Exhibit 10.4

 

SECURITY AGREEMENT

 

LAURUS MASTER FUND, LTD.

 

ACCENTIA BIOPHARMACEUTICALS, INC.

 

and

 

EACH ELIGIBLE SUBSIDIARY SET FORTH ON EXHIBIT A HERETO

 

Dated: April 29, 2005

Amended and Restated: February 13, 2006

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TABLE OF CONTENTS

 

          Page

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1.

   General Definitions and Terms; Rules of Construction.    1

2.

   Loan Facility    2

3.

   Repayment of the Loans    4

4.

   Procedure for Loans    5

5.

   Interest and Payments.    5

6.

   Security Interest.    7

7.

   Representations, Warranties and Covenants Concerning the Collateral    8

8.

   Payment of Accounts.    10

9.

   Collection and Maintenance of Collateral.    11

10.

   Inspections and Appraisals    12

11.

   Financial Reporting    12

12.

   Additional Representations and Warranties    13

13.

   Covenants    24

14.

   Further Assurances    32

15.

   Representations, Warranties and Covenants of Laurus.    32

16.

   Power of Attorney    34

17.

   Term of Agreement    34

18.

   Termination of Lien    35

19.

   Events of Default    35

20.

   Remedies    37

21.

   Waivers    38

22.

   Expenses    39

23.

   Assignment By Laurus    39

 

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          Page(s)

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24.    No Waiver; Cumulative Remedies    41 25.    Application of Payments    41
26.    Indemnity    41 27.    Revival    42 28.    Borrowing Agency Provisions
   42 29.    Notices    43 30.    Governing Law, Jurisdiction and Waiver of Jury
Trial    44 31.    Limitation of Liability    45 32.    Entire Understanding   
45 33.    Severability    46 34.    Survival    46 35.    Captions    46 36.   
Counterparts; Telecopier Signatures    46 37.    Construction    46 38.   
Publicity    46 39.    Joinder    46 40.    Legends    47

 

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AMENDED AND RESTATED SECURITY AGREEMENT

 

This Amended and Restated Security Agreement is made as of April 29, 2005 and
Amended and Restated as of February 13, 2006 by and among LAURUS MASTER FUND,
LTD., a Cayman Islands corporation (“Laurus”), ACCENTIA BIOPHARMACEUTICALS,
INC., a Florida corporation (“the Parent”), and each party listed on Exhibit A
attached hereto (each an “Eligible Subsidiary” and collectively, the “Eligible
Subsidiaries”) the Parent and each Eligible Subsidiary, each a “Company” and
collectively, the “Companies”). This Security Agreement amends and restates in
its entirety that certain Security Agreement made by the Companies in favor of
Laurus on April 29, 2005 (the “Original Security Agreement”).

 

BACKGROUND

 

On April 29, 2005, Laurus made certain advances available to the Companies
pursuant to the terms of that certain Original Security Agreement; and

 

The Companies and Laurus have agreed to amend and restate the Original Agreement
in the form hereof in order to incorporate certain mutually agreed-to terms; and

 

Laurus has agreed to continue to make such advances on the terms and conditions
set forth in this Amended and Restated Security Agreement (this “Agreement”).

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants and undertakings and
the terms and conditions contained herein, the parties hereto agree as follows:

 

1. General Definitions and Terms; Rules of Construction.

 

(a) General Definitions. Capitalized terms used in this Agreement shall have the
meanings assigned to them in Annex A.

 

(b) Accounting Terms. Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given them in
accordance with GAAP and all financial computations shall be computed, unless
specifically provided herein, in accordance with GAAP consistently applied.

 

(c) Other Terms. All other terms used in this Agreement and defined in the UCC,
shall have the meaning given therein unless otherwise defined herein.

 

(d) Rules of Construction. All Schedules, Addenda, Annexes and Exhibits hereto
or expressly identified to this Agreement are incorporated herein by reference
and taken together with this Agreement constitute but a single agreement. The
words “herein”, “hereof” and “hereunder” or other words of similar import refer
to this Agreement as a whole, including the Exhibits, Addenda, Annexes and
Schedules thereto, as the same may be from time to time amended, modified,
restated or supplemented, and not to any particular section, subsection or
clause contained in this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and pronouns

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stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter. The term “or” is not exclusive. The term
“including” (or any form thereof) shall not be limiting or exclusive. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references in this
Agreement or in the Schedules, Addenda, Annexes and Exhibits to this Agreement
to sections, schedules, disclosure schedules, exhibits, and attachments shall
refer to the corresponding sections, schedules, disclosure schedules, exhibits,
and attachments of or to this Agreement. All references to any instruments or
agreements, including references to any of this Agreement or the Ancillary
Agreements shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.

 

2. Loan Facility.

 

(a) Loans.

 

(i) Subject to the terms and conditions set forth herein and in the Ancillary
Agreements, Laurus may make loans (the “Loans”) to Companies from time to time
during the Term which, in the aggregate at any time outstanding, will not exceed
the lesser of (x) (I) the Capital Availability Amount minus (II) such reserves
as Laurus may reasonably in its good faith judgment deem proper and necessary
from time to time (the “Reserves”) and (y) an amount equal to (I) the Accounts
Availability, plus (II) the Inventory Availability, plus the Stock Availability,
minus (IV) the Reserves. The amount derived at any time from
Section 2(a)(i)(y)(I) plus Section 2(a)(i)(y)(II) plus Section 2(a)(i)(y)(III)
minus 2(a)(i)(y)(IV) shall be referred to as the “Formula Amount.” The Companies
shall, jointly and severally, execute and deliver to Laurus on the Closing Date
the Revolving Note and a Minimum Borrowing Note evidencing the Loans funded on
the Closing Date. The Companies hereby each acknowledge and agree that Laurus’
obligation to purchase the Revolving Note and the Minimum Borrowing Note from
the Companies on the Closing Date shall be contingent upon the satisfaction (or
waiver by Laurus in its sole discretion) of the items and matters set forth in
the closing checklist provided by Laurus to the Companies on or prior to the
Closing Date.

 

(ii) Notwithstanding the limitations set forth above, if requested by any
Company, Laurus retains the right to lend to such Company from time to time such
amounts in excess of such limitations as Laurus may determine in its sole
discretion.

 

(iii) The Companies acknowledge that the exercise of Laurus’ discretionary
rights hereunder may result during the Term in one or more increases or
decreases in the advance percentages used in determining Accounts Availability,
Inventory Availability and/or Stock Availability and each of the Companies
hereby consent to any such increases or decreases which may limit or restrict
advances requested by the Companies.

 

(iv) If any interest, fees, costs or charges payable to Laurus hereunder are not
paid when due, each of the Companies shall thereby be deemed to have requested,
and Laurus is hereby authorized at its discretion to make and charge to the
Companies’ account, a Loan as of such date in an amount equal to such unpaid
interest, fees, costs or charges.

 

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(v) If any Company at any time fails to perform or observe any of the covenants
contained in this Agreement or any Ancillary Agreement, Laurus may, but need
not, upon prior written notice to the Company, perform or observe such covenant
on behalf and in the name, place and stead of such Company (or, at Laurus’
option, in Laurus’ name) and may, but need not, upon prior written notice to the
Company, take any and all other actions which Laurus may deem necessary to cure
or correct such failure (including the payment of taxes, the satisfaction of
Liens, the performance of obligations owed to Account Debtors, lessors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments). The amount of all monies expended and all costs and expenses
(including attorneys’ fees and legal expenses) incurred by Laurus in connection
with or as a result of the performance or observance of such agreements or the
taking of such action by Laurus shall be charged to the Companies’ account as a
Loan and added to the Obligations. To facilitate Laurus’ performance or
observance of such covenants by each Company, each Company hereby irrevocably
appoints Laurus, or Laurus’ delegate, acting alone, as such Company’s attorney
in fact (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of such Company any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by such Company.

 

(vi) Laurus will account to Company Agent monthly with a statement of all Loans
and other advances, charges and payments made pursuant to this Agreement, and
such account rendered by Laurus shall be deemed final, binding and conclusive
unless Laurus is notified by Company Agent in writing to the contrary within
thirty (30) days of the date each account was rendered specifying the item or
items to which objection is made.

 

(vii) During the Term, the Companies may borrow and prepay Loans in accordance
with the terms and conditions hereof.

 

(viii) If any Eligible Account is not paid by the Account Debtor within ninety
(90) days after the date that such Eligible Account was invoiced or if any
Account Debtor asserts a deduction, dispute, contingency, set-off, or
counterclaim with respect to any Eligible Account, (a “Delinquent Account”), the
Companies shall jointly and severally (i) reimburse Laurus for the amount of the
Loans made with respect to such Delinquent Account plus an adjustment fee in an
amount equal to one-half of one percent (0.50%) of the gross face amount of such
Eligible Account or (ii) immediately replace such Delinquent Account with an
otherwise Eligible Account.

 

(b) Receivables Purchase. Following the occurrence and during the continuance of
an Event of Default, Laurus may, at its option, elect to convert the credit
facility contemplated hereby to an accounts receivable purchase facility. Upon
such election by Laurus (subsequent notice of which Laurus shall provide to
Company Agent), the Companies shall be deemed to hereby have sold, assigned,
transferred, conveyed and delivered to Laurus, and Laurus shall be deemed to
have purchased and received from the Companies, all right, title and interest of
the Companies in and to all Accounts which shall at any time constitute Eligible
Accounts (the “Receivables Purchase”). All outstanding Loans hereunder shall be
deemed obligations under

 

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such accounts receivable purchase facility. The conversion to an accounts
receivable purchase facility in accordance with the terms hereof shall not be
deemed an exercise by Laurus of its secured creditor rights under Article 9 of
the UCC. Immediately following Laurus’ request, the Companies shall execute all
such further documentation as may be required by Laurus to more fully set forth
the accounts receivable purchase facility herein contemplated, including,
without limitation, Laurus’ standard form of accounts receivable purchase
agreement and account debtor notification letters, but any Company’s failure to
enter into any such documentation shall not impair or affect the Receivables
Purchase in any manner whatsoever.

 

(c) Minimum Borrowing Note. After a registration statement registering the
resale of the Registrable Securities (as defined in the Registration Rights
Agreement) has been declared effective by the SEC, conversions of the Minimum
Borrowing Note into the Common Stock may be initiated as set forth in the
Minimum Borrowing Note.

 

3. Repayment of the Loans. The Companies (a) may prepay the Obligations from
time to time in accordance with the terms and provisions of the Notes (and
Section 17 hereof if such prepayment is due to a termination of this Agreement);
(b) shall repay on the expiration of the Term (i) the then aggregate outstanding
principal balance of the Loans together with accrued and unpaid interest, fees
and charges and; (ii) all other amounts owed Laurus under this Agreement and the
Ancillary Agreements; and (c) subject to Section 2(a)(ii), shall repay on any
day on which the then aggregate outstanding principal balance of the Loans are
in excess of the Formula Amount at such time, Loans in an amount equal to such
excess (the “Excess Amount”); provided that, to the extent that the Companies
fail to repay in full the Excess Amount within three days from the date such
Excess Amount shall have first occurred, in addition to all other rights and
remedies available to Laurus hereunder and under the Ancillary Agreements,
Laurus shall have the right, but not the obligation, to sell, transfer or
otherwise dispose of such Collateral as may be pledged to Laurus from time to
time pursuant to the O’Donnell Stock Pledge Agreement to the extent necessary to
generate cash proceeds sufficient to repay in full, and Laurus shall apply such
cash proceeds in repayment of, such Excess Amount plus such other costs and
expenses incurred by Laurus as a result thereof. Any payments of principal,
interest, fees or any other amounts payable hereunder or under any Ancillary
Agreement shall be made prior to 12:00 noon (New York time) on the due date
thereof in immediately available funds.

 

4. Procedure for Loans. Company Agent may by written notice request a borrowing
of Loans prior to 12:00 noon (New York time) on the Business Day of its request
to incur, on the next Business Day, a Loan. Together with each request for a
Loan (or at such other intervals as Laurus may request), Company Agent shall
deliver to Laurus a Borrowing Base Certificate in the form of Exhibit B attached
hereto, which shall be certified as true and correct by the Chief Executive
Officer or Chief Financial Officer of Company Agent together with all supporting
documentation relating thereto. All Loans shall be disbursed from whichever
office or other place Laurus may designate from time to time and shall be
charged to the Companies’ account on Laurus’ books. The proceeds of each Loan
made by Laurus shall be made available to Company Agent on the Business Day
following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to the applicable Company’s operating account
maintained with such bank as Company Agent designated to Laurus. Any and all
Obligations due and owing hereunder may be charged to the Companies’ account and
shall constitute Loans.

 

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5. Interest and Payments.

 

(a) Interest.

 

(i) Except as modified by Section 5(a)(iii) below, the Companies shall jointly
and severally pay interest at the Contract Rate on the unpaid principal balance
of each Loan until such time as such Loan is collected in full in good funds in
dollars of the United States of America.

 

(ii) Interest and payments shall be computed on the basis of actual days elapsed
in a year of 360 days. At Laurus’ option, Laurus may charge the Companies’
account for said interest.

 

(iii) Effective upon the occurrence of any Event of Default and for so long as
any Event of Default shall be continuing, the Contract Rate shall automatically
be increased as set forth in the Notes (such increased rate, the “Default
Rate”), and all outstanding Obligations, including unpaid interest, shall
continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.

 

(iv) In no event shall the aggregate interest payable hereunder exceed the
maximum rate permitted under any applicable law or regulation, as in effect from
time to time (the “Maximum Legal Rate”), and if any provision of this Agreement
or any Ancillary Agreement is in contravention of any such law or regulation,
interest payable under this Agreement and each Ancillary Agreement shall be
computed on the basis of the Maximum Legal Rate (so that such interest will not
exceed the Maximum Legal Rate).

 

(v) The Companies shall jointly and severally pay principal, interest and all
other amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or counterclaim.

 

(b) Payments; Certain Closing Conditions.

 

(i) Closing/Annual Payments. Upon execution of this Agreement by each Company
and Laurus, the Companies shall jointly and severally pay to Laurus Capital
Management, LLC a closing payment in an amount equal to three and three-quarters
percent (3.75%) of the Capital Availability Amount. Such payment shall be deemed
fully earned on the Closing Date and shall not be subject to rebate or proration
for any reason.

 

(ii) Overadvance Payment. Without affecting Laurus’ rights hereunder in the
event the Loans exceed the Formula Amount (each such event, an “Overadvance”),
all such Overadvances shall bear additional interest at a rate equal to one
percent (1%) per month of the amount of such Overadvances for all times such
amounts shall be in excess of the Formula Amount. All amounts that are incurred
pursuant to this Section 5(b)(ii) shall be due and payable by the Companies
monthly, in arrears, on the first business day of each calendar month and upon
expiration of the Term.

 

(iii) Financial Information Default. Without affecting Laurus’ other rights and
remedies, in the event any Company fails to deliver the financial information
required

 

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by Section 11 on or before the date required by this Agreement, the Companies
shall jointly and severally pay Laurus an aggregate fee in the amount of $500.00
per week (or portion thereof) for each such failure until such failure is cured
to Laurus’ satisfaction or waived in writing by Laurus. All amounts that are
incurred pursuant to this Section 5(b)(iv) shall be due and payable by the
Companies monthly, in arrears, on the first business of each calendar month and
upon expiration of the Term.

 

(iv) Expenses. The Companies shall jointly and severally reimburse Laurus for
its expenses (including reasonable legal fees and expenses) incurred in
connection with the preparation and negotiation of this Agreement and the
Ancillary Agreements, and expenses incurred in connection with Laurus’ due
diligence review of each Company and its Subsidiaries and all related matters.
Amounts required to be paid under this Section 5(b)(iv) together with amounts
required to be paid pursuant to Section 2(d) of the Securities Purchase
Agreement between the Parent and Laurus dated as of the date hereof (as amended,
modified or supplemented from time to time, the “Securities Purchase Agreement”)
will be paid on the Closing Date and shall be $37,500 for such expenses referred
to in this Section 5(b)(iv); provided that, to the extent that the need exists
to engage outside counsel in connection with the transactions described herein,
such additional reasonable fees and expenses shall also be reimbursed, on a
joint and several basis, by the Companies to Laurus.

 

(v) O’Donnell Stock Pledge Agreement. On or prior to the Closing Date, the
Parent shall cause The Francis E. O’Donnell, Jr. Irrevocable Trust No. 1 (the
“O’Donnell Trust”) to pledge 1,500,000 shares of common stock of Star
Scientific, Inc. held by the O’Donnell Trust pursuant to a stock pledge
agreement in form and substance satisfactory to Laurus in its sole discretion
(as amended, modified and/or or supplemented from time to time, the “O’Donnell
Stock Pledge Agreement”).

 

(vi) Subordination. On or prior to the Closing Date, the Parent shall cause
McKesson as holder of certain of the Parent’s outstanding debt obligations, to
enter into a subordination agreement in respect of such debt obligations in form
and substance satisfactory to Laurus (as amended, modified and/or or
supplemented from time to time, “McKesson Subordination Agreement”).

 

(vii) Refinancing. On or prior to the Closing Date, all indebtedness under the
Revolving Credit Agreement dated as of March 30, 2004 between Missouri State
Bank and Trust Company (“MSB”) and the Parent (as amended, modified and/or
supplemented, the “Existing Credit Agreement”) shall have been repaid in full
and all commitments in respect thereof shall have been terminated and all Liens
and guaranties in connection therewith shall have been terminated (and all
appropriate releases, termination statements or other instruments of assignment
with respect thereto shall have been obtained) to the reasonable satisfaction of
Laurus. Laurus shall have received satisfactory evidence (including satisfactory
pay-off letters, mortgage releases, intellectual property releases and UCC-3
termination statements) that the matters set forth in the immediately preceding
sentence have been satisfied as of the Closing Date.

 

(viii) Series E Preferred Stock Consent. On or prior to the Closing Date, the
Parent shall have provided Laurus with evidence reasonably satisfactory to
Laurus that

 

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the requisite consent of the holder’s of the Parent’s Series E preferred stock
has been obtained in respect of the consummation of the transactions described
herein, including, without limitation, the granting to Laurus of registration
rights pursuant to the terms of the Registration Rights Agreement.

 

6. Security Interest.

 

(a) To secure the prompt payment to Laurus of the Obligations, each Company
hereby acknowledges, confirms and agrees that Laurus has and shall continue to
have a security interest in all of the Collateral heretofore granted by such
Company to Laurus pursuant to the Original Security Agreement and hereby
assigns, pledges and grants to Laurus a continuing security interest in and Lien
upon all of the Collateral. All of each Company’s Books and Records relating to
the Collateral shall, until delivered to or removed by Laurus, be kept by such
Company in trust for Laurus until all Obligations have been paid in full. Each
confirmatory assignment schedule or other form of assignment hereafter executed
by each Company shall be deemed to include the foregoing grant, whether or not
the same appears therein.

 

(b) Each Company hereby (i) authorizes Laurus to file any financing statements,
continuation statements or amendments thereto that (x) indicate the Collateral
(1) as all assets and personal property of such Company or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the UCC of such jurisdiction, or (2) as
being of an equal or lesser scope or with greater detail, and (y) contain any
other information required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement, continuation statement
or amendment, (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof and (iii) agrees to actively assist Laurus in the preparation and filing
of grants and assignments of such Company’s Intellectual Property with the
United States Patent and Trademark Office to the extent deemed necessary or
prudent by Laurus in its sole discretion to properly perfect Laurus’ security
interest in such Intellectual Property. Each Company acknowledges that it is not
authorized to file any financing statement or amendment or termination statement
with respect to any financing statement without the prior written consent of
Laurus and agrees that it will not do so without the prior written consent of
Laurus, subject to such Company’s rights under Section 9-509(d)(2) of the UCC.

 

(c) Each Company hereby grants to Laurus an irrevocable, non-exclusive license
(exercisable upon the termination of this Agreement due to an occurrence and
during the continuance of an Event of Default without payment of royalty or
other compensation to such Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations. Notwithstanding the foregoing, it is agreed and
understood that the Parent and its Subsidiaries may, without the prior approval
of Laurus, grant licenses for the use of its Intellectual Property to third
parties pursuant to agreements to develop, conduct

 

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trials, commercialize, manufacture and/or market any of its technologies,
products, pharmaceuticals, and or devices; provided that (i) such licenses and
agreements, as the case may be, are in the ordinary course of business of the
Parent and/or its Subsidiaries and consistent with past practice and (ii) the
Parent’s and/or its Subsidiary’s interest in such licenses and agreements, as
the case may be, are each subject to and covered by Laurus’ security interest
hereunder.

 

7. Representations, Warranties and Covenants Concerning the Collateral. Each
Company represents, warrants (each of which such representations and warranties
shall be deemed repeated upon the making of each request for a Loan and made as
of the time of each and every Loan hereunder) and covenants as follows:

 

(a) all of the Collateral (i) is owned by it free and clear of all Liens
(including any claims of infringement) except those in Laurus’ favor and
Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.

 

(b) it shall not encumber, mortgage, pledge, assign or grant any Lien in any
Collateral or any other assets to anyone other than Laurus and except for
Permitted Liens.

 

(c) the Liens granted pursuant to this Agreement, upon completion of the filings
and other actions listed on Schedule 7(c) (which, in the case of all filings and
other documents referred to in said Schedule, have been delivered to Laurus in
duly executed form) constitute valid perfected security interests in all of the
Collateral in favor of Laurus as security for the prompt and complete payment
and performance of the Obligations, enforceable in accordance with the terms
hereof against any and all of its creditors and purchasers and such security
interest is prior to all other Liens in existence on the date hereof.

 

(d) no effective security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Liens.

 

(e) it shall not dispose of any of the Collateral whether by sale, lease or
otherwise except for the sale of Inventory in the ordinary course of business
and for the disposition or transfer in the ordinary course of business during
any fiscal year of obsolete and worn-out Equipment having an aggregate fair
market value of not more than $75,000 and only to the extent that (i) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Laurus’ first priority security interest or are used to repay
Loans or to pay general corporate expenses, or (ii) following the occurrence of
an Event of Default which continues to exist the proceeds of which are remitted
to Laurus to be held as cash collateral for the Obligations.

 

(f) it shall defend the right, title and interest of Laurus in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant Laurus “control” of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later

 

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than five (5) Business Days following Laurus’ request therefor) delivery to
Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Laurus’ interest in Collateral at Laurus’ request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve its and/or Laurus’ respective and several interests in the Collateral.

 

(g) it shall promptly, and in any event within five (5) Business Days after the
same is acquired by it, notify Laurus of any commercial tort claim (as defined
in the UCC) acquired by it and unless otherwise consented by Laurus, it shall
enter into a supplement to this Agreement granting to Laurus a Lien in such
commercial tort claim.

 

(h) it shall place notations upon its Books and Records and any of its financial
statements to disclose Laurus’ Lien in the Collateral.

 

(i) if it retains possession of any Chattel Paper or Instrument with Laurus’
consent, upon Laurus’ request such Chattel Paper and Instruments shall be marked
with the following legend: “This writing and obligations evidenced or secured
hereby are subject to the security interest of Laurus Master Fund, Ltd.”
Notwithstanding the foregoing, upon the reasonable request of Laurus, such
Chattel Paper and Instruments shall be delivered to Laurus.

 

(j) it shall perform in a reasonable time all other steps requested by Laurus to
create and maintain in Laurus’ favor a valid perfected first Lien in all
Collateral subject only to Permitted Liens.

 

(k) it shall notify Laurus promptly and in any event within three (3) Business
Days after obtaining knowledge thereof (i) of any event or circumstance that, to
its knowledge, would cause Laurus to consider any then existing Account and/or
Inventory as no longer constituting an Eligible Account or Eligible Inventory,
as the case may be; (ii) of any material delay in its performance of any of its
obligations to any Account Debtor; (iii) of any assertion by any Account Debtor
of any material claims, offsets or counterclaims; (iv) of any allowances,
credits and/or monies granted by it to any Account Debtor; (v) of all material
adverse information relating to the financial condition of an Account Debtor;
(vi) of any material return of goods; and (vii) of any loss, damage or
destruction of any of the Collateral.

 

(l) all Eligible Accounts (i) represent complete bona fide transactions which
require no further act under any circumstances on its part to make such Accounts
payable by the Account Debtors, (ii) are not subject to any present, future
contingent offsets or counterclaims, and (iii) do not represent bill and hold
sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of such Company. It
has not made, nor will it make, any agreement with any Account Debtor for any
extension of time for the payment of any Account, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefor, or any deduction therefrom except a discount or allowance
for prompt or early payment or reasonable marketing expenses allowed by it in
the ordinary course of its business consistent with historical practice and as
previously disclosed to Laurus in writing.

 

9

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(m) it shall keep and maintain its Equipment in good operating condition, except
for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. It shall not permit any such items to become
a Fixture to real estate or accessions to other personal property.

 

(n) it shall maintain and keep all of its Books and Records concerning the
Collateral at its executive offices listed in Schedule 12(aa).

 

(o) it shall maintain and keep the tangible Collateral at the addresses listed
in Schedule 12(bb), provided, that it may change such locations or open a new
location, provided that it provides Laurus at least thirty (30) days prior
written notice of such changes or new location and (ii) prior to such change or
opening of a new location where Collateral having a value of more than $75,000
will be located, it executes and delivers to Laurus such agreements deemed
reasonably necessary or prudent by Laurus, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus, to adequately protect and maintain Laurus’ security
interest in such Collateral.

 

(p) Schedule 7(p) lists all banks and other financial institutions at which it
maintains deposits and/or other accounts, and such Schedule correctly identifies
the name, address and telephone number of each such depository, the name in
which the account is held, a description of the purpose of the account, and the
complete account number. It shall not establish any depository or other bank
account with any financial institution (other than the accounts set forth on
Schedule 7(p)) without Laurus’ prior written consent.

 

(q) All Inventory manufactured by it in the United States of America shall be
produced in accordance with the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto or
promulgated thereunder.

 

8. Payment of Accounts.

 

(a) Each Company will irrevocably direct all of its present and future Account
Debtors and other Persons obligated to make payments constituting Collateral to
make such payments directly to the lockboxes maintained by such Company (the
“Lockboxes”) with Missouri State Bank and Trust Company or such other financial
institution accepted by Laurus in writing as may be selected by such Company
(the “Lockbox Bank”) pursuant to the terms of the certain agreements among one
or more Companies, Laurus and/or the Lockbox Bank dated as of April 29, 2005. On
or prior to the Closing Date, each Company shall and shall cause the Lockbox
Bank to enter into all such documentation acceptable to Laurus pursuant to
which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox on
a daily basis and deposit all checks received therein to an account designated
by Laurus in writing and (b) comply only with the instructions or other
directions of Laurus concerning the Lockbox. All of each Company’s invoices,
account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account of any Company or
any other amount constituting Collateral shall conspicuously direct that all
payments be made to the Lockbox or such other address as Laurus may direct in
writing. If, notwithstanding the instructions to Account Debtors, any Company
receives any payments, such Company shall

 

10

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immediately remit such payments to Laurus in their original form with all
necessary endorsements. Until so remitted, such Company shall hold all such
payments in trust for and as the property of Laurus and shall not commingle such
payments with any of its other funds or property.

 

(b) At Laurus’ election, following the occurrence of an Event of Default which
is continuing, Laurus may notify each Company’s Account Debtors of Laurus’
security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to Company’s and the Eligible Subsidiaries
joint and several account.

 

9. Collection and Maintenance of Collateral.

 

(a) Laurus may verify each Company’s Accounts from time to time, but not more
often than once every three (3) months, unless an Event of Default has occurred
and is continuing, utilizing an audit control company or any other agent of
Laurus.

 

(b) Proceeds of Accounts received by Laurus will be deemed received on the
Business Day after Laurus’ receipt of such proceeds in good funds in dollars of
the United States of America to an account designated by Laurus. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.

 

(c) As Laurus receives the proceeds of Accounts of any Company, it shall
(i) apply such proceeds, as required, to amounts outstanding under the Notes,
and (ii) remit all such remaining proceeds (net of interest, fees and other
amounts then due and owing to Laurus hereunder) to Company Agent (for the
benefit of the applicable Companies) upon request (but no more often than twice
a week). Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold all
such proceeds as cash collateral for the Obligations and each Company hereby
grants to Laurus a security interest in such cash collateral amounts as security
for the Obligations and/or (c) do any combination of the foregoing.

 

10. Inspections and Appraisals. At all times during normal business hours, and,
prior to the occurrence of an Event of Default, upon twenty four (24) hours
prior notice, Laurus, and/or any agent of Laurus shall have the right to
(a) have access to, visit, inspect, review, evaluate and make physical
verification and appraisals of each Company’s properties and the Collateral,
(b) inspect, audit and copy (or take originals if necessary) and make extracts
from each Company’s Books and Records, including management letters prepared by
the Accountants, and (c) discuss with each Company’s directors, principal
officers, and independent accountants, each Company’s business, assets,
liabilities, financial condition, results of operations and business prospects.
Each Company will deliver to Laurus any instrument necessary for Laurus to
obtain records from any service bureau maintaining records for such Company. If
any internally prepared financial information, including that required under
this Section is unsatisfactory in any manner to Laurus, Laurus may request that
the Accountants review the same.

 

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11. Financial Reporting. Company Agent will deliver, or cause to be delivered,
to Laurus each of the following, which shall be in form and detail acceptable to
Laurus:

 

(a) As soon as available, and in any event within ninety (90) days after the end
of each fiscal year of the Parent, each Company’s audited financial statements
with a report of independent certified public accountants of recognized standing
selected by the Parent and acceptable to Laurus (the “Accountants”), which
annual financial statements shall be without qualification and shall include
each Company’s balance sheet as at the end of such fiscal year and the related
statements of each Company’s income, retained earnings and cash flows for the
fiscal year then ended, prepared, if Laurus so requests, on a consolidating and
consolidated basis to include all Subsidiaries and Affiliates of each Company,
all in reasonable detail and prepared in accordance with GAAP, together with
(i) if and when available, copies of any management letters prepared by the
Accountants; and (ii) a certificate of the Parent’s President, Chief Executive
Officer or Chief Financial Officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder and, if
so, stating in reasonable detail the facts with respect thereto;

 

(b) As soon as available and in any event within forty five (45) days after the
end of each quarter, an unaudited/internal balance sheet and statements of
income, retained earnings and cash flows of each Company as at the end of and
for such quarter and for the year to date period then ended, prepared, if Laurus
so requests, on a consolidating and consolidated basis to include all
Subsidiaries and Affiliates of each Company, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in the
previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Parent’s President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto;

 

(c) Within thirty (30) days after the end of each month (or more frequently if
Laurus so requests), agings of each Company’s Accounts, unaudited trial balances
and their accounts payable and a calculation of each Company’s Accounts,
Eligible Accounts, Inventory and/or Eligible Inventory, provided, however, that
if Laurus shall request the foregoing information more often than as set forth
in the immediately preceding clause, each Company shall have thirty (30) days
from each such request to comply with Laurus’ demand; and

 

(d) Promptly after (i) the filing thereof, copies of the Parent’s most recent
registration statements and annual, quarterly, monthly or other regular reports
which the Parent files with the SEC, and (ii) the issuance thereof, copies of
such financial statements, reports and proxy statements as the Parent shall send
to its stockholders.

 

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12. Additional Representations and Warranties. Each Company hereby represents
and warrants to Laurus as follows:

 

(a) Organization, Good Standing and Qualification. It and each of its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. It and each of its Subsidiaries has
the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (i) execute and deliver this Agreement and
the Ancillary Agreements, (ii) to issue the Notes and the shares of Common Stock
issuable upon conversion of the Minimum Borrowing Note (the “Note Shares”),
(iii) to issue the Warrants and the shares of Common Stock issuable upon
exercise of the Warrants (the “Warrant Shares”), and to (iv) carry out the
provisions of this Agreement and the Ancillary Agreements and to carry on its
business as presently conducted. It and each of its Subsidiaries is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be, in
all jurisdictions in which the nature or location of its activities and of its
properties (both owned and leased) makes such qualification necessary, except
for those jurisdictions in which failure to do so has not had, or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

(b) Subsidiaries. Each of its direct and indirect Subsidiaries, the direct owner
of each such Subsidiary and its percentage ownership thereof, is set forth on
Schedule 12(b).

 

(c) Capitalization; Voting Rights.

 

(i) The authorized capital stock of the Parent, as of the date hereof consists
of 425,000,000 shares, of which (i) 300,000,000 are shares of Common Stock, par
value $0.001 per share, 10,865,645 shares of which are issued and outstanding,
(ii) 10,000,000 are shares of Series A preferred stock, par value $1.00 per
share of which 6,183,000 shares of Series A preferred stock are issued and
outstanding, (iii) 30,000,000 are shares of Series B preferred stock, par value
$1.00 per share of which 8,074,263 shares of Series B preferred stock are issued
and outstanding, (iv) 10,000,000 are shares of Series C preferred stock, par
value $1.00 per share of which 7,500,000 shares of Series C preferred stock are
issued and outstanding, (v) 15,000,000 are shares of Series D preferred stock,
par value $1.00 per share of which 9,728,201 shares of Series D preferred stock
are issued and outstanding, and (vi) 60,000,000 are shares of Series E preferred
stock, par value $1.00 per share of which 32,054,606 shares of Series E
preferred stock are issued and outstanding. The authorized, issued and
outstanding capital stock of each Subsidiary of each Company is set forth on
Schedule 12(c).

 

(ii) Except as disclosed on Schedule 12(c), other than: (i) the shares reserved
for issuance under the Parent’s stock option plans; and (ii) shares which may be
issued pursuant to this Agreement and the Ancillary Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Parent of any
of its securities. Except as disclosed on Schedule 12(c), neither the offer or
issuance of any of the Notes or the Warrants, or the issuance of any of the Note
Shares or the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Parent outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.

 

13

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(iii) All issued and outstanding shares of the Parent’s Common Stock: (i) have
been duly authorized and validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.

 

(iv) The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Parent’s Certificate of Incorporation (the
“Charter”). The Note Shares and the Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Parent’s Charter, the Securities will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances; provided,
however, that the Securities may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.

 

(d) Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on its and its Subsidiaries’ part
(including their respective officers and directors) necessary for the
authorization of this Agreement and the Ancillary Agreements, the performance of
all of its and its Subsidiaries’ obligations hereunder and under the Ancillary
Agreements on the Closing Date and, the authorization, issuance and delivery of
the Notes and the Warrant has been taken or will be taken prior to the Closing
Date. This Agreement and the Ancillary Agreements, when executed and delivered
and to the extent it is a party thereto, will be its and its Subsidiaries’ valid
and binding obligations enforceable against each such Person in accordance with
their terms, except:

 

(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors’ rights;
and

 

(ii) general principles of equity that restrict the availability of equitable or
legal remedies.

 

The issuance of the Notes and the subsequent conversion of the Minimum Borrowing
Note into Note Shares are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
The issuance of the Warrants and the subsequent exercise of the Warrants for
Warrant Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.

 

(e) Liabilities. Neither it nor any of its Subsidiaries has any liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.

 

(f) Agreements; Action. Except as set forth on Schedule 12(f), as disclosed in
any Exchange Act Filings or, prior to consummation of the initial public
offering of Common Stock, as disclosed in any Securities Act Filings:

 

(i) There are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which it or any of its
Subsidiaries is a party or to its knowledge by which it is bound which may
involve: (i) obligations (contingent or otherwise) of, or payments to, it or any
of its Subsidiaries in excess of $50,000 (other than

 

14

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obligations of, or payments to, it or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from it (other than licenses arising from the purchase
of “off the shelf” or other standard products); or (iii) provisions restricting
the development, manufacture or distribution of its or any of its Subsidiaries’
products or services; or (iv) indemnification by it or any of its Subsidiaries
with respect to infringements of proprietary rights.

 

(ii) Except as set forth in the Parent’s quarterly unaudited financial
statements for its fiscal quarter ended December 31, 2004, since September 30,
2004 (the “Balance Sheet Date”) neither it nor any of its Subsidiaries has:
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any Person not in
excess, individually or in the aggregate, of $100,000, other than ordinary
advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its Inventory in the
ordinary course of business.

 

(iii) For the purposes of subsections (i) and (ii) of this Section 12(f), all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same Person (including Persons it or any
of its applicable Subsidiaries has reason to believe are affiliated therewith or
with any Subsidiary thereof) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.

 

(iv) the Parent maintains disclosure controls and procedures (“Disclosure
Controls”) designed to ensure that information required to be disclosed by the
Parent in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported, within the time periods specified
in the rules and forms of the SEC.

 

(v) The Parent makes and keeps books, records, and accounts, that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of its
assets. It maintains internal control over financial reporting (“Financial
Reporting Controls”) designed by, or under the supervision of, its principal
executive and principal financial officers, and effected by its board of
directors, management, and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP, including
that:

 

(1) transactions are executed in accordance with management’s general or
specific authorization;

 

(2) unauthorized acquisition, use, or disposition of the Parent’s assets that
could have a material effect on the financial statements are prevented or timely
detected;

 

15

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(3) transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that its receipts and expenditures are
being made only in accordance with authorizations of the Parent’s management and
board of directors;

 

(4) transactions are recorded as necessary to maintain accountability for
assets; and

 

(5) the recorded accountability for assets is compared with the existing assets
at reasonable intervals, and appropriate action is taken with respect to any
differences.

 

(vi) There is no weakness in any of its Disclosure Controls or Financial
Reporting Controls that is required to be disclosed in any of the Exchange Act
Filings, except as so disclosed.

 

(g) Obligations to Related Parties. Except as set forth on Schedule 12(g),
neither it nor any of its Subsidiaries has any obligations to their respective
officers, directors, stockholders or employees other than:

 

(i) for payment of salary for services rendered and for bonus payments;

 

(ii) reimbursement for reasonable expenses incurred on its or its Subsidiaries’
behalf;

 

(iii) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by its and its Subsidiaries’ Board of Directors, as applicable);
and

 

(iv) obligations listed in its and each of its Subsidiary’s financial statements
or disclosed in any of the Parent’s Exchange Act Filings.

 

Except as described above or set forth on Schedule 12(g), none of its or any of
its Subsidiaries’ officers, directors or, to the best of its knowledge, key
employees or stockholders, any of its Subsidiaries or any members of their
immediate families, are indebted to it or any of its Subsidiaries, individually
or in the aggregate, in excess of $50,000 or have any direct or indirect
ownership interest in any Person with which it or any of its Subsidiaries is
affiliated or with which it or any of its Subsidiaries has a business
relationship, or any Person which competes with it or any of its Subsidiaries,
other than passive investments in publicly traded companies (representing less
than one percent (1%) of such company) which may compete with it or any of its
Subsidiaries. Except as described above, none of its officers, directors or
stockholders, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with it or any of its
Subsidiaries and no agreements, understandings or proposed transactions are
contemplated between it or any of its Subsidiaries and any such Person. Except
as set forth on Schedule 12(g), neither it nor any of its Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other Person.

 

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(h) Changes. Since the Balance Sheet Date, except as disclosed in any Exchange
Act Filing or in any Schedule to this Agreement or to any of the Ancillary
Agreements, there has not been:

 

(i) any change in its or any of its Subsidiaries’ business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects, which,
individually or in the aggregate, has had, or could reasonably be expected to
have, a Material Adverse Effect;

 

(ii) any resignation or termination of any of its or its Subsidiaries’ officers,
key employees or groups of employees;

 

(iii) any material change, except in the ordinary course of business, in its or
any of its Subsidiaries’ contingent obligations by way of guaranty, endorsement,
indemnity, warranty or otherwise;

 

(iv) any damage, destruction or loss, whether or not covered by insurance, which
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;

 

(v) any waiver by it or any of its Subsidiaries of a valuable right or of a
material debt owed to it;

 

(vi) any direct or indirect material loans made by it or any of its Subsidiaries
to any of its or any of its Subsidiaries’ stockholders, employees, officers or
directors, other than advances made in the ordinary course of business;

 

(vii) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder;

 

(viii) any declaration or payment of any dividend or other distribution of its
or any of its Subsidiaries’ assets;

 

(ix) any labor organization activity related to it or any of its Subsidiaries;

 

(x) any debt, obligation or liability incurred, assumed or guaranteed by it or
any of its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;

 

(xi) any sale, assignment or transfer of any Intellectual Property or other
intangible assets;

 

(xii) any change in any material agreement to which it or any of its
Subsidiaries is a party or by which either it or any of its Subsidiaries is
bound which, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;

 

17

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(xiii) any other event or condition of any character that, either individually
or in the aggregate, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect; or

 

(xiv) any arrangement or commitment by it or any of its Subsidiaries to do any
of the acts described in subsection (i) through (xiii) of this Section 12(h).

 

(i) Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 12(i), it and each of its Subsidiaries has good and marketable title to
their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens.

 

All facilities, Equipment, Fixtures, vehicles and other properties owned, leased
or used by it or any of its Subsidiaries are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. Except as set forth on Schedule 12(i), it and each of its
Subsidiaries is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.

 

(j) Intellectual Property.

 

(i) It and each of its Subsidiaries owns or possesses sufficient legal rights to
all Intellectual Property necessary for their respective businesses as now
conducted and, to its knowledge as presently proposed to be conducted, without
any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to its or any of its
Subsidiary’s Intellectual Property, nor is it or any of its Subsidiaries bound
by or a party to any options, licenses or agreements of any kind with respect to
the Intellectual Property of any other Person other than such licenses or
agreements arising from the purchase of “off the shelf” or standard products.

 

(ii) Neither it nor any of its Subsidiaries has received any communications
alleging that it or any of its Subsidiaries has violated any of the Intellectual
Property or other proprietary rights of any other Person, nor is it or any of
its Subsidiaries aware of any basis therefor.

 

(iii) Neither it nor any of its Subsidiaries believes it is or will be necessary
to utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by it or any of its Subsidiaries,
except for inventions, trade secrets or proprietary information that have been
rightfully assigned to it or any of its Subsidiaries.

 

(k) Compliance with Other Instruments. Neither it nor any of its Subsidiaries is
in violation or default of (x) any term of its Charter or Bylaws, or (y) any
provision of any indebtedness, mortgage, indenture, contract, agreement or
instrument to which it is party or by which it is bound or of any judgment,
decree, order or writ, which violation or default, in the case of this clause
(y), has had, or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. The execution, delivery and
performance of and compliance with this Agreement and the Ancillary Agreements
to which it is a party, and the issuance of the Notes and the other Securities
each pursuant hereto and thereto, will not, with or

 

18

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without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term or
provision, or result in the creation of any Lien upon any of its or any of its
Subsidiary’s properties or assets or the suspension, revocation, impairment,
forfeiture or non-renewal of any permit, license, authorization or approval
applicable to it or any of its Subsidiaries, their businesses or operations or
any of their assets or properties.

 

(l) Litigation. Except as set forth on Schedule 12(l), there is no action, suit,
proceeding or investigation pending or, to its knowledge, currently threatened
against it or any of its Subsidiaries that prevents it or any of its
Subsidiaries from entering into this Agreement or the Ancillary Agreements, or
from consummating the transactions contemplated hereby or thereby, or which has
had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, or could result in any change in its or
any of its Subsidiaries’ current equity ownership, nor is it aware that there is
any basis to assert any of the foregoing. Neither it nor any of its Subsidiaries
is a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding or investigation by it or any of its Subsidiaries
currently pending or which it or any of its Subsidiaries intends to initiate.

 

(m) Tax Returns and Payments. It and each of its Subsidiaries has timely filed
all tax returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and all
other taxes due and payable by it and each of its Subsidiaries on or before the
Closing Date, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 12(m), neither it nor any of its
Subsidiaries has been advised:

 

(i) that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or

 

(ii) of any adjustment, deficiency, assessment or court decision in respect of
its federal, state or other taxes.

 

Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.

 

(n) Employees. Except as set forth on Schedule 12(n), neither it nor any of its
Subsidiaries has any collective bargaining agreements with any of its employees.
There is no labor union organizing activity pending or, to its knowledge,
threatened with respect to it or any of its Subsidiaries. Except as disclosed in
the Exchange Act Filings or on Schedule 12(n), neither it nor any of its
Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To its knowledge, none of its or any of its Subsidiaries’ employees,
nor any consultant with whom it or any of its Subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, it or any of its Subsidiaries because of
the nature of the business to be conducted by it or any of its Subsidiaries; and
to its knowledge the continued

 

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employment by it and its Subsidiaries of their present employees, and the
performance of its and its Subsidiaries contracts with its independent
contractors, will not result in any such violation. Neither it nor any of its
Subsidiaries is aware that any of its or any of its Subsidiaries’ employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency that would interfere with their duties to it
or any of its Subsidiaries. Neither it nor any of its Subsidiaries has received
any notice alleging that any such violation has occurred. Except for employees
who have a current effective employment agreement with it or any of its
Subsidiaries, none of its or any of its Subsidiaries’ employees has been granted
the right to continued employment by it or any of its Subsidiaries or to any
material compensation following termination of employment with it or any of its
Subsidiaries. Except as set forth on Schedule 12(n), neither it nor any of its
Subsidiaries is aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with it or any of its
Subsidiaries, as applicable, nor does it or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.

 

(o) Registration Rights and Voting Rights. Except as set forth on Schedule 12(o)
and except as disclosed in Exchange Act Filings (including, without limitation,
the Form S-1 filed in connection with the proposed initial public offering of
Common Stock), neither it nor any of its Subsidiaries is presently under any
obligation, and neither it nor any of its Subsidiaries has granted any rights,
to register any of its or any of its Subsidiaries’ presently outstanding
securities or any of its securities that may hereafter be issued. Except as set
forth on Schedule 12(o) and except as disclosed in Exchange Act Filings
(including, without limitation, the Form S-1 filed in connection with the
proposed initial public offering of Common Stock), to its knowledge, none of its
or any of its Subsidiaries’ stockholders has entered into any agreement with
respect to its or any of its Subsidiaries’ voting of equity securities.

 

(p) Compliance with Laws; Permits. Neither it nor any of its Subsidiaries is in
violation of the Sarbanes-Oxley Act of 2002 or any SEC related regulation or
rule or any rule of the Principal Market promulgated thereunder or any other
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any Ancillary Agreement and the issuance of any of
the Securities, except such as have been duly and validly obtained or filed, or
with respect to any filings that must be made after the Closing Date, as will be
filed in a timely manner. It and each of its Subsidiaries has all material
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

(q) Environmental and Safety Laws. Neither it nor any of its Subsidiaries is in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Except as set forth

 

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on Schedule 12(q), no Hazardous Materials (as defined below) are used or have
been used, stored, or disposed of by it or any of its Subsidiaries or, to its
knowledge, by any other Person on any property owned, leased or used by it or
any of its Subsidiaries. For the purposes of the preceding sentence, “Hazardous
Materials” shall mean:

 

(i) materials which are listed or otherwise defined as “hazardous” or “toxic”
under any applicable local, state, federal and/or foreign laws and regulations
that govern the existence and/or remedy of contamination on property, the
protection of the environment from contamination, the control of hazardous
wastes, or other activities involving hazardous substances, including building
materials; and

 

(ii) any petroleum products or nuclear materials.

 

(r) Valid Offering. Assuming the accuracy of the representations and warranties
of Laurus contained in this Agreement, the offer and issuance of the Securities
will be exempt from the registration requirements of the Securities Act of 1933,
as amended (the “Securities Act”), and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.

 

(s) Full Disclosure. It and each of its Subsidiaries has provided Laurus with
all information requested by Laurus in connection with Laurus’ decision to enter
into this Agreement, including all information each Company and its Subsidiaries
believe is reasonably necessary to make such investment decision. Neither this
Agreement, the Ancillary Agreements nor the exhibits and schedules hereto and
thereto nor any other document delivered by it or any of its Subsidiaries to
Laurus or its attorneys or agents in connection herewith or therewith or with
the transactions contemplated hereby or thereby, contain any untrue statement of
a material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to Laurus by it or any of its Subsidiaries were based on its and its
Subsidiaries’ experience in the industry and on assumptions of fact and opinion
as to future events which it or any of its Subsidiaries, at the date of the
issuance of such projections or estimates, believed to be reasonable.

 

(t) Insurance. It and each of its Subsidiaries has general commercial, product
liability, fire and casualty insurance policies with coverages which it believes
are customary for companies similarly situated to it and its Subsidiaries in the
same or similar business.

 

(u) Financial Statements. The Parent has furnished Laurus with copies of:
(i) its annual audited financial statements for its fiscal year ended
September 30, 2004; and (ii) its quarterly unaudited financial statements for
its fiscal quarters ended December 31, 2004 and March 31, 2005 (collectively,
the “Financial Statements”). Except as set forth on Schedule 12(u), each
Financial Statement was, at the time of its preparation, in substantial
compliance with the requirements of its respective form and none of the
Financial Statements (and the notes thereto), as of their respective preparation
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

 

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Such Financial Statements have been prepared in accordance with GAAP applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed) and fairly present in all material respects the financial
condition, the results of operations and cash flows of the Parent and its
Subsidiaries, on a consolidated basis, as of, and for, the periods presented in
each such Financial Statement.

 

(v) Listing. The Parent has prepared in all material respects the listing
application in respect of its Common Stock to be, upon consummation of the
initial public offering of Common Stock, listed on the Principal Market and the
Parent reasonably believes that it and such listing application shall satisfy
all requirements for such listing on the Principal Market, and once listed on
the Principal Market, the Parent shall do all things necessary for the
continuation of such listing. The Parent has not received any notice that its
Common Stock will not be listed on the Principal Market upon consummation of the
initial public offering of Common Stock or that its Common Stock shall not meet
all requirements for such listing.

 

(w) No Integrated Offering. Neither it, nor any of its Subsidiaries nor any of
its Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security (other than an offering to Laurus under a Securities Purchase
Agreement) under circumstances that would cause the offering of the Securities
pursuant to this Agreement or any Ancillary Agreement to be integrated with
prior offerings by it for purposes of the Securities Act which would prevent it
from issuing the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will it or
any of its Affiliates or Subsidiaries take any action or steps that would cause
the offering of the Securities to be integrated with other offerings.

 

(x) Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. Neither it nor any of its Subsidiaries will issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.

 

(y) Dilution. It specifically acknowledges that the Parent’s obligation to issue
the shares of Common Stock upon conversion of the Minimum Borrowing Note and
exercise of the Warrants is binding upon the Parent and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Parent.

 

(z) Patriot Act. It certifies that, to the best of its knowledge, neither it nor
any of its Subsidiaries has been designated, nor is or shall be owned or
controlled, by a “suspected terrorist” as defined in Executive Order 13224. It
hereby acknowledges that Laurus seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, it hereby represents, warrants and covenants that: (i) none of the cash
or property that it or any of its Subsidiaries will pay or will contribute to
Laurus has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
it or any of its Subsidiaries to Laurus, to the extent that they are within its
or any such Subsidiary’s control shall cause Laurus to be in violation of the

 

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United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly notify
Laurus if any of these representations, warranties and covenants ceases to be
true and accurate regarding it or any of its Subsidiaries. It shall provide
Laurus with any additional information regarding it and each Subsidiary thereof
that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. It
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus’ investment in it. It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.

 

(aa) Company Name; Locations of Offices, Records and Collateral. Schedule 12(aa)
sets forth each Company’s name as it appears in official filings in the state of
its organization, the type of entity of each Company, the organizational
identification number issued by each Company’s state of organization or a
statement that no such number has been issued, each Company’s state of
organization, and the location of each Company’s chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth in such Schedule 12(aa), such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Schedule 12(aa), no
Company has been known as or conducted business in any other name (including
trade names). Each Company has only one state of organization.

 

(bb) ERISA. Based upon the Employee Retirement Income Security Act of 1974
(“ERISA”), and the regulations and published interpretations thereunder:
(i) neither it nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the Code);
(ii) it and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
it nor any of its Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any employee benefit plan(s);
(iv) neither it nor any of its Subsidiaries has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than its or such Subsidiary’s employees; and (v) neither it nor any of its
Subsidiaries has withdrawn, completely or partially, from any multi-employer
pension plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.

 

13. Covenants. Each Company, as applicable, covenants and agrees with Laurus as
follows:

 

(a) Stop-Orders. It shall advise Laurus, promptly after it receives notice of
issuance by the SEC, any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Parent, or of the suspension of the
qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.

 

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(b) Listing. On or prior to the date of consummation of the initial public
offering of Common Stock, it shall promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Minimum Borrowing Note and exercise
of the Warrants on the Principal Market. On and after the date of the initial
listing of the shares of Common Stock on the Principal Market, the Parent shall
maintain such listing of its Common Stock on the Principal Market, and will
comply in all material respects with the Parent’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers (“NASD”) and such exchanges, as applicable.

 

(c) Market Regulations. It shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.

 

(d) Reporting Requirements. It shall timely file with the SEC all reports
required to be filed pursuant to the Exchange Act and refrain from terminating
its status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination.

 

(e) Use of Funds. It shall use the proceeds of the Loans (i) to repay in full
all of its obligations owing to MSB under the Existing Credit Agreement and
(ii) for general working capital purposes only.

 

(f) Access to Facilities. It shall, and shall cause each of its Subsidiaries to,
permit any representatives designated by Laurus (or any successor of Laurus),
upon reasonable notice and during normal business hours, at Company’s expense
and accompanied by a representative of Company Agent (provided that no such
prior notice shall be required to be given and no such representative shall be
required to accompany Laurus in the event Laurus believes such access is
necessary to preserve or protect the Collateral or following the occurrence and
during the continuance of an Event of Default), to:

 

(i) visit and inspect any of its or any such Subsidiary’s properties;

 

(ii) examine its or any such Subsidiary’s corporate and financial records
(unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom; and

 

(iii) discuss its or any such Subsidiary’s affairs, finances and accounts with
its or any such Subsidiary’s directors, officers and Accountants.

 

Notwithstanding the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to Laurus unless Laurus signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.

 

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(g) Taxes. It shall, and shall cause each of its Subsidiaries to, promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon it and
its Subsidiaries’ income, profits, property or business, as the case may be;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall have no effect on the Lien priority of Laurus in the
Collateral, and (iii) if it and/or such Subsidiary, as applicable, shall have
set aside on its and/or such Subsidiary’s books adequate reserves with respect
thereto in accordance with GAAP; and provided, further, that it shall, and shall
cause each of its Subsidiaries to, pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.

 

(h) Insurance. It shall bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. It and each of its Subsidiaries shall
keep its assets which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as it and its Subsidiaries; and it and its Subsidiaries shall maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
which it and/or such Subsidiary thereof reasonably believes is customary for
companies in similar business similarly situated as it and its Subsidiaries and
to the extent available on commercially reasonable terms. It and each of its
Subsidiaries will jointly and severally bear the full risk of loss from any loss
of any nature whatsoever with respect to the assets pledged to Laurus as
security for its obligations hereunder and under the Ancillary Agreements. At
its own cost and expense in amounts and with carriers reasonably acceptable to
Laurus, it and each of its Subsidiaries shall (i) keep all their insurable
properties and properties in which they have an interest insured against the
hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to it or the respective
Subsidiary’s including business interruption insurance; (ii) maintain a bond in
such amounts as is customary in the case of companies engaged in businesses
similar to it and its Subsidiaries’ insuring against larceny, embezzlement or
other criminal misappropriation of insured’s officers and employees who may
either singly or jointly with others at any time have access to its or any of
its Subsidiaries assets or funds either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker’s compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which it or any of its Subsidiaries is
engaged in business; and (v) furnish Laurus with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting its and its Subsidiaries’ workers’
compensation policy, endorsements to such policies naming Laurus as “co-insured”
or “additional insured” and appropriate loss payable endorsements in form and
substance satisfactory to Laurus, naming Laurus as lenders loss payee, and
(z) evidence that as to Laurus the insurance coverage shall not be impaired or
invalidated by any act or neglect of any Company or any of its Subsidiaries and
the insurer will provide Laurus with at least thirty (30) days notice prior to
cancellation. It shall instruct the insurance carriers that in the event of any
loss thereunder, the carriers shall make

 

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payment for such loss to Laurus and not to any Company or any of its
Subsidiaries and Laurus jointly. If any insurance losses are paid by check,
draft or other instrument payable to any Company and/or any of its Subsidiaries
and Laurus jointly, Laurus may endorse, as applicable, such Company’s and/or any
of its Subsidiaries’ name thereon and do such other things as Laurus may deem
advisable to reduce the same to cash. Laurus is hereby authorized to adjust and
compromise claims. All loss recoveries received by Laurus upon any such
insurance may be applied to the Obligations, in such order as Laurus in its sole
discretion shall determine or shall otherwise be delivered to Company Agent for
the benefit of the applicable Company and/or its Subsidiaries. Any surplus shall
be paid by Laurus to Company Agent for the benefit of the applicable Company
and/or its Subsidiaries, or applied as may be otherwise required by law. Any
deficiency thereon shall be paid, as applicable, by Companies and their
Subsidiaries to Laurus, on demand.

 

(i) Intellectual Property. It shall, and shall cause each of its Subsidiaries
to, maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.

 

(j) Properties. It shall, and shall cause each of its Subsidiaries to, keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and it shall, and shall cause
each of its Subsidiaries to, at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.

 

(k) Confidentiality. It shall not, and shall not permit any of its Subsidiaries
to, disclose, and will not include in any public announcement, the name of
Laurus, unless expressly agreed to by Laurus or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, each Company and its Subsidiaries
may disclose Laurus’ identity and the terms of this Agreement to its current and
prospective debt and equity financing sources.

 

(l) Required Approvals. It shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Laurus,

 

(i) create, incur, assume or suffer to exist any indebtedness (exclusive of
trade debt) whether secured or unsecured other than (w) each Company’s
indebtedness to Laurus, (x) indebtedness in such maximum amounts as set forth on
Schedule 13(l)(i) attached hereto and made a part hereof, (y) in respect of
TEAMM, indebtedness in the aggregate principal amount not to exceed $7,000,000
at any time (including the aggregate principal amount of outstanding
indebtedness owed to Harbinger pursuant to the Harbinger Debt Documentation);
provided that (I) no Event of Default has occurred and is continuing at such
time, (II) such indebtedness if secured, shall only be secured by TEAMM’s
assets, (III) the terms and conditions of such indebtedness are no more onerous
than the terms and conditions of the Harbinger Debt Documentation and (IV) the
maturity date of such indebtedness shall be no earlier than six months following
expiration of

 

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the Term and (z) indebtedness incurred in connection with arrangements otherwise
permitted pursuant to Section 13(l)(v)(y) below; provided that indebtedness
under this clause (z) shall only be permitted to be secured by Intellectual
Property, General Intangibles and/or contract rights which are directly subject
of such arrangement;

 

(ii) cancel any debt owing to it in excess of $150,000 in the aggregate during
any 12 month period;

 

(iii) assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person, except:

 

(w) the endorsement of negotiable instruments by it or its Subsidiaries for
deposit or collection or similar transactions in the ordinary course of
business,

 

(x) in respect of each Subsidiary of the Parent, so long as each such Subsidiary
is designated as either a co-borrower hereunder or has entered into such
guaranty and security documentation required by Laurus, including, without
limitation, to grant to Laurus a first priority perfected security interest in
substantially all of such Subsidiary’s assets to secure the Obligations,

 

(y) in respect of TEAMM, the guarantee by the Parent of TEAMM’s indebtedness not
to exceed $7,000,000 in the aggregate to (I) Harbinger pursuant to the Harbinger
Debt Documentation and (II) each other creditor of TEAMM pursuant to
documentation reasonably satisfactory to Laurus; provided that (A) no Event of
Default has occurred and is continuing both before and after giving effect to
such guarantee and (B) such new TEAMM indebtedness is otherwise permitted under
Section 13(l)(i)(y) and

 

(z) in respect of Biovest; provided that (I) no Event of Default has occurred
and is continuing both before and after giving effect to the incurrence of such
direct and/or contingent liability and (II) the aggregate amount of such
indebtedness of Biovest subject of such direct and/or contingent liability shall
not exceed in aggregate amount, when added to the aggregate amount of
indebtedness permitted under Section 13(l)(v)(z)(I) below which is outstanding
at the time of determination, the fair market value of the assets of Biovest as
reasonably determined by the Parent in which the Parent has been granted a first
priority security interest;

 

(iv) directly or indirectly declare, pay or make any dividend or distribution on
any class of its Stock or apply any of its funds, property or assets to the
purchase, redemption or other retirement of any of its or its Subsidiaries’
Stock outstanding on the date hereof, or issue any preferred stock; provided
that:

 

(x) the Parent shall be permitted to pay dividends to the holder’s of the
Parent’s Series E preferred stock up to such amounts and at such times as are
contractually required pursuant to the terms and conditions of the documentation
governing such Series E preferred stock as in effect on the date hereof and

 

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(y) the purchase and/or redemption of no more than 4,300,000 shares of Series E
preferred stock shall be permitted in connection with the McKesson Restructuring
Payment to the extent such McKesson Restructuring Payment is otherwise permitted
hereunder;

 

(v) purchase or hold beneficially any Stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture, except:

 

(u) travel advances,

 

(v) loans to its and its Subsidiaries’ officers and employees not exceeding at
any one time an aggregate of $10,000,

 

(w) loans to its existing Subsidiaries so long as such Subsidiaries are
designated as either a co-borrower hereunder or has entered into such guaranty
and security documentation required by Laurus, including, without limitation, to
grant to Laurus a first priority perfected security interest in substantially
all of such Subsidiary’s assets to secure the Obligations,

 

(x) loans to TEAMM; provided that, the aggregate amount of all such loans shall
not exceed at any time outstanding (A) prior to consummation of the Initial
Public Offering, $15,000,000, of which $12,000,000 is outstanding on the date
hereof and (B) on and after consummation of the Initial Public Offering and to
the extent Laurus shall not have been granted a first priority perfected
security interest in substantially all of TEAMM’s assets to secure the
Obligations, $20,000,000, of which $12,000,000 is outstanding on the date
hereof; provided further that all loans from the Company to TEAMM shall be
evidenced by an intercompany note in form and substance reasonably satisfactory
to Laurus and shall be subject to a first priority perfected security interest
in favor of Laurus to secure the Obligations,

 

(y) in relation to arrangements relating to the acquisition, licensing or
commercialization of pharmaceutical products, as well as other medical and
similar products or devices; provided that (I) such arrangements are in the
ordinary course of business of the Company and are consistent with past
practice, (II) no Event of Default has occurred and is continuing both before
and after giving effect to such arrangement and (III) Laurus shall

 

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have been granted a first priority perfected security interest in all of the
Company’s rights under such arrangement to secure the Obligations and

 

(z) loans or advances to, or investments in:

 

(I) Biovest, provided that (A) the Parent shall hold directly or indirectly no
less than seventy percent (70%) of all issued and outstanding voting equity
interests of Biovest at such time, (B) the aggregate amount of all such
investments shall not exceed at any time outstanding the greater of
(1) $23,750,000 and (2) the maximum amount of investments contractually required
pursuant to the Investment Agreement dated as of April 9, 2003 between the
Parent and Biovest as in effect on the date hereof (subject to the anti-dilution
related rights granted to the Parent permitting it to invest a discounted amount
to offset the dilutive effect of future equity issuances by Biovest as set forth
in the Agreement, dated as of June 16, 2003, between the Parent and Biovest as
in effect on the date hereof) and (C) the aggregate amount of all such loans
shall not exceed at any time, when added to the aggregate amount of the
indebtedness of Biovest outstanding and guaranteed by the Parent at the time of
determination, the fair market value of the assets of Biovest as reasonably
determined by the Parent in which the Parent has been granted a first priority
security interest; provided that such loans from the Parent to Biovest shall be
evidenced by an intercompany note in form and substance reasonably satisfactory
to Laurus and shall be subject to a first priority perfected security interest
in favor of Laurus to secure the Obligations; and

 

(II) IMOR-Analytica; provided that the aggregate amount of all such loans and
investments shall not exceed at any time outstanding (A) prior to consummation
of the Initial Public Offering, $500,000 and (B) on and after consummation of
the Initial Public Offering, $2,000,000;

 

(vi) create or permit to exist any Subsidiary, other than any Subsidiary in
existence on the date hereof and listed in Schedule 12(b) unless such new
Subsidiary is a wholly-owned Subsidiary and is designated by Laurus as either a
co-borrower or guarantor hereunder and such Subsidiary shall have entered into
all such documentation required by Laurus, including, without limitation, to
grant to Laurus a first priority perfected security interest in substantially
all of such Subsidiary’s assets to secure the Obligations;

 

(vii) directly or indirectly, prepay any indebtedness (other than to Laurus and
in the ordinary course of business), or repurchase, redeem, retire or otherwise
acquire any indebtedness (other than to Laurus and in the ordinary course of
business); provided that the Parent shall be permitted to apply proceeds

 

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received from the Initial Public Offering to repay its obligations owed to
(A) McKesson pursuant to the Subordinated Debt Documentation to the extent not
in excess of $6,100,000 and (B) Harbinger pursuant to the Harbinger Debt
Documentation to the extent not in excess of $7,000,000;

 

(viii) enter into any merger, consolidation or other reorganization with or into
any other Person or acquire all or a portion of the assets or Stock of any
Person or permit any other Person to consolidate with or merge with it, unless
(1) such Company is the surviving entity of such merger or consolidation, (2) no
Event of Default shall exist immediately prior to and after giving effect to
such merger or consolidation, (3) such Company shall have provided Laurus copies
of all documentation relating to such merger or consolidation and (4) such
Company shall have provided Laurus with at least thirty (30) days’ prior written
notice of such merger or consolidation;

 

(ix) materially change the nature of the business in which it is presently
engaged;

 

(x) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict its or any of its Subsidiaries’ right to perform the
provisions of this Agreement or any of the Ancillary Agreements;

 

(xi) change its fiscal year or make any changes in accounting treatment and
reporting practices without prior written notice to Laurus except as required by
GAAP or in the tax reporting treatment or except as required by law;

 

(xii) enter into any transaction with any employee, director or Affiliate,
except in the ordinary course on arms-length terms;

 

(xiii) bill Accounts under any name except the present name of such Company; or

 

(xiv) sell, lease, transfer or otherwise dispose of any of its properties or
assets, or any of the properties or assets of its Subsidiaries, except for
(1) the sale of Inventory in the ordinary course of business and (2) the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out Equipment and only to the extent that (x) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Laurus’ first priority security interest or are used to repay
Loans or to pay general corporate expenses, or (y) following the occurrence of
an Event of Default which continues to exist, the proceeds of which are remitted
to Laurus to be held as cash collateral for the Obligations.

 

(m) Reissuance of Securities. The Parent shall reissue certificates representing
the Securities without the legends set forth in Section 39 below at such time
as:

 

(i) the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act; or

 

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(ii) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.

 

The Parent agrees to cooperate with Laurus in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Parent and its counsel receive reasonably
requested representations from Laurus and broker, if any.

 

(n) Opinion. On the Closing Date, it shall deliver to Laurus an opinion
acceptable to Laurus from the Company’s in house counsel. Each Company will
provide, at the Companies’ joint and several expense, such other legal opinions
in the future as are reasonably necessary for the conversion of the Minimum
Borrowing Note and the exercise of the Warrants.

 

(o) Legal Name, etc. It shall not, without providing Laurus with 30 days prior
written notice, change (i) its name as it appears in the official filings in the
state of its organization, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of organization,
(iv) its state of organization or (v) amend its certificate of incorporation,
by-laws or other organizational document.

 

(p) Compliance with Laws. The operation of each of its and each of its
Subsidiaries’ business is and shall continue to be in compliance in all material
respects with all applicable federal, state and local laws, rules and
ordinances, including to all laws, rules, regulations and orders relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health and safety and environmental matters.

 

(q) Notices. It and each of its Subsidiaries shall promptly inform Laurus in
writing of: (i) the commencement of all proceedings and investigations by or
before and/or the receipt of any notices from, any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any way concerning any event which could reasonably be
expected to have singly or in the aggregate, a Material Adverse Effect; (ii) any
change which has had, or could reasonably be expected to have, a Material
Adverse Effect; (iii) any Event of Default or Default; and (iv) any default or
any event which with the passage of time or giving of notice or both would
constitute a default under any agreement for the payment of money to which it or
any of its Subsidiaries is a party or by which it or any of its Subsidiaries or
any of its or any such Subsidiary’s properties may be bound the breach of which
would have a Material Adverse Effect.

 

(r) Margin Stock. It shall not permit any of the proceeds of the Loans made
hereunder to be used directly or indirectly to “purchase” or “carry” “margin
stock” or to repay indebtedness incurred to “purchase” or “carry” “margin stock”
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.

 

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(s) Offering Restrictions. Except as previously disclosed in the Financial
Statements or in the Exchange Act Filings, or stock or stock options granted to
its employees or directors, neither it nor any of its Subsidiaries shall, prior
to the full repayment or conversion of the Minimum Borrowing Note (together with
all accrued and unpaid interest and fees related thereto), (x) enter into any
equity line of credit agreement or similar agreement or (y) issue, or enter into
any agreement to issue, any securities with a variable/floating conversion
and/or pricing feature which are or could be (by conversion or registration)
free-trading securities (i.e. common stock subject to a registration statement)
that, in any case, results or could potentially result in a conversion price for
Common Stock below 110% of the issuance price of Common Stock in connection with
the initial public offering of Common Stock, as reasonably determined by Laurus.
It is agreed and understood that the Parent shall be permitted, without prior
Laurus consent but subject to the restrictions set forth in this Section 13(s),
to consummate, equity issuances of Common Stock in addition to the Initial
Public Offering to the extent the fair market value of the Common Stock subject
of all such equity issuances, as reasonably determined by Laurus, is not at any
time in excess of $25,000,000.

 

(t) Authorization and Reservation of Shares. The Parent shall at all times have
authorized and reserved a sufficient number of shares of Common Stock to provide
for the conversion of the Minimum Borrowing Note and exercise of the Warrants.

 

(u) Right of Consultation.

 

It hereby agrees to exercise commercially reasonable efforts to consult Laurus
in respect of any additional indebtedness and/or the sale or issuance of any
equity interests of any Company and/or any of its Subsidiaries (an “Additional
Financing”) to be issued by any Company and/or any of its Subsidiaries prior to
the incurrence of such Additional Financing.

 

(v) Prohibition of Amendments to Subordinated Debt Documentation and Harbinger
Debt Documentation. It shall not, and shall not permit any of its Subsidiaries
to, without the prior written consent of Laurus, amend, modify or in any way
alter the terms of any of the Subordinated Debt Documentation or Harbinger Debt
Documentation unless such amendment, modification, alteration or other action
contemplated by this clause (v) could not reasonably be expected to be adverse
to the interests of Laurus in any material respect.

 

(w) Prohibition of Grant of Collateral for Subordinated Debt Documentation and
Harbinger Debt Documentation. It shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Laurus, grant or permit
any of its Subsidiaries to grant to any Person any Collateral of such Company or
any collateral of any of its Subsidiaries as security for any obligation arising
under the Subordinated Debt Documentation or the Harbinger Debt Documentation.

 

(x) Prohibitions of Payment Under Subordinated Debt Documentation, Harbinger
Debt Documentation and MacInnis Promisory Note. Neither it nor any of its
Subsidiaries shall, without the prior written consent of Laurus, make any
payments in respect of the indebtedness evidenced by the Subordinated Debt
Documentation, the Harbinger Debt

 

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Documentation or the promissory note issued by the Parent to Alan MacInnis,
dated as of              (the “MacInnis Promissory Note”), other than as
expressly required by the terms thereof; provided that the Parent shall be
permitted to apply proceeds received from the Initial Public Offering or other
financing permitted hereunder to repay its obligations owed to (i) McKesson
pursuant to the Subordinated Debt Documentation to the extent not in excess of
$6,100,000, (ii) Harbinger pursuant to the Harbinger Debt Documentation to the
extent not in excess of $7,000,000 and (iii) Alan MacInnis McKesson pursuant to
the MacInnis Promissory Note to the extent not in excess of $350,000.

 

(y) Conversion of Preferred Stock. On or prior to the date of consummation of
the Initial Public Offering, the Parent shall cause the holders of its existing
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock, Series D Convertible Preferred Stock,
Series E Convertible Preferred Stock and its existing convertible note holders
to convert their respective outstanding preferred stock and debt obligations
into Common Stock of the Company.

 

(z) McKesson Restructuring Payment. For the avoidance of doubt, to the extent
that no Event of Default has occurred and is continuing, the Parent shall be
permitted to make the McKesson Restructuring Payment in accordance with the
terms of the McKesson Restructuring Agreement as in effect on the date hereof.

 

14. Further Assurances. At any time and from time to time, upon the written
request of Laurus and at the sole expense of Companies, each Company shall
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Laurus may reasonably request (a) to
obtain the full benefits of this Agreement and the Ancillary Agreements, (b) to
protect, preserve and maintain Laurus’ rights in the Collateral and under this
Agreement or any Ancillary Agreement, and/or (c) to enable Laurus to exercise
all or any of the rights and powers herein granted or any Ancillary Agreement.

 

15. Representations, Warranties and Covenants of Laurus. Laurus hereby
represents, warrants and covenants to each Company as follows:

 

(a) Requisite Power and Authority. Laurus has all necessary power and authority
under all applicable provisions of law to execute and deliver this Agreement and
the Ancillary Agreements and to carry out their provisions. All corporate action
on Laurus’ part required for the lawful execution and delivery of this Agreement
and the Ancillary Agreements have been or will be effectively taken prior to the
Closing Date. Upon their execution and delivery, this Agreement and the
Ancillary Agreements shall be valid and binding obligations of Laurus,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights, and (b) as limited by
general principles of equity that restrict the availability of equitable and
legal remedies.

 

(b) Investment Representations. Laurus understands that the Securities are being
offered pursuant to an exemption from registration contained in the Securities
Act based in part upon Laurus’ representations contained in this Agreement,
including, without limitation, that Laurus is an “accredited investor” within
the meaning of Regulation D under the Securities Act.

 

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Laurus has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Notes to be issued to it under this Agreement and the Securities acquired by
it upon the conversion of the Minimum Borrowing Note.

 

(c) Laurus Bears Economic Risk. Laurus has substantial experience in evaluating
and investing in private placement transactions of securities in companies
similar to the Parent so that it is capable of evaluating the merits and risks
of its investment in the Parent and has the capacity to protect its own
interests. Laurus must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.

 

(d) Investment for Own Account. The Securities are being issued to Laurus for
its own account for investment only, and not as a nominee or agent and not with
a view towards or for resale in connection with their distribution.

 

(e) Laurus Can Protect Its Interest. Laurus represents that by reason of its, or
of its management’s, business and financial experience, Laurus has the capacity
to evaluate the merits and risks of its investment in the Notes, and the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Ancillary Agreements. Further, Laurus is
aware of no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Ancillary Agreements.

 

(f) Accredited Investor. Laurus represents that it is an accredited investor
within the meaning of Regulation D under the Securities Act and that, as of the
date of this Agreement, Laurus (i) owns and invests on a discretionary basis at
least $100,000,000 in securities of issuers that are not affiliated with Laurus
and (ii) has an audited net worth of at least $25,000,000 according to its
latest audited annual financial statements.

 

(g) Shorting. Neither Laurus nor any of its Affiliates or investment partners
has, will, or will cause any Person, to directly engage in “short sales” of the
Parent’s Common Stock as long as any Minimum Borrowing Note shall be
outstanding.

 

(h) Patriot Act. Laurus certifies that, to the best of Laurus’ knowledge, Laurus
has not been designated, and is not owned or controlled, by a “suspected
terrorist” as defined in Executive Order 13224. Laurus seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, Laurus hereby represents, warrants and covenants
that: (i) none of the cash or property that Laurus will use to make the Loans
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no disbursement by Laurus to any
Company to the extent within Laurus’ control, shall cause Laurus to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. Laurus shall
promptly notify the Company Agent if any of these representations ceases to be
true and accurate regarding Laurus. Laurus agrees to provide the Company any
additional information regarding Laurus that the Company deems necessary or
convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. Laurus

 

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understands and agrees that if at any time it is discovered that any of the
foregoing representations are incorrect, or if otherwise required by applicable
law or regulation related to money laundering similar activities, Laurus may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of
Laurus’ investment in the Parent. Laurus further understands that the Parent may
release information about Laurus and, if applicable, any underlying beneficial
owners, to proper authorities if the Parent, in its sole discretion, determines
that it is in the best interests of the Parent in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.

 

(i) Limitation on Acquisition of Common Stock. Notwithstanding anything to the
contrary contained in this Agreement, any Ancillary Agreement, or any document,
instrument or agreement entered into in connection with any other transaction
entered into by and between Laurus and any Company (and/or Subsidiaries or
Affiliates of any Company), Laurus shall not acquire stock in the Parent
(including, without limitation, pursuant to a contract to purchase, by
exercising an option or warrant, by converting any other security or instrument,
by acquiring or exercising any other right to acquire, shares of stock or other
security convertible into shares of stock in the Parent, or otherwise, and such
options, warrants, conversion or other rights shall not be exercisable) to the
extent such stock acquisition would cause any interest (including any original
issue discount) payable by any Company to Laurus not to qualify as portfolio
interest, within the meaning of Section 881(c)(2) of the Internal Revenue Code
of 1986, as amended (the “Code”) by reason of Section 881(c)(3) of the Code,
taking into account the constructive ownership rules under Section 871(h)(3)(C)
of the Code (the “Stock Acquisition Limitation”). The Stock Acquisition
Limitation shall automatically become null and void without any notice to any
Company upon the earlier to occur of either (a) the Parent’s delivery to Laurus
of a Notice of Redemption (as defined in the Notes) or (b) the existence of an
Event of Default at a time when the average closing price of the Common Stock as
reported by Bloomberg, L.P. on the Principal Market for the immediately
preceding five trading days is greater than or equal to 150% of the Fixed
Conversion Price (as defined in the Minimum Borrowing Note).

 

16. Power of Attorney. Each Company hereby appoints Laurus, or any other Person
whom Laurus may designate as such Company’s attorney, with power to: (i) endorse
such Company’s name on any checks, notes, acceptances, money orders, drafts or
other forms of payment or security that may come into Laurus’ possession;
(ii) sign such Company’s name on any invoice or bill of lading relating to any
Accounts, drafts against Account Debtors, schedules and assignments of Accounts,
notices of assignment, financing statements and other public records,
verifications of Account and notices to or from Account Debtors; (iii) verify
the validity, amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and during the continuation of an
Event of Default, notify the post office authorities to change the address for
delivery of such Company’s mail to an address designated by Laurus, and to
receive, open and dispose of all mail addressed to such Company. Each Company
hereby ratifies and approves all acts of the attorney. Neither Laurus, nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law, except for gross negligence or willful misconduct.
This power, being coupled with an interest, is irrevocable so long as Laurus has
a security interest and until the Obligations have been fully satisfied.

 

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17. Term of Agreement. Laurus’ agreement to make Loans and extend financial
accommodations under and in accordance with the terms of this Agreement or any
Ancillary Agreement shall continue in full force and effect until the expiration
of the Term. At Laurus’ election following the occurrence of an Event of
Default, Laurus may terminate this Agreement. The termination of the Agreement
shall not affect any of Laurus’ rights hereunder or any Ancillary Agreement and
the provisions hereof and thereof shall continue to be fully operative until all
transactions entered into, rights or interests created and the Obligations have
been irrevocably disposed of, concluded or liquidated. Notwithstanding the
foregoing, Laurus shall release its security interests at any time after thirty
(30) days notice upon irrevocable payment to it of all Obligations if each
Company shall have (i) provided Laurus with an executed release of any and all
claims which such Company may have or thereafter have under this Agreement and
all Ancillary Agreements and (ii) paid to Laurus an early payment fee in an
amount equal to (1) five percent (5%) of the Capital Availability Amount if such
payment occurs prior to the first anniversary of the Closing Date, (2) four
percent (4%) of the Capital Availability Amount if such payment occurs on or
after the first anniversary of the Closing Date and prior to the second
anniversary of the Closing Date and (3) three percent (3%) of the Capital
Availability Amount if such termination occurs thereafter during the Term; such
fee being intended to compensate Laurus for its costs and expenses incurred in
initially approving this Agreement or extending same. Such early payment fee
shall be due and payable jointly and severally by the Companies to Laurus upon
termination by acceleration of this Agreement by Laurus due to the occurrence
and continuance of an Event of Default.

 

18. Termination of Lien. The Liens and rights granted to Laurus hereunder and
any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that any Company’s account may
from time to time be temporarily in a zero or credit position, until all of the
Obligations have been indefeasibly paid or performed in full after the
termination of this Agreement. Laurus shall not be required to send termination
statements to any Company, or to file them with any filing office, unless and
until this Agreement and the Ancillary Agreements shall have been terminated in
accordance with their terms and all Obligations indefeasibly paid in full in
immediately available funds. Upon the indefeasible payment in full of the
Obligations and the termination of this Agreement and the Ancillary Agreements,
Laurus agrees to promptly file UCC-3 termination statements at the joint and
several expense of the Companies to the extent reasonably required to evidence
the foregoing.

 

19. Events of Default. The occurrence of any of the following shall constitute
an “Event of Default”:

 

(a) failure to make payment of any of the Obligations when required hereunder,
and, in any such case, such failure shall continue for a period of three
(3) days following the date upon which any such payment was due; provided that
the failure to make payment of any Obligations arising solely as a result of
(i) the reclassification by Laurus of the Reserves pursuant to Section 2(a)(i)
or (ii) decreases by Laurus in the advance percentages used in determining
Accounts Availability, Inventory Availability and/or Stock Availability pursuant
to Section 2(a)(iii) shall not constitute an “Event of Default” unless such
failure shall continue for a period of six (6) business days following the date
upon which any such payment was due;

 

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(b) failure by any Company or any of its Subsidiaries to pay any taxes when due
unless such taxes are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been provided on such Company’s
and/or such Subsidiary’s books;

 

(c) failure to perform under, and/or committing any breach of, in any material
respect, this Agreement or any covenant contained herein, which failure or
breach shall continue without remedy for a period of fifteen (15) days after the
occurrence thereof;

 

(d) any representation, warranty or statement made by any Company or any of its
Subsidiaries hereunder, in any Ancillary Agreement, any certificate, statement
or document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should prove to be false or
misleading in any material respect on the date as of which made or deemed made;

 

(e) the occurrence of any default (or similar term) in the observance or
performance of any other agreement or condition relating to any indebtedness or
contingent obligation of any Company or any of its Subsidiaries (including,
without limitation, the contingent obligations evidenced by the O’Donnell Stock
Pledge Agreement and the indebtedness evidenced by the Subordinated Debt
Documentation) beyond the period of grace (if any), the effect of which default
is to cause, or permit the holder or holders of such indebtedness or beneficiary
or beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to become
payable;

 

(f) attachments or levies in excess of $50,000 in the aggregate are made upon
any Company’s assets or a judgment is rendered against any Company’s property
involving a liability of more than $50,000 which shall not have been vacated,
discharged, stayed or bonded within thirty (30) days from the entry thereof;

 

(g) any change in any Company’s or any of its Subsidiary’s condition or affairs
(financial or otherwise) which in Laurus’ reasonable, good faith opinion, could
reasonably be expected to have a Material Adverse Effect;

 

(h) any Lien created hereunder or under any Ancillary Agreement for any reason
ceases to be or is not a valid and perfected Lien having a first priority
interest;

 

(i) any Company or any of its Subsidiaries shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to without challenge within ten (10) days of the filing
thereof, or failure to have dismissed within thirty (30) days, any petition
filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;

 

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(j) any Company or any of its Subsidiaries shall admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business;

 

(k) any Company or any of its Subsidiaries directly or indirectly sells,
assigns, transfers, conveys, or suffers or permits to occur any sale,
assignment, transfer or conveyance of any assets of such Company or any interest
therein, except as permitted herein;

 

(l) any “Person” or “group” (as such terms are defined in Sections 13(d) and
14(d) of the Exchange Act, as in effect on the date hereof) is or becomes the
“beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange
Act), directly or indirectly, of 35% or more on a fully diluted basis of the
then outstanding voting equity interest of the Parent (other than a “Person” or
“group” that beneficially owns 35% or more of such outstanding voting equity
interests of the Parent on the date hereof) or (ii) the Board of Directors of
the Parent shall cease to consist of a majority of the Parent’s board of
directors on the date hereof (or directors appointed by a majority of the board
of directors in effect immediately prior to such appointment);

 

(m) the indictment or threatened indictment of any Company or any of its
Subsidiaries or any executive officer of any Company or any of its Subsidiaries
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceeding against any Company or any of its Subsidiaries or
any executive officer of any Company or any of its Subsidiaries pursuant to
which statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Company or any of its Subsidiaries that
could reasonably be expected to be adverse to the interests of Laurus in any
material respect;

 

(n) an Event of Default shall occur under and as defined in any Note, in any
other Ancillary Agreement, the Securities Purchase Agreement or any Related
Agreement referred to in the Securities Purchase Agreement;

 

(o) any Company or any of its Subsidiaries shall breach any term or provision of
any Ancillary Agreement to which it is a party, in any material respect which
breach is not cured within any applicable cure or grace period provided in
respect thereof (if any);

 

(p) any Company or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under this Agreement or any Ancillary Agreement,
or any proceeding shall be brought to challenge the validity, binding effect of
any Ancillary Agreement or any Ancillary Agreement ceases to be a valid, binding
and enforceable obligation of such Company or any of its Subsidiaries (to the
extent such Persons are a party thereto);

 

(q) on or after the consummation of an initial public offering of Common Stock,
an SEC stop trade order or Principal Market trading suspension of the Common
Stock shall be in effect for five (5) consecutive days or five (5) days during a
period of ten (10) consecutive days, excluding in all cases a suspension of all
trading on a Principal Market, provided that the Parent shall not have been able
to cure such trading suspension within thirty (30) days of the notice thereof or
list the Common Stock on another Principal Market within sixty (60) days of such
notice;

 

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(r) The Parent’s failure to deliver Common Stock to Laurus pursuant to and in
the form required by the Notes and this Agreement, if such failure to deliver
Common Stock shall not be cured within two (2) Business Days or any Company is
required to issue a replacement Note to Laurus and such Company shall fail to
deliver such replacement Note within seven (7) Business Days; or

 

(s) any Company, or any of its Subsidiaries shall take or participate in any
action which would be prohibited under the provisions of any of the Subordinated
Debt Documentation or make any payment on the indebtedness evidenced by the
Subordinated Debt Documentation to a Person that was not entitled to receive
such payments under the subordination provisions of applicable Subordinated Debt
Documentation.

 

20. Remedies. Following the occurrence of an Event of Default, Laurus shall have
the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations have been fully and indefeasibly satisfied,
Laurus shall retain its Lien in all Collateral. Laurus shall have, in addition
to all other rights provided herein and in each Ancillary Agreement, the rights
and remedies of a secured party under the UCC, and under other applicable law,
all other legal and equitable rights to which Laurus may be entitled, including
the right to take immediate possession of the Collateral, to require each
Company to assemble the Collateral, at Companies’ joint and several expense, and
to make it available to Laurus at a place designated by Laurus which is
reasonably convenient to both parties and to enter any of the premises of any
Company or wherever the Collateral shall be located, with or without force or
process of law, and to keep and store the same on said premises until sold (and
if said premises be the property of any Company, such Company agrees not to
charge Laurus for storage thereof), and the right to apply for the appointment
of a receiver for such Company’s property. Further, Laurus may, at any time or
times after the occurrence of an Event of Default, sell and deliver all
Collateral held by or for Laurus at public or private sale for cash, upon credit
or otherwise, at such prices and upon such terms as Laurus, in Laurus’ sole
discretion, deems advisable or Laurus may otherwise recover upon the Collateral
in any commercially reasonable manner as Laurus, in its sole discretion, deems
advisable. The requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Company Agent at Company Agent’s address as shown in
Laurus’ records, at least ten (10) days before the time of the event of which
notice is being given. Laurus may be the purchaser at any sale, if it is public.
In connection with the exercise of the foregoing remedies, Laurus is granted
permission to use all of each Company’s Intellectual Property. The proceeds of
sale shall be applied first to all costs and expenses of sale, including
attorneys’ fees, and second to the payment (in whatever order Laurus elects) of
all Obligations. After the indefeasible payment and satisfaction in full of all
of the Obligations, and after the payment by Laurus of any other amount required
by any provision of law, including Section 9-608(a)(1) of the UCC (but only
after Laurus has received what Laurus considers reasonable proof of a
subordinate party’s security interest), the surplus, if any, shall be paid to
Company Agent (for the benefit of the applicable Companies) or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. The Companies shall remain
jointly and severally liable to Laurus for any deficiency. In addition, the
Companies shall jointly and severally pay Laurus a liquidation fee (“Liquidation
Fee”) in the amount of five percent (5%) of the actual amount collected in
respect of each Account outstanding at any time during a Liquidation Period”.
For purposes hereof, “Liquidation Period” means a period: (i) beginning on the
earliest date of (x) an event referred

 

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to in Section 19(i) or 19(j), or (y) the cessation of any Company’s business;
and (ii) ending on the date on which Laurus has actually received all
Obligations due and owing it under this Agreement and the Ancillary Agreements.
The Liquidation Fee shall be paid on the date on which Laurus collects the
applicable Account by deduction from the proceeds thereof. Each Company and
Laurus acknowledge that the actual damages that would be incurred by Laurus
after the occurrence of an Event of Default would be difficult to quantify and
that such Company and Laurus have agreed that the fees and obligations set forth
in this Section and in this Agreement would constitute fair and appropriate
liquidated damages in the event of any such termination. The parties hereto each
hereby agree that the exercise by any party hereto of any right granted to it or
the exercise by any party hereto of any remedy available to it (including,
without limitation, the issuance of a notice of redemption, a borrowing request
and/or a notice of default), in each case, hereunder or under any Ancillary
Agreement which has been publicly filed with the SEC shall not constitute
confidential information and no party shall have any duty to the other party to
maintain such information as confidential, except for the portions of such
publicly filed documents that are subject to confidential treatment request made
by the Companies to the SEC.

 

21. Waivers. To the full extent permitted by applicable law, each Company hereby
waives (a) presentment, demand and protest, and notice of presentment, dishonor,
intent to accelerate, acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all of this
Agreement and the Ancillary Agreements or any other notes, commercial paper,
Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties at any
time held by Laurus on which such Company may in any way be liable, and hereby
ratifies and confirms whatever Laurus may do in this regard; (b) all rights to
notice and a hearing prior to Laurus’ taking possession or control of, or to
Laurus’ replevy, attachment or levy upon, any Collateral or any bond or security
that might be required by any court prior to allowing Laurus to exercise any of
its remedies; and (c) the benefit of all valuation, appraisal and exemption
laws. Each Company acknowledges that it has been advised by counsel of its
choices and decisions with respect to this Agreement, the Ancillary Agreements
and the transactions evidenced hereby and thereby.

 

22. Expenses. The Companies shall jointly and severally pay all of Laurus’
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute, suit
or proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. The Companies shall
also jointly and severally pay all of Laurus’ reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) the preparation, execution and delivery
of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) Laurus’ obtaining performance of the Obligations under this
Agreement and any Ancillary Agreements, including, but not limited to, the
enforcement or defense of Laurus’ security interests, assignments of rights and
Liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral, (d) any appraisals or re-appraisals of any property (real or
personal) pledged to Laurus by any Company or any of its Subsidiaries as
Collateral for, or any other Person as

 

40

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security for, the Obligations hereunder and (e) any consultations in connection
with any of the foregoing. The Companies shall also jointly and severally pay
Laurus’ customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Laurus for any Company or any of its
Subsidiaries at any Company’s or such Subsidiary’s request or in connection with
any Company’s loan account with Laurus. All such costs and expenses together
with all filing, recording and search fees, taxes and interest payable by the
Companies to Laurus shall be payable on demand and shall be secured by the
Collateral. If any tax by any Governmental Authority is or may be imposed on or
as a result of any transaction between any Company and/or any Subsidiary
thereof, on the one hand, and Laurus on the other hand, which Laurus is or may
be required to withhold or pay, the Companies hereby jointly and severally
indemnifies and holds Laurus harmless in respect of such taxes, and the
Companies will repay to Laurus the amount of any such taxes which shall be
charged to the Companies’ account; and until the Companies shall furnish Laurus
with indemnity therefor (or supply Laurus with evidence satisfactory to it that
due provision for the payment thereof has been made), Laurus may hold without
interest any balance standing to each Company’s credit and Laurus shall retain
its Liens in any and all Collateral.

 

23. Assignment By Laurus. Laurus may assign any or all of the Obligations
together with any or all of the security therefor to any Person which is not a
competitor of any Company and any such transferee shall succeed to all of
Laurus’ rights with respect thereto. Upon such transfer, Laurus shall be
released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Laurus may from time to time sell or otherwise grant
participations in any of the Obligations and the holder of any such
participation shall, subject to the terms of any agreement between Laurus and
such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. Each Company
agrees that each such holder may exercise any and all rights of banker’s lien,
set-off and counterclaim with respect to its participation in the Obligations as
fully as though such Company were directly indebted to such holder in the amount
of such participation.

 

24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any right,
remedy or option under this Agreement, any Ancillary Agreement or any supplement
hereto or thereto or any other agreement between or among any Company and Laurus
or delay by Laurus in exercising the same, will not operate as a waiver; no
waiver by Laurus will be effective unless it is in writing and then only to the
extent specifically stated. Laurus’ rights and remedies under this Agreement and
the Ancillary Agreements will be cumulative and not exclusive of any other right
or remedy which Laurus may have.

 

25. Application of Payments. Each Company irrevocably waive the right to direct
the application of any and all payments at any time or times hereafter received
by Laurus from or on such Company’s behalf and each Company hereby irrevocably
agrees that Laurus shall have the continuing exclusive right to apply and
reapply any and all payments received at any time or times hereafter against the
Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus’ books and records.

 

26. Indemnity. Each Company hereby jointly and severally indemnifies and holds
Laurus, and its respective affiliates, employees, attorneys and agents (each, an
“Indemnified Person”), harmless from and against any and all suits, actions,
proceedings, claims,

 

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damages, losses, liabilities and expenses of any kind or nature whatsoever
(including attorneys’ fees and disbursements and other costs of investigation or
defense, including those incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified Person as the result of
credit having been extended, suspended or terminated under this Agreement or any
of the Ancillary Agreements or with respect to the execution, delivery,
enforcement, performance and administration of, or in any other way arising out
of or relating to, this Agreement, the Ancillary Agreements or any other
documents or transactions contemplated by or referred to herein or therein and
any actions or failures to act with respect to any of the foregoing, except to
the extent that any such indemnified liability is finally determined by a court
of competent jurisdiction to have resulted solely from such Indemnified Person’s
gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.

 

27. Revival. The Companies further agree that to the extent any Company makes a
payment or payments to Laurus, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.

 

28. Borrowing Agency Provisions.

 

(a) Each Company hereby irrevocably designates Company Agent to be its attorney
and agent and in such capacity to borrow, sign and endorse notes, and execute
and deliver all instruments, documents, writings and further assurances now or
hereafter required hereunder, on behalf of such Company, and hereby authorizes
Laurus to pay over or credit all loan proceeds hereunder in accordance with the
request of Company Agent.

 

(b) The handling of this credit facility as a co-borrowing facility with a
borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to the Companies and at their request. Laurus shall not incur any
liability to any Company as a result thereof. To induce Laurus to do so and in
consideration thereof, each Company hereby indemnifies Laurus and holds Laurus
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Laurus by any Person arising from or
incurred by reason of the handling of the financing arrangements of the
Companies as provided herein, reliance by Laurus on any request or instruction
from Company Agent or any other action taken by Laurus with respect to this
Paragraph 28.

 

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(c) All Obligations shall be joint and several, and the Companies shall make
payment upon the maturity of the Obligations by acceleration or otherwise, and
such obligation and liability on the part of the Companies shall in no way be
affected by any extensions, renewals and forbearance granted by Laurus to any
Company, failure of Laurus to give any Company notice of borrowing or any other
notice, any failure of Laurus to pursue to preserve its rights against any
Company, the release by Laurus of any Collateral now or thereafter acquired from
any Company, and such agreement by any Company to pay upon any notice issued
pursuant thereto is unconditional and unaffected by prior recourse by Laurus to
any Company or any Collateral for such Company’s Obligations or the lack
thereof.

 

(d) Each Company expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Company may now or hereafter have against the other or other Person
directly or contingently liable for the Obligations, or against or with respect
to any other’s property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until all Obligations have been indefeasibly paid in full and
this Agreement has been irrevocably terminated.

 

(e) Each Company represents and warrants to Laurus that (i) Companies have one
or more common shareholders, directors and officers, (ii) the businesses and
corporate activities of Companies are closely related to, and substantially
benefit, the business and corporate activities of Companies, (iii) the financial
and other operations of Companies are performed on a combined basis as if
Companies constituted a consolidated corporate group, (iv) Companies will
receive a substantial economic benefit from entering into this Agreement and
will receive a substantial economic benefit from the application of each Loan
hereunder, in each case, whether or not such amount is used directly by any
Company and (v) all requests for Loans hereunder by the Company Agent are for
the exclusive and indivisible benefit of the Companies as though, for purposes
of this Agreement, the Companies constituted a single entity.

 

29. Notices. Any notice or request hereunder may be given to any Company,
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given three (3) Business Days after the date when
deposited in the mail or with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.

 

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Notices shall be provided as follows:

 

If to Laurus:    Laurus Master Fund, Ltd.      c/o Laurus Capital Management,
LLC      825 Third Avenue, 14th Fl.      New York, New York 10022     
Attention:    John E. Tucker, Esq.      Telephone:    (212) 541-4434     
Telecopier:    (212) 541-5800

If to any Company,

or Company Agent:

   Accentia Biopharmaceuticals, Inc.      324 South Hyde Park Ave., Suite 350  
   Tampa, Florida 33606      Attention:    Chief Financial Officer     
Telephone:    813-864-2554      Facsimile:    813-258-1659

 

or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.

 

30. Governing Law, Jurisdiction and Waiver of Jury Trial.

 

(a) THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.

 

(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY,
ON THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR
ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND
EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE

 

44

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OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES
ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT AT THE ADDRESS
SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF COMPANY AGENT’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

 

(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS, AND/OR ANY
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

 

31. Limitation of Liability. Each Company acknowledges and understands that in
order to assure repayment of the Obligations hereunder Laurus may be required to
exercise any and all of Laurus’ rights and remedies hereunder and agrees that,
except as limited by applicable law, neither Laurus nor any of Laurus’ agents
shall be liable for acts taken or omissions made in connection herewith or
therewith except for actual bad faith.

 

32. Entire Understanding; Maximum Interest. This Agreement and the Ancillary
Agreements contain the entire understanding among each Company and Laurus as to
the subject matter hereof and thereof and any promises, representations,
warranties or guarantees not herein contained shall have no force and effect
unless in writing, signed by each Company’s and Laurus’ respective officers.
Neither this Agreement, the Ancillary Agreements, nor any portion or provisions
thereof may be changed, modified, amended, waived, supplemented, discharged,
cancelled or terminated orally or by any course of dealing, or in any manner
other than by an agreement in writing, signed by the party to be charged.
Nothing contained in this Agreement, any Ancillary Agreement or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law. In the event that the
rate of interest or dividends required to be paid or other charges hereunder
exceed the maximum rate permitted by such law, any payments in excess of such
maximum shall be credited against amounts owed by the Companies to Laurus and
thus refunded to the Companies.

 

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33. Severability. Wherever possible each provision of this Agreement or the
Ancillary Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.

 

34. Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by Laurus and the closing of the
transactions contemplated hereby to the extent provided therein. All statements
as to factual matters contained in any certificate or other instrument delivered
by or on behalf of the Companies pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Companies hereunder solely as of the date of such certificate
or instrument. All indemnities set forth herein shall survive the execution,
delivery and termination of this Agreement and the Ancillary Agreements and the
making and repaying of the Obligations.

 

35. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.

 

36. Counterparts; Telecopier Signatures. This Agreement may be executed in one
or more counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier transmission shall be deemed to be any
original signature hereto.

 

37. Construction. The parties acknowledge that each party and its counsel have
reviewed this Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments, schedules or
exhibits thereto.

 

38. Publicity. Each Company hereby authorizes Laurus to make appropriate
announcements of the financial arrangement entered into by and among each
Company and Laurus, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Laurus shall in its sole and absolute discretion deem appropriate, or as
required by applicable law.

 

39. Joinder. It is understood and agreed that any Person that desires to become
a Company hereunder, or is required to execute a counterpart of this Agreement
after the date hereof pursuant to the requirements of this Agreement or any
Ancillary Agreement, shall become a Company hereunder by (a) executing a Joinder
Agreement in form and substance satisfactory to Laurus, (b) delivering
supplements to such exhibits and annexes to this Agreement and the Ancillary
Agreements as Laurus shall reasonably request and (c) taking all actions as
specified in this Agreement as would have been taken by such Company had it been
an original party to this Agreement, in each case with all documents required
above to be delivered to Laurus and with all documents and actions required
above to be taken to the reasonable satisfaction of Laurus.

 

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40. Legends. The Securities shall bear legends as follows;

 

(a) The Minimum Borrowing Note shall bear substantially the following legend:

 

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE,
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO ACCENTIA BIOPHARMACEUTICALS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.”

 

(b) The Revolving Note shall bear substantially the following legend:

 

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ACCENTIA
BIOPHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

(c) Any shares of Common Stock issued pursuant to conversion of the Minimum
Borrowing Note or exercise of the Warrants, shall bear a legend which shall be
in substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ACCENTIA BIOPHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

47

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(d) The Warrants shall bear substantially the following legend:

 

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
ACCENTIA BIOPHARMACEUTICALS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

[Balance of page intentionally left blank; signature page follows.]

 

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IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the
date first written above.

 

ACCENTIA BIOPHARMACEUTICALS, INC.

By:

 

 

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Name:

 

 

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Title:

 

 

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THE ANALYTICA GROUP, INC.

By:

 

 

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Name:

 

 

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Title:

 

 

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LAURUS MASTER FUND, LTD.

By:

 

 

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Name:

 

 

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Title:

 

 

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Annex A - Definitions

 

“Account Debtor” means any Person who is or may be obligated with respect to, or
on account of, an Account.

 

“Accountants” has the meaning given to such term in Section 11(a).

 

“Accounts” means all “accounts”, as such term is defined in the UCC, now owned
or hereafter acquired by any Person, including: (a) all accounts receivable,
other receivables, book debts and other forms of obligations (other than forms
of obligations evidenced by Chattel Paper or Instruments) (including any such
obligations that may be characterized as an account or contract right under the
UCC); (b) all of such Person’s rights in, to and under all purchase orders or
receipts for goods or services; (c) all of such Person’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.

 

“Accounts Availability” means the amount of Loans against Eligible Accounts
Laurus may from time to time make available to Company Agent up to eighty-five
percent (85%) of the net face amount of Eligible Accounts based on Accounts of
the Companies.

 

“Affiliate” means, with respect to any Person, (a) any other Person (other than
a Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person or (b) any other Person who is a
director or officer (i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For the purposes of this
definition, control of a Person shall mean the power (direct or indirect) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.

 

“Ancillary Agreements” means the Notes, the Warrants, the Registration Rights
Agreements, the McKesson Subordination Agreement, each Security Document and all
other agreements, instruments, documents, mortgages, pledges, powers of
attorney, consents, assignments, contracts, notices, security agreements, trust
agreements and guarantees whether heretofore, concurrently, or hereafter
executed by or on behalf of any Company, any of its Subsidiaries or any other
Person or delivered to Laurus, relating to this Agreement or to the transactions
contemplated by this Agreement or otherwise relating to the relationship between
or among any Company and Laurus, as each of the same may be amended,
supplemented, restated or otherwise modified from time to time.

 

“Balance Sheet Date” has the meaning given such term in Section 12(f)(ii).

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“Biovest” means Biovest International, Inc., a Delaware corporation and
non-wholly owned subsidiary of the Parent.

 

“Books and Records” means all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.

 

“Business Day” means a day on which Laurus is open for business and that is not
a Saturday, a Sunday or other day on which banks are required or permitted to be
closed in the State of New York.

 

“Capital Availability Amount” means $5,000,000.

 

“Charter” has the meaning given such term in Section 12(c)(iv).

 

“Chattel Paper” means all “chattel paper,” as such term is defined in the UCC,
including electronic chattel paper, now owned or hereafter acquired by any
Person.

 

“Closing Date” means the date on which any Company shall first receive proceeds
of the initial Loans or the date hereof, if no Loan is made under the facility
on the date hereof.

 

“Code” has the meaning given such term in Section 15(i).

 

“Collateral” means all of each Company’s property and assets, whether real or
personal, tangible or intangible, and whether now owned or hereafter acquired,
or in which it now has or at any time in the future may acquire any right, title
or interests including all of the following property in which it now has or at
any time in the future may acquire any right, title or interest:

 

(a) all Inventory;

 

(b) all Equipment;

 

(c) all Fixtures;

 

(d) all Goods

 

(e) all General Intangibles;

 

(f) all Accounts;

 

(g) all Deposit Accounts, other bank accounts and all funds on deposit therein;

 

(h) all Investment Property;

 

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(i) all Stock;

 

(j) all Chattel Paper;

 

(k) all Letter-of-Credit Rights;

 

(l) all Instruments;

 

(m) all commercial tort claims set forth on Schedule 1(A);

 

(n) all Books and Records;

 

(o) all Intellectual Property;

 

(p) all Supporting Obligations including letters of credit and guarantees issued
in support of Accounts, Chattel Paper, General Intangibles and Investment
Property;

 

(q) (i) all money, cash and cash equivalents and (ii) all cash held as cash
collateral to the extent not otherwise constituting Collateral, all other cash
or property at any time on deposit with or held by Laurus for the account of any
Company (whether for safekeeping, custody, pledge, transmission or otherwise);
and

 

(r) all products and Proceeds of all or any of the foregoing, tort claims and
all claims and other rights to payment including (i) insurance claims against
third parties for loss of, damage to, or destruction of, the foregoing
Collateral and (ii) payments due or to become due under leases, rentals and
hires of any or all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.

 

“Common Stock” means the shares of stock representing the Parent’s common equity
interests.

 

“Company Agent” means Accentia Biopharmaceuticals, Inc.

 

“Contract Rate” has the meaning given such term in the respective Note.

 

“Default” means any act or event which, with the giving of notice or passage of
time or both, would constitute an Event of Default.

 

“Deposit Accounts” means all “deposit accounts” as such term is defined in the
UCC, now or hereafter held in the name of any Person, including, without
limitation, the Lockboxes.

 

“Disclosure Controls” has the meaning given such term in Section 12(f)(iv).

 

“Documents” means all “documents”, as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including all bills of
lading, dock warrants, dock receipts, warehouse receipts, and other documents of
title, whether negotiable or non-negotiable.

 

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“Eligible Accounts” means each Account of each Company which conforms to the
following criteria: (a) shipment of the merchandise or the rendition of services
has been completed; (b) no return, rejection or repossession of the merchandise
has occurred; (c) merchandise or services shall not have been rejected or
disputed by the Account Debtor and there shall not have been asserted any
offset, defense or counterclaim; (d) continues to be in full conformity with the
representations and warranties made by such Company to Laurus with respect
thereto; (e) Laurus is, and continues to be, satisfied with the credit standing
of the Account Debtor in relation to the amount of credit extended; (f) there
are no facts existing or threatened which are likely to result in any adverse
change in an Account Debtor’s financial condition; (g) is documented by an
invoice in a form approved by Laurus and shall not be unpaid more than ninety
(90) days from invoice date; (h) not more than twenty-five percent (25%) of the
unpaid amount of invoices due from such Account Debtor, other than from McKesson
or Cardinal Health, remains unpaid more than ninety (90) days from invoice date;
(i) is not evidenced by chattel paper or an instrument of any kind with respect
to or in payment of the Account unless such instrument is duly endorsed to and
in possession of Laurus or represents a check in payment of an Account; (j) the
Account Debtor is located in the United States; provided, however, Laurus may,
from time to time, in the exercise of its sole discretion and based upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts notwithstanding that such Account is due
from an Account Debtor located outside of the United States; (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions with
any employee, officer, director, stockholder or Affiliate of any Company; (m) is
payable to such Company; (n) does not arise out of a bill and hold sale prior to
shipment and does not arise out of a sale to any Person to which such Company is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between such Company, on the one
hand, and the United States, on the other hand, any state, or any department,
agency or instrumentality of any of them, such Company has so notified Laurus,
in writing, prior to the creation of such Account, and there has been compliance
with any governmental notice or approval requirements, including compliance with
the Federal Assignment of Claims Act; (q) is a good and valid account
representing an undisputed bona fide indebtedness incurred by the Account Debtor
therein named, for a fixed sum as set forth in the invoice relating thereto with
respect to an unconditional sale and delivery upon the stated terms of goods
sold by such Company or work, labor and/or services rendered by such Company;
(r) does not arise out of progress billings prior to completion of the order;
(s) the total unpaid Accounts from such Account Debtor, other than from McKesson
or Cardinal Health, does not exceed twenty-five percent (25%) of all Eligible
Accounts; (t) such Company’s right to payment is absolute and not contingent
upon the fulfillment of any condition whatsoever; (u) such Company is able to
bring suit and enforce its remedies against the Account Debtor through judicial
process; (v) does not represent interest payments, late or finance charges owing
to such Company, and (w) is otherwise satisfactory to Laurus as determined by
Laurus in the exercise of its sole discretion. In the event any Company requests
that Laurus include within Eligible Accounts certain Accounts of one or more of
such Company’s acquisition targets, Laurus shall at the time of such request
consider such inclusion, but any such inclusion shall be at the sole option of
Laurus and shall at all times be subject to the execution and delivery to Laurus
of all such documentation (including, without limitation, guaranty and security
documentation) as Laurus may require in its sole discretion.

 

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“Eligible Inventory” means Inventory owned by a Company which Laurus, in its
sole and absolute discretion, determines: (a) is subject to a first priority
perfected Lien in favor of Laurus and is subject to no other Liens whatsoever
(other than Permitted Liens); (b) is located on premises with respect to which
Laurus has received a landlord or mortgagee waiver acceptable in form and
substance to Laurus; (c) is not in transit; (d) is in good condition and meets
all standards imposed by any governmental agency, or department or division
thereof having regulatory Governmental Authority over such Inventory, its use or
sale including the Federal Fair Labor Standards Act of 1938 as amended, and all
rules, regulations and orders thereunder; (e) is currently either usable or
salable in the normal course of such Company’s business; (f) is not placed by
such Company on consignment or held by such Company on consignment from another
Person; (g) is in conformity with the representations and warranties made by
such Company to Laurus with respect thereto; (h) is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreement with
any third parties; (i) does not require the consent of any Person for the
completion of manufacture, sale or other disposition of such Inventory and such
completion, manufacture or sale does not constitute a breach or default under
any contract or agreement to which such Company is a party or to which such
Inventory is or may be subject; (j) is not work-in-process; (k) is covered by
casualty insurance acceptable to Laurus and under which Laurus has been named as
a lender’s loss payee and additional insured; and (l) not to be ineligible for
any other reason.

 

“Eligible Subsidiary” means each Subsidiary of the Parent set forth on Exhibit A
hereto, as the same may be updated from time to time with Laurus’ written
consent.

 

“Eligible Stock” means the shares of common stock of Star Scientific, Inc.
pledged by the O’Donnell Trust in support of the Obligations pursuant to the
O’Donnell Stock Pledge Agreement to the extent freely tradeable.

 

“Equipment” means all “equipment” as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including any and all
machinery, apparatus, equipment, fittings, furniture, Fixtures, motor vehicles
and other tangible personal property (other than Inventory) of every kind and
description that may be now or hereafter used in such Person’s operations or
that are owned by such Person or in which such Person may have an interest, and
all parts, accessories and accessions thereto and substitutes and replacements
therefor.

 

“ERISA” has the meaning given such term in Section 12(bb).

 

“Event of Default” means the occurrence of any of the events set forth in
Section 19.

 

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

 

“Exchange Act Filings” means the Parent’s filings under the Exchange Act made
prior to the date of this Agreement.

 

“Existing Credit Agreement” has the meaning given such term in
Section 5(b)(vii).

 

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“Financial Reporting Controls” has the meaning given such term in
Section 12(f)(v).

 

“Financial Statements” has the meaning given such term in Section 12(u).

 

“Fixtures” means all “fixtures” as such term is defined in the UCC, now owned or
hereafter acquired by any Person.

 

“Formula Amount” has the meaning given such term in Section 2(a)(i).

 

“GAAP” means generally accepted accounting principles, practices and procedures
in effect from time to time in the United States of America.

 

“General Intangibles” means all “general intangibles” as such term is defined in
the UCC, now owned or hereafter acquired by any Person including all right,
title and interest that such Person may now or hereafter have in or under any
contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other business
associations, permits, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, Software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials, Books and Records, Goodwill
(including the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.

 

“Goods” means all “goods”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located, including embedded software
to the extent included in “goods” as defined in the UCC, manufactured homes,
standing timber that is cut and removed for sale and unborn young of animals.

 

“Goodwill” means all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

 

“Harbinger” means Harbinger Mezzanine Partners, L.P., a Delaware limited
partnership.

 

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“Harbinger Debt Documentation” shall mean the Loan Agreement, dated as of
August 9, 2002 between Harbinger and TEAMM and each other document entered into
in connection therewith (each as amended, modified and/or supplemented from time
to time).

 

“IMOR-Analytica” means IMOR-Analytica GmbH, a corporation organized under the
laws of Germany and wholly-owned subsidiary of The Analytica Group, Inc., a
wholly-owned subsidiary of the Parent.

 

“Initial Public Offering” means the underwritten public sale of shares of Common
Stock pursuant to a registration statement declared effective by the SEC
resulting in the receipt by the Parent of net cash proceeds (calculated before
underwriting discounts and commissions) of no less than $30,000,000.

 

“Instruments” means all “instruments”, as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.

 

“Intellectual Property” means any and all patents, trademarks, service marks,
trade names, copyrights, trade secrets, Licenses, information and other
proprietary rights and processes.

 

“Inventory” means all “inventory”, as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including all inventory,
merchandise, goods and other personal property that are held by or on behalf of
such Person for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process, finished
goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person’s business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software.

 

“Inventory Availability” means the amount of Loans against Eligible Inventory
Laurus may from time to time make available to Companies up to the lesser of
(a) fifty percent (50%) of the value of Companies’ Eligible Inventory
(calculated on the basis of the lower of cost or market, on a first-in first-out
basis) and (b) $750,000.

 

“Investment Property” means all “investment property”, as such term is defined
in the UCC, now owned or hereafter acquired by any Person, wherever located.

 

“Letter-of-Credit Rights” means “letter-of-credit rights” as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.

 

“License” means any rights under any written agreement now or hereafter acquired
by any Person to use any trademark, trademark registration, copyright, copyright
registration or invention for which a patent is in existence or other license of
rights or interests now held or hereafter acquired by any Person.

 

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“Lien” means any mortgage, security deed, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind or
nature whatsoever including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction.

 

“Loans” has the meaning given such term in Section 2(a)(i) and shall include all
other extensions of credit hereunder and under any Ancillary Agreement.

 

“Lockboxes” has the meaning given such term in Section 8(a).

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of any Company or any of its Subsidiaries (taken individually and
as a whole), (b) any Company’s or any of its Subsidiary’s ability to pay or
perform the Obligations in accordance with the terms hereof or any Ancillary
Agreement, (c) the value of the Collateral, the Liens on the Collateral or the
priority of any such Lien or (d) the practical realization of the benefits of
Laurus’ rights and remedies under this Agreement and the Ancillary Agreements.

 

“McKesson” means the McKesson Corporation, a Delaware corporation.

 

“McKesson Restructuring Agreement” shall mean the agreement dated as of
February 9, 2005 between the Parent and McKesson addressing the (i) repayment of
all obligations owing to McKesson, (ii) the termination of the Biologics
Distribution Agreement, dated as of February 27, 2004 between the Parent and
McKesson (the “BD Agreement”) and settle the $3,000,000 deposit (the “McKesson
Deposit”) held by the Parent in connection the BD Agreement and (iii) redemption
and/or repurchase of all shares of the Parent’s Series E preferred stock held by
McKesson at the time of such redemption/repurchase.

 

“McKesson Restructuring Payment” shall mean the maximum amount required to be
paid pursuant to the terms of the McKesson Restructuring Agreement to (i) repay
all indebtedness owed by the Parent and its Subsidiaries to McKesson,
(ii) terminate the BD Agreement and settle the McKesson Deposit and (iii) redeem
and/or repurchase all shares of the Parent’s Series E preferred stock held by
McKesson at the time of such redemption/ repurchase, which amount shall not
exceed $14,200,000.

 

“McKesson Subordination Agreement” has the meaning given such term in
Section 5(b)(vi).

 

“Minimum Borrowing Note” means that certain Secured Convertible Minimum
Borrowing Note dated as of the Closing Date made by the Companies in favor of
Laurus in the original principal amount of $2,500,000, as the same may be
amended and restated, further amended, supplemented, restated and/or otherwise
modified from time to time.

 

“MSB” has the meaning given such term in Section 5(b)(vii).

 

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“NASD” has the meaning given such term in Section 13(b).

 

“Note Shares” has the meaning given such term in Section 12(a).

 

“Notes” means the Minimum Borrowing Note and the Revolving Note made by
Companies in favor of Laurus in connection with the transactions contemplated
hereby, as each of the same may be amended, supplemented, restated and/or
otherwise modified from time to time.

 

“Obligations” means all Loans, all advances, debts, liabilities, obligations,
covenants and duties owing by each Company and each of its Subsidiaries to
Laurus (or any corporation that directly or indirectly controls or is controlled
by or is under common control with Laurus) of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including any debt, liability or
obligation owing from any Company and/or each of its Subsidiaries to others
which Laurus may have obtained by assignment or otherwise and further including
all interest (including interest accruing at the then applicable rate provided
in this Agreement after the maturity of the Loans and interest accruing at the
then applicable rate provided in this Agreement after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed or allowable in such proceeding), charges or any other payments each
Company and each of its Subsidiaries is required to make by law or otherwise
arising under or as a result of this Agreement, the Ancillary Agreements or
otherwise, together with all reasonable expenses and reasonable attorneys’ fees
chargeable to the Companies’ or any of their Subsidiaries’ accounts or incurred
by Laurus in connection therewith.

 

“O’Donnell Stock Pledge Agreement” has the meaning given such term in
Section 5(b)(vi).

 

“O’Donnell Trust” has the meaning given such term in Section 5(b)(vi).

 

“Payment Intangibles” means all “payment intangibles” as such term is defined in
the UCC, now owned or hereafter acquired by any Person, including, a General
Intangible under which the Account Debtor’s principal obligation is a monetary
obligation.

 

“Permitted Liens” means (a) Liens of carriers, warehousemen, artisans, bailees,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (b) Liens incurred in the ordinary course of business in
connection with worker’s compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (i) not
overdue or (ii) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of the Companies and
their Subsidiaries, as applicable, in conformity with GAAP; (c) Liens in favor
of Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Companies and
their Subsidiaries, as applicable, in conformity with GAAP; and

 

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which have no effect on the priority of Liens in favor of Laurus or the value of
the assets in which Laurus has a Lien; (e) Purchase Money Liens securing
Purchase Money Indebtedness to the extent permitted in this Agreement and
(f) Liens specified on Schedule 2 hereto.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person’s successors and assigns.

 

“Principal Market” means the NASD Over The Counter Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market System, American Stock Exchange or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).

 

“Proceeds” means “proceeds”, as such term is defined in the UCC and, in any
event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Company or any other Person from time to
time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by any
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.

 

“Purchase Money Indebtedness” means (a) any indebtedness incurred for the
payment of all or any part of the purchase price of any fixed asset, including
indebtedness under capitalized leases, (b) any indebtedness incurred for the
sole purpose of financing or refinancing all or any part of the purchase price
of any fixed asset, and (c) any renewals, extensions or refinancings thereof
(but not any increases in the principal amounts thereof outstanding at that
time).

 

“Purchase Money Lien” means any Lien upon any fixed assets that secures the
Purchase Money Indebtedness related thereto but only if such Lien shall at all
times be confined solely to the asset the purchase price of which was financed
or refinanced through the incurrence of the Purchase Money Indebtedness secured
by such Lien and only if such Lien secures only such Purchase Money
Indebtedness.

 

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“Registration Rights Agreements” means that certain Minimum Borrowing Note
Registration Rights Agreement dated as of the Closing Date by and between the
Parent and Laurus and each other registration rights agreement by and between
the Parent and Laurus, as each of the same may be amended, modified and
supplemented from time to time.

 

“Revolving Note” means that certain Amended and Restated Secured Non-Convertible
Revolving Note dated as of the Closing Date made by the Companies in favor of
Laurus in the original principal amount of $5,000,000, without duplication of
amounts outstanding under the Minimum Borrowing Note, as the same may be amended
and restated, further amended, supplemented and/or otherwise modified from time
to time.

 

“SEC” means the Securities and Exchange Commission.

 

“Securities” means the Notes and the Warrants and the shares of Common Stock
which may be issued pursuant to conversion of the Minimum Borrowing Note in
whole or in part or exercise of such Warrants.

 

“Securities Act” has the meaning given such term in Section 12(r).

 

“Securities Act Filings” means the Parent’s filings under the Securities Act
made prior to the date of this Agreement.

 

“Securities Purchase Agreement” has the meaning provided in Section 5(b)(iv).

 

“Security Documents” means all security agreements, mortgages, cash collateral
deposit letters, pledges and other agreements which are executed by any Company,
any of its Subsidiaries or the O’Donnell Trust in favor of Laurus.

 

“Software” means all “software” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

 

“Stock” means all certificated and uncertificated shares, options, warrants,
membership interests, general or limited partnership interests, participation or
other equivalents (regardless of how designated) of or in a corporation,
partnership, limited liability company or equivalent entity whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Securities Exchange Act of 1934).

 

“Stock Availability” means the amount of Loans against Eligible Stock that
Laurus may from time to time make available to the Companies up to fifty percent
(50%) of the value of the O’Donnell Trust’s Eligible Stock as determined by
reference at such time to the most recent closing market price of the Eligible
Stock on the NASDAQ National Market as reported by Bloomberg, L.P.

 

“Subordinated Debt Documentation” means, collectively, the “Accentia Assumption
of Debt and Security Agreement” dated as of December 31, 2003 between the
Parent, certain of its Subsidiaries and McKesson, together with all other
documentation entered into in connection therewith or related thereto, each as
amended, modified, restated and/or supplemented from time to time.

 

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“Subsidiary” means, with respect to any Person, (i) any other Person whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors or other
governing body of such other Person, are owned, directly or indirectly, by such
Person or (ii) any other Person in which such Person owns, directly or
indirectly, more than 50% of the equity interests at such time; provided that
(x) for so long as each of Accent RX, Inc., a Florida corporation ( “Accent”)
and Biovax, Inc, a Delaware corporation (“Biovax” and, together with Accent, the
“Inactive Subsidiaries” and each an “Inactive Subsidiary”) holds no significant
assets or liabilities and does not engage in any business activities, the
defined term “Subsidiary” as used in this Agreement and the Ancillary Agreements
shall not include such Inactive Subsidiary; (it being understood and agreed that
if such Inactive Subsidiary shall at any time after the date hereof hold
significant assets or liabilities or engage in any business activities, such
Inactive Subsidiary shall thereafter be deemed a Subsidiary hereunder and shall
otherwise be subject to all terms, agreements, representations, warranties and
covenants otherwise applicable to Subsidiaries under this Agreement and the
Ancillary Agreements) and (y) the defined term “Subsidiary” as used in this
Agreement and the Ancillary Agreements shall not include each of Biovest and
IMOR-Analytica.

 

“Supporting Obligations” means all “supporting obligations” as such term is
defined in the UCC.

 

“TEAMM” means TEAMM Pharmaceuticals, Inc., a Florida corporation and
wholly-owned subsidiary of the Parent.

 

“Term” means the Closing Date through the close of business on the day
immediately preceding the third anniversary of the Closing Date, subject to
acceleration at the option of Laurus upon the occurrence of an Event of Default
hereunder or other termination hereunder.

 

“UCC” means the Uniform Commercial Code as the same may, from time to time be in
effect in the State of New York; provided, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Laurus’ Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.

 

“Warrant Shares” has the meaning given such term in Section 12(a).

 

12

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“Warrants” means that certain Common Stock Purchase Warrant dated as of the
Closing Date made by the Parent in favor of Laurus and each other warrant made
by the Parent in favor Laurus, as each of the same may be amended, restated,
modified and/or supplemented from time to time.

 

13

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Exhibit A

 

Eligible Subsidiaries

 

The Analytica Group, Inc.

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Exhibit B

 

Borrowing Base Certificate

 

[To be inserted]