Samsung
                CCTV

            

    

    

    (h) Intellectual
      Property Rights.

     

    (i) Owned
      Intellectual Property.
      Set
      forth below is a complete list of all registered patents, applications for
      patents, registered trademarks, applications to register trademarks, registered
      service marks, applications to register service marks and registered copyrights
      for which Company is the owner of record and that are material to Company’s
      business individually or in the aggregate (the “Owned Intellectual Property”).
      Except as set forth below, (A) Company owns the Owned Intellectual Property
      free and clear of all restrictions (including covenants not to sue any Person),
      court orders, injunctions, decrees, writs or Liens, whether by agreement
      memorialized in a Record Authenticated by Company or otherwise, (B) no
      Person other than Company owns or has been granted any right in the Owned
      Intellectual Property, (C) all Owned Intellectual Property is valid,
      subsisting and enforceable, and (D) Company has taken all commercially
      reasonable action necessary to maintain and protect the Owned Intellectual
      Property.

     

    
      
        
        

      

      
        D-2

        
          

        

      

      
        
        

      

    

    (ii) Intellectual
      Property Rights Licensed from Others.
      Set
      forth below is a complete list of all agreements under which Company has
      licensed Intellectual Property Rights from another Person (“Licensed
      Intellectual Property”) other than readily available, non-negotiated licenses of
      computer software and other intellectual property used solely for performing
      accounting, word processing and similar administrative tasks (“Off-the-shelf
      Software”) and a summary of any ongoing payments Company is obligated to make
      with respect thereto. Except as set forth below or in any other Record, copies
      of which have been given to Wells Fargo, Company’s licenses to use the Licensed
      Intellectual Property are free and clear of all restrictions, Liens, court
      orders, injunctions, decrees, or writs, whether by agreed to in a Record
      Authenticated by Company or otherwise. Except as set forth below, Company is
      not
      contractually obligated to make royalty payments of a material nature, or pay
      fees to any owner of, licensor of, or other claimant to, any Intellectual
      Property Rights.

     

    (iii) Other
      Intellectual Property Needed for Business.
      Except
      for Off-the-shelf Software and as set forth below, the Owned Intellectual
      Property and the Licensed Intellectual Property constitute all Intellectual
      Property Rights used or necessary to conduct Company’s business as it is
      presently conducted or as Company reasonably foresees conducting
      it.

     

    (iv) Infringement.
      Except
      as set forth below, Company has no knowledge of, and has not received notice
      either orally or in a Record alleging, any Infringement of another Person’s
      Intellectual Property Rights (including any claim set forth in a Record that
      Company must license or refrain from using the Intellectual Property Rights
      of
      any Person) nor, to Company’s knowledge, is there any threatened claim or any
      reasonable basis for any such claim.  

     

    
      	Intellectual
              Property Disclosures
	 	 
	 	
              Serial
                Number

            	
              Reg.
                Number

            	
              Trademark

            
	 	
              78536807

            	
              3134222

            	
              GVI

            
	 	
              78536805

            	
              3128005

            	
              GVI

            
	 	
              78511873

            	
              3011496

            	
              GVI

            
	 	
              78511869

            	
              3015703

            	
              GVI

            
	 	
              78479662

            	
              3072895

            	
              GVI

            
	 	
              78479659

            	
              3008911

            	
              GVI

            
	 	
              78479652

            	
              3011292

            	
              GVI

            
	 	
              78479647

            	
              3072894

            	
              GVI

            

    

    

    
      
        
        

      

      
        D-3

        
          

        

      

      
        
        

      

    

    (i) Taxes.
      Company, Parent and Parent’s Subsidiaries have paid or caused to be paid to the
      proper authorities when due all federal, state and local taxes required to
      be
      withheld by each of them. Company, Parent and Parent’s Subsidiaries have filed
      all federal, state and local tax returns which to the knowledge of the Officers
      of Company, Parent and Parent’s Subsidiaries, as the case may be, are required
      to be filed, and Company, Parent and Parent’s Subsidiaries have paid or caused
      to be paid to the respective taxing authorities all taxes as shown on these
      returns or on any assessment received by any of them to the extent such taxes
      have become due.

     

    (j) Titles
      and Liens.
      Company
      has good and absolute title to all Collateral free and clear of all Liens other
      than Permitted Liens. No financing statement naming Company as debtor is on
      file
      in any office except to perfect only Permitted Liens.

     

    (k) No
      Defaults.
      Company
      is in compliance with all provisions of all agreements, instruments, decrees
      and
      orders to which it is a party or by which it or its property is bound or
      affected, the breach or default of which could have a Material Adverse
      Effect.

     

    (l) Submissions
      to Wells
      Fargo.
      All
      financial and other information provided to Wells Fargo by or on behalf of
      Company in connection with Company’s request for the credit facilities
      contemplated hereby is (i) true and correct in all material respects,
      (ii) does not omit any material fact necessary to make such information not
      misleading and, (iii) as to projections, valuations or proforma financial
      statements, present a good faith opinion as to such projections, valuations
      and
      proforma condition and results.

     

    (m) Financing
      Statements.
      Company
      has previously authorized the filing of financing statements sufficient when
      filed to perfect the Security Interest and other security interests created
      by
      the Security Documents. When such financing statements are filed, Wells Fargo
      will have a valid and perfected security interest in all Collateral capable
      of
      being perfected by the filing of financing statements. None of the Collateral
      is
      or will become a fixture on real estate, unless a sufficient fixture filing
      has
      been filed with respect to such Collateral. 

     

    (n) Rights
      to Payment.
      Each
      right to payment and each instrument, document, chattel paper and other
      agreement constituting or evidencing Collateral is (or, in the case of all
      future Collateral, will be when arising or issued) the valid, genuine and
      legally enforceable obligation, subject to no defense, setoff or counterclaim
      of
      the account debtor or other obligor named in that instrument other than returns
      by customers in the ordinary course of business.

     

    

    
      
        
        

      

      
        D-4

        
          

        

      

      
        
        

      

    

    Exhibit
      E to Credit and Security Agreement

     

    COMPLIANCE
      CERTIFICATE

     

    To: Wells
      Fargo Bank, National Association

     

    Date: ___________________,
      200__

     

    Subject: Financial
      Statements

     

    In
      accordance with our Credit and Security Agreement dated November [___],
      2007
      (as amended from time to time, the “Credit Agreement”), attached are the
      financial statements of GVI Security Solutions, Inc. dated _______________,
      200__ (the “Reporting Date”) and the year-to-date period then ended (the
“Current Financials”). All terms used in this certificate have the meanings
      given in the Credit Agreement.

     

    A. Preparation
      and Accuracy of Financial Statements.
      I
      certify that the Current Financials have been prepared in accordance with GAAP,
      subject to year-end audit adjustments, and fairly present Company’s financial
      condition as of the Reporting Date.

     

    B. Name
      of Company; Merger and Consolidation.
      I
      certify that: 

     

    (Check
      one)

    
      	o	
              Company
                has not, since the date of the Credit Agreement, changed its name
                or
                jurisdiction of organization, nor has it consolidated or merged with
                another Person.

            

    

     

    
      	o	
              Company
                has, since the date of the Credit Agreement, either changed its name
                or
                jurisdiction of organization, or both, or has consolidated or merged
                with
                another Person, which change, consolidation or merger: o was
                consented to in advance by Wells Fargo in an Authenticated Record,
                and/or ois
                more fully described in the statement of facts attached to this
                Certificate.

            

    

     

    
      	
              C.

            	
              Events
                of Default.
                I
                certify that: 

            

    

     

    (Check
      one)

     

    
      	o	
              I
                have no knowledge of the occurrence of an Event of Default under
                the
                Credit Agreement, except as previously reported to Wells Fargo in
                a
                Record.

            

    

     

    
      	o	
              I
                have knowledge of an Event of Default under the Credit Agreement
                not
                previously reported to Wells Fargo in a Record, as more fully described
                in
                the statement of facts attached to this Certificate, and further,
                I
                acknowledge that Wells Fargo may under the terms of the Credit Agreement
                impose the Default Rate at any time during the resulting Default
                Period.

            

    

     

    
      
        
        

      

      
        E-1

        
          

        

      

      
        
        

      

    

     

    
      	
              D.

            	
              Litigation
                Matters.
                I
                certify that: 

            

    

     

    (Check
      one)

     

    
      	o	
              I
                have no knowledge of any material adverse change to the litigation
                exposure of Company or any of its Affiliates or of any
                Guarantor.

            

    

     

    
      	o	
              I
                have knowledge of material adverse changes to the litigation exposure
                of
                Company or any of its Affiliates or of any Guarantor not previously
                disclosed in Exhibit D, as more fully described in the statement
                of facts
                attached to this Certificate.

            

    

     

    
      	
              E.

            	
              Financial
                Covenants.
                I
                further certify that: 

            

    

     

    (Check
      and complete each of the following)

     

    1. Minimum
      Net Income.
      Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date,
      Company’s Net Income was $__________, which o satisfies
      o does
      not satisfy the requirement that Net Income for (a) the quarter ending December
      31, 2007 be not less than $150,000, (b) the quarter ending March 31, 2008 be
      not
      less than $<60,000>, and (c) for each fiscal quarter ending thereafter be
      not less than $75,000 (numbers appearing between “< >“ are negative) on
      the Reporting Date.

     

    2. Minimum
      Debt Service Coverage Ratio.
      Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date,
      Company’s Debt Service Coverage Ratio was ______ to 1.00, which o satisfies
      o does
      not satisfy the requirement that such ratio be not less than 1.25 to 1.00 on
      the
      Reporting Date.

     

    3. Capital
      Expenditures.
      Pursuant to Section 5.2(c) of the Credit Agreement, for the year-to-date period
      ending on the Reporting Date, Company has expended or contracted to expend
      during the fiscal year ended [_______________,
      200___,_]
      for
      Capital Expenditures, $________________ in the aggregate which o satisfies
      o does
      not satisfy the requirement that such expenditures not exceed $100,000 from
      the
      Closing Date through December 31, 2007 and, thereafter, $500,000 in the
      aggregate during any fiscal year.

     

    Attached
      are statements of all relevant facts and computations in reasonable detail
      sufficient to evidence Company’s compliance with the financial covenants
      referred to above, which computations were made in accordance with
      GAAP.

     

    
      	 	    

	 	 	 
	 	 	 
	 	
              By:

            	
                

            
	
               

            	
               

            	
              Its
                Chief Financial Officer

            
	 	 	 

    

     

     

    
      
        
        

      

      
        E-2

        
          

        

      

      
        
        

      

    

    Exhibit
      F to Credit and Security Agreement

     

    PERMITTED
      LIENS

     

    
      	
              Creditor

            	
              Collateral

            	
              Jurisdiction

            	
              Filing
                Date

            	
              Filing
                No.

            
	
              Firstlease,
                Inc.

            	
              Equipment

            	
              Delaware

            	
              June
                15, 2004

            	
              41646688

            
	
              Firstlease,
                Inc.

            	
              Equipment

            	
              Delaware

            	
              August
                30, 2004

            	
              42433680

            
	
              Firstlease,
                Inc.

            	
              Equipment

            	
              Delaware

            	
              April
                6, 2004

            	
              41127812

            
	
              Inter-Tel
                Leasing, Inc.

            	
              Equipment

            	
              Delaware

            	
              August
                13, 2004

            	
              42289959

            
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

    

    

    INDEBTEDNESS

     

    

    None

     

    GUARANTIES

     

    

    None

     

    
      
        
        

      

      
        F-1GUARANTY
      BY CORPORATION

     

    This
      Guaranty, dated as of November 20, 2007, is made by GVI Security Solutions,
      Inc., a Delaware corporation (the “Guarantor”), for the benefit of Well Fargo
      Bank, National Association (with its participants, successors and assigns,
      the
“Lender”), acting through its Wells Fargo Business Credit operating
      division.

     

    The
      Lender and GVI Security, Inc., a Delaware corporation (the “Borrower”), are
      parties to a Credit and Security Agreement of even date herewith (as the same
      may be amended, supplemented or restated from time to time, the “Credit
      Agreement”) pursuant to which the Lender may make advances and extend other
      financial accommodations to the Borrower.

     

    As
      a
      condition to extending such credit to the Borrower, the Lender has required
      the
      execution and delivery of this Guaranty.

     

    ACCORDINGLY,
      the Guarantor, in consideration of the premises and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      hereby agrees as follows:

     

    1. Definitions.
      All
      terms defined in the Credit Agreement that are not otherwise defined herein
      shall have the meanings given them in the Credit Agreement.

     

    2. Indebtedness
      Guaranteed.
      The
      Guarantor hereby absolutely and unconditionally guarantees to the Lender the
      full and prompt payment when due, whether at maturity or earlier by reason
      of
      acceleration or otherwise, of the Indebtedness.

     

    3. Guarantor’s
      Representations and Warranties.
      The
      Guarantor represents and warrants to the Lender that (i) the Guarantor is a
      corporation, duly organized and existing in good standing and has full power
      and
      authority to make and deliver this Guaranty; (ii) the execution, delivery
      and performance of this Guaranty by the Guarantor have been duly authorized
      by
      all necessary action of its directors and shareholders and do not and will
      not
      violate the provisions of, or constitute a default under, any presently
      applicable law or its Constituent Documents or any agreement presently binding
      on it; (iii) this Guaranty has been duly executed and delivered by an
      authorized Officer of the Guarantor and constitutes its lawful, binding and
      legally enforceable obligation; and (iv) the authorization, execution,
      delivery and performance of this Guaranty do not require notification to,
      registration with, or consent or approval by, any federal, state or local
      regulatory body or administrative agency. The Guarantor represents and warrants
      to the Lender that the Guarantor has a direct and substantial economic interest
      in the Borrower and expects to derive substantial benefits therefrom and from
      any loans, credit transactions, financial accommodations, discounts, purchases
      of property and other transactions and events resulting in the creation of
      the
      Indebtedness guarantied hereby, and that this Guaranty is given for a corporate
      purpose. The Guarantor agrees to rely exclusively on the right to revoke this
      Guaranty prospectively as to future transactions, in accordance with paragraph
      4, if at any time, in the opinion of the directors or officers, the benefits
      then being received by the Guarantor in connection with this Guaranty are not
      sufficient to warrant the continuance of this Guaranty as to the future
      Indebtedness of the Borrower. Accordingly, so long as this Guaranty is not
      revoked prospectively in accordance with paragraph 4, the Lender may rely
      conclusively on a continuing warranty, hereby made, that the Guarantor continues
      to be benefited by this Guaranty and the Lender shall have no duty to inquire
      into or confirm the receipt of any such benefits, and this Guaranty shall be
      effective and enforceable by the Lender without regard to the receipt, nature
      or
      value of any such benefits.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4. Unconditional
      Nature.
      No act
      or thing need occur to establish the Guarantor’s liability hereunder, and no act
      or thing, except full payment and discharge of all of the Indebtedness, shall
      in
      any way exonerate the Guarantor hereunder or modify, reduce, limit or release
      the Guarantor’s liability hereunder. This is an absolute, unconditional and
      continuing guaranty of payment of the Indebtedness and shall continue to be
      in
      force and be binding upon the Guarantor, whether or not all of the Indebtedness
      is paid in full, until this Guaranty is revoked prospectively as to future
      transactions, by written notice actually received by the Lender, and such
      revocation shall not be effective as to the amount of Indebtedness existing
      or
      committed for at the time of actual receipt of such notice by the Lender, or
      as
      to any renewals, extensions, refinancings or refundings thereof.

     

    5. Dissolution
      or Insolvency of Guarantor.
      The
      dissolution or adjudication of bankruptcy of the Guarantor shall not revoke
      this
      Guaranty, except upon actual receipt of written notice thereof by the Lender
      and
      only prospectively, as to future transactions, as herein set forth. If the
      Guarantor shall be dissolved or shall be or become insolvent (however defined),
      then the Lender shall have the right to declare immediately due and payable,
      and
      the Guarantor will forthwith pay to the Lender, the full amount of all of the
      Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
      commences or there is commenced involuntarily against the Guarantor a case
      under
      the United States Bankruptcy Code, the full amount of all Indebtedness, whether
      due and payable or unmatured, shall be immediately due and payable without
      demand or notice thereof.

     

    6. Subrogation,
      etc.
      The
      Guarantor hereby waives all rights that the Guarantor may now have or hereafter
      acquire, whether by subrogation, contribution, reimbursement, recourse,
      exoneration, contract or otherwise, to recover from the Borrower or from any
      property of the Borrower any sums paid under this Guaranty until all of the
      Indebtedness shall have been fully paid and discharged. The Guarantor will
      not
      exercise or enforce any right of contribution to recover any such sums from
      any
      person who is a co-obligor with the Borrower or a guarantor or surety of the
      Indebtedness or from any property of any such person until all of the
      Indebtedness shall have been fully paid and discharged.

     

    7. Enforcement
      Expenses.
      The
      Guarantor will pay or reimburse the Lender for all costs, expenses and
      attorneys’ fees paid or incurred by the Lender in endeavoring to collect and
      enforce the Indebtedness and in enforcing this Guaranty.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    8. Lender’s
      Rights.
      The
      Lender shall not be obligated by reason of its acceptance of this Guaranty
      to
      engage in any transactions with or for the Borrower. Whether or not any existing
      relationship between the Guarantor and the Borrower has been changed or ended
      and whether or not this Guaranty has been revoked, the Lender may enter into
      transactions resulting in the creation or continuance of the Indebtedness and
      may otherwise agree, consent to or suffer the creation or continuance of any
      of
      the Indebtedness, without any consent or approval by the Guarantor and without
      any prior or subsequent notice to the Guarantor. The Guarantor’s liability shall
      not be affected or impaired by any of the following acts or things (which the
      Lender is expressly authorized to do, omit or suffer from time to time, both
      before and after revocation of this Guaranty, without consent or approval by
      or
      notice to the Guarantor): (i) any acceptance of collateral security,
      guarantors, accommodation parties or sureties for any or all of the
      Indebtedness; (ii) one or more extensions or renewals of the Indebtedness
      (whether or not for longer than the original period) or any modification of
      the
      interest rates, maturities, if any, or other contractual terms applicable to
      any
      of the Indebtedness or any amendment or modification of any of the terms or
      provisions of any loan agreement or other agreement under which the Indebtedness
      or any part thereof arose; (iii) any waiver or indulgence granted to the
      Borrower, any delay or lack of diligence in the enforcement of the Indebtedness
      or any failure to institute proceedings, file a claim, give any required notices
      or otherwise protect any of the Indebtedness; (iv) any full or partial
      release of, compromise or settlement with, or agreement not to sue, the Borrower
      or any guarantor or other person liable in respect of any of the Indebtedness;
      (v) any release, surrender, cancellation or other discharge of any evidence
      of the Indebtedness or the acceptance of any instrument in renewal or
      substitution therefor; (vi) any failure to obtain collateral security
      (including rights of setoff) for the Indebtedness, or to see to the proper
      or
      sufficient creation and perfection thereof, or to establish the priority
      thereof, or to preserve, protect, insure, care for, exercise or enforce any
      collateral security; or any modification, alteration, substitution, exchange,
      surrender, cancellation, termination, release or other change, impairment,
      limitation, loss or discharge of any collateral security; (vii) any
      collection, sale, lease or disposition of, or any other foreclosure or
      enforcement of or realization on, any collateral security; (viii) any
      assignment, pledge or other transfer of any of the Indebtedness or any evidence
      thereof; (ix) any manner, order or method of application of any payments or
      credits upon the Indebtedness; and (x) any election by the Lender under
      Section 1111(b) of the United States Bankruptcy Code. The Guarantor waives
      any
      and all defenses and discharges available to a surety, guarantor or
      accommodation co-obligor.

     

    9. Waivers
      by Guarantor.
      The
      Guarantor waives any and all defenses, claims, setoffs and discharges of the
      Borrower, or any other obligor, pertaining to the Indebtedness, except the
      defense of discharge by payment in full. Without limiting the generality of
      the
      foregoing, the Guarantor will not assert, plead or enforce against the Lender
      any defense of waiver, release, discharge or disallowance in bankruptcy, statute
      of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud,
      incapacity, minority, usury, illegality or unenforceability which may be
      available to the Borrower or any other person liable in respect of any of the
      Indebtedness, or any setoff available against the Lender to the Borrower or
      any
      other such person, whether or not on account of a related transaction. The
      Guarantor expressly agrees that the Guarantor shall be and remain liable for
      any
      deficiency remaining after foreclosure of any mortgage or security interest
      securing the Indebtedness, whether or not the liability of the Borrower or
      any
      other obligor for such deficiency is discharged pursuant to statute or judicial
      decision. The liability of the Guarantor shall not be affected or impaired
      by
      any voluntary or involuntary liquidation, dissolution, sale or other disposition
      of all or substantially all of the assets, marshalling of assets and
      liabilities, receivership, insolvency, bankruptcy, assignment for the benefit
      of
      creditors, reorganization, arrangement, composition or readjustment of, or
      other
      similar event or proceeding affecting, the Borrower or any of its assets. The
      Guarantor will not assert, plead or enforce against the Lender any claim,
      defense or setoff available to the Guarantor against the Borrower. The Guarantor
      waives presentment, demand for payment, notice of dishonor or nonpayment and
      protest of any instrument evidencing the Indebtedness. The Lender shall not
      be
      required first to resort for payment of the Indebtedness to the Borrower or
      other persons, or their properties, or first to enforce, realize upon or exhaust
      any collateral security for the Indebtedness, before enforcing this
      Guaranty.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    10. If
      Payments Set Aside, etc.
      If any
      payment applied by the Lender to the Indebtedness is thereafter set aside,
      recovered, rescinded or required to be returned for any reason (including,
      without limitation, the bankruptcy, insolvency or reorganization of the Borrower
      or any other obligor), the Indebtedness to which such payment was applied shall
      for the purpose of this Guaranty be deemed to have continued in existence,
      notwithstanding such application, and this Guaranty shall be enforceable as
      to
      such Indebtedness as fully as if such application had never been
      made.

     

    11. Additional
      Obligation of Guarantor.
      The
      Guarantor’s liability under this Guaranty is in addition to and shall be
      cumulative with all other liabilities of the Guarantor to the Lender as
      guarantor, surety, endorser, accommodation co-obligor or otherwise of any of
      the
      Indebtedness or obligation of the Borrower, without any limitation as to amount,
      unless the instrument or agreement evidencing or creating such other liability
      specifically provides to the contrary.

     

    12. Financial
      Information.
      The
      Guarantor will deliver to the Lender all financial information concerning the
      Guarantor required to be delivered under the Credit Agreement.

     

    13. No
      Duties Owed by Lender.
      The
      Guarantor acknowledges and agrees that the Lender (i) has not made any
      representations or warranties with respect to, (ii) does not assume any
      responsibility to the Guarantor for, and (iii) has no duty to provide
      information to the Guarantor regarding, the enforceability of any of the
      Indebtedness or the financial condition of the Borrower or any guarantor. The
      Guarantor has independently determined the creditworthiness of the Borrower
      and
      the enforceability of the Indebtedness and until the Indebtedness is paid in
      full will independently and without reliance on the Lender continue to make
      such
      determinations.

     

    14. Miscellaneous.
      This
      Guaranty shall be effective upon delivery to the Lender, without further act,
      condition or acceptance by the Lender, shall be binding upon the Guarantor
      and
      the successors and assigns of the Guarantor and shall inure to the benefit
      of
      the Lender and its participants, successors and assigns. Any invalidity or
      unenforceability of any provision or application of this Guaranty shall not
      affect other lawful provisions and application thereof, and to this end the
      provisions of this Guaranty are declared to be severable. This Guaranty may
      not
      be waived, modified, amended, terminated, released or otherwise changed except
      by a writing signed by the Guarantor and the Lender. This Guaranty shall be
      governed by and construed in accordance with the substantive laws (other than
      conflict laws) of the State of Texas. The Guarantor hereby (i) consents to
      the personal jurisdiction of the state and federal courts located in the State
      of Texas in connection with any controversy related to this Guaranty;
      (ii) waives any argument that venue in any such forum is not convenient,
      (iii) agrees that any litigation initiated by the Lender or the Guarantor
      in connection with this Guaranty may be venued in either the state or federal
      courts located in Dallas County, Texas; and (iv) agrees that a final
      judgment in any such suit, action or proceeding shall be conclusive and may
      be
      enforced in other jurisdictions by suit on the judgment or in any other manner
      provided by law.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    15. Waiver
      of Jury Trial.
      THE
      GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
      PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED ON OR PERTAINING TO THIS
      GUARANTY.

     

    

     

     

     

     

    

 

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor as of
      the
      date set forth above.

     

    
      	 	 	 
	 	GVI SECURITY SOLUTIONS,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/
              Joseph Restivo
	 	
              
Joseph
              Restivo
	 	Chief
              Financial Officer

     

    
      	 	
              Address:

            	
              2801
                Trade Center Drive, #120

            
	 	 	
              Carrollton,
                TX 75007

            

    

    

     

    
      	
              STATE
                OF __________

            	
              )

            
	 	
              )

            
	
              COUNTY
                OF _________

            	
              )

            

    

     

    The
      foregoing instrument was acknowledged before me this ____ day of November,
      2007,
      by Joseph Restivo, the Chief Financial Officer of GVI Security Solutions, Inc.,
      a Delaware corporation, on behalf of the corporation.

     

     

    
      	 	     
	 	Notary
              Public

    

     

     

    
      
        
          SIGNATURE
            PAGE TO GUARANTY - [GVI SECURITY SOLUTIONS, INC.]

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