Exhibit 10.1

 

SECURITY AGREEMENT

 

This Security Agreement is made as of November 8, 2005 by and among LAURUS
MASTER FUND, LTD., a Cayman Islands corporation (“Laurus”), AIRNET
COMMUNICATIONS CORPORATION, a Delaware 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”). For the
purposes of this Agreement, the term “Laurus” shall include all successors and
assigns of Laurus Master Fund, Ltd.

 

BACKGROUND

 

The Companies have requested that Laurus make advances available to the
Companies; and

 

Laurus has agreed to make such advances on the terms and conditions set forth in
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 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 (such amount, the “Available Amount”) (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 based on the
occurrence of significant business developments of any Company (the “Reserves”);
provided that Laurus cannot create or increase any Reserves solely by reason of
the results of the Company’s field trial involving its “SuperCapacity” adaptive
array base stations and (y) an amount equal to (I) the Accounts Availability
plus (II) the Inventory Availability plus (III) the Applicable Availability
Adjustment Amount 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 Section 2(a)(i)(y)(IV) shall be referred to as the “Formula Amount”;
provided, however, that (A) the Formula Amount determined after the creation of
Reserves by Laurus in its good faith judgment (solely with respect to such
determination) (i) shall not be used as the basis for payment of the interest
due on Overadvances under Section 5(b)(ii) and (ii) shall not be used for 60
days following such determination to determine whether the aggregate outstanding
principal amount of the Loans prior to such increase or decrease are in excess
of the Formula Amount in order to require a payment under Section 3(d) and
(B) so long as no Event of Default has occurred and is continuing, the Available
Amount shall not be less than Applicable Availability Adjustment Amount at such
time. Within such limits, and subject to the terms and conditions hereof, the
Companies may obtain Loans, repay Loans and obtain Loans again on one or more
occasions. The Companies shall, jointly and severally, execute and deliver to
Laurus on the Closing Date the Revolving Note and the Minimum Borrowing Note
evidencing the Loans.

 

(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
and/or Inventory Availability (provided that Laurus cannot decrease any advance
percentages solely by reason of the results of the Company’s field trial
involving its “SuperCapacity” adaptive array base stations and each of the
Companies hereby consent to any such increases or decreases which may limit or

 

- 2 -

--------------------------------------------------------------------------------

restrict advances requested by the Companies; provided, however, that the
Formula Amount determined after any such increase or decrease in such advance
percentages (solely with respect to such determination) (i) shall not be used as
the basis for payment of the interest due on Overadvances under Section 5(b)(ii)
and (ii) shall not be used for 60 days following such determination to determine
whether the aggregate outstanding principal amount of the Loans prior to such
increase or decrease are in excess of the Formula Amount in order to require a
payment under Section 3(d).

 

(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.

 

(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, 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,
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); provided that Laurus shall not sell, assign, transfer or
dispose of any Intellectual Property (in whole or in part), or, prior to the
occurrence and the continuance of an Event of Default, otherwise take any action
that may have a material adverse effect on any Intellectual Property. Prior to
the occurrence and continuance of an Event of Default, Laurus shall give the
Company 5 days’ prior written notice that it intends to take any such action,
and shall give the Company written notice within 5 days after taking such
action, in both cases with pertinent details as to the action performed; it
being understood and agreed that no such notice shall be necessary after the
occurrence and during the continuance of an Event of Default. 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 presumed correct in the absence of
manifest error.

 

(b) [Intentionally Deleted]

 

- 3 -

--------------------------------------------------------------------------------

3. Repayment of the Loans. The Companies (a) may borrow and prepay Loans in
accordance with the terms and conditions hereof, (b) 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);
(c) 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 (d) subject to Section 2(a) and the provisos to
subsections (w) and (l) of the definitions of “Eligible Accounts” and “Eligible
Inventory”, respectively, 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; provided, however, if
such excess is caused by an adjustment by Laurus to the Formula Amount through
the creation of reserves under Section 2(a)(i), the changing of advance
percentages in Section 2(a)(iii), the amount of Eligible Accounts by reason of
clause (w) in the definition thereunder or the amount of Eligible Inventory by
reason of clause (l) in the definition thereunder, the Companies shall have an
additional 60 days to repay such excess. 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 11:00 a.m. (New York time) on the Business Day of its request
to incur, on that 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 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.

 

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 any deposit account
maintained with the Lockbox Bank and established pursuant to Section 8(a) for
said interest when due.

 

- 4 -

--------------------------------------------------------------------------------

(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 for so long
as such Event of Default shall be continuing 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 six-tenths
percent (3.60%) 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, but
subject to Section 2(a) and the provisos to subsections (w) and (l) of the
definitions of “Eligible Accounts” and “Eligible Inventory”, respectively, in
the event the Loans exceed the Formula Amount (each such event, an
“Overadvance”), all such Overadvances shall bear interest (in lieu of the
regularly scheduled interest set forth in the respective Note) at a rate equal
to one and one half percent (1.5%) 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 by Sections 11(a), (b), (d) or (e) on or before the date required by
such sections, the Companies shall jointly and severally pay Laurus an aggregate
fee in the amount of $250.00 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)(iii) 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

 

- 5 -

--------------------------------------------------------------------------------

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) will be paid on the Closing Date
and shall be $45,000 for such expenses referred to in this Section 5(b)(iv). The
$15,000 deposit previously paid by Parent shall be credited against the $45,000
due on the Closing Date.

 

6. Security Interest.

 

(a) To secure the prompt payment to Laurus of the Obligations, each Company
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 and (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof. 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.

 

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 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)

 

- 6 -

--------------------------------------------------------------------------------

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 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 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 related to the
Collateral 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.

 

- 7 -

--------------------------------------------------------------------------------

(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 in the case of clauses (ii), (iii),
(v) and (vi) and within 15 days following the end of each month and at the time
of each borrowing in the case of clauses (i) and (iv), (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 not in the
ordinary course of business in its performance of any of its obligations to any
Account Debtor; (iii) of any assertion not in the ordinary course of business by
any Account Debtor of any material claims, offsets or counterclaims; (iv) of any
material allowances, credits and/or monies granted by it to any Account Debtor;
(v) of any material return of goods not in the ordinary course of business; and
(vi) of any loss, damage or destruction of any of the Collateral (other than
ordinary course dispositions).

 

(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 allowed by it in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.

 

(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 $50,000
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.

 

- 8 -

--------------------------------------------------------------------------------

(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 SunTrust Bank 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 November 4, 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 constituting Collateral, such Company shall 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 to any deposit account maintained with the Lockbox
Bank and established pursuant to Section 8(a).

 

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 four (4) months (unless an Event of Default has occurred
and is continuing) utilizing an audit control company or any other agent of
Laurus; provided that, so long as no Event of Default has occurred and is
continuing, such verification shall be substantially similar to the verification
performed by Laurus’ agent prior to the Closing Date.

 

- 9 -

--------------------------------------------------------------------------------

(b) Proceeds of Accounts received by Laurus will be deemed received on the
Business Day that Laurus receives 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 on the
same Business Day as receipt (i) apply such proceeds to principal amounts
outstanding under the Revolving Note, 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 three times a week). Any interest earned on the funds not so
requested shall be for the benefit of the Companies. 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. Upon reasonable notice, at all times during
normal business hours, Laurus, and/or any agent of Laurus, accompanied by a
representative of Company Agent, shall have the right to (a) have access to,
visit, inspect, review, evaluate and make physical verification and appraisals
of each Company’s real or other tangible properties and the Collateral,
(b) inspect, audit and copy (or take originals if necessary) and make extracts
from each Company’s Books and Records related to the Collateral, including
management letters prepared by the Accountants (unless such examination is not
permitted by federal, state or local law or by contract) 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; 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 reasonably believes such access is
necessary to preserve or protect the Collateral or following the occurrence and
during the continuance of an Event of Default. 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. Notwithstanding the foregoing, Parent and its Subsidiaries
shall only be required to provide any material, non-public information to Laurus
if Laurus is bound by the existing Non-Disclosure Agreement dated June 28, 2005
between the Laurus and the Parent or such other similar agreement under which
the Laurus agrees to keep such information confidential.

 

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

 

- 10 -

--------------------------------------------------------------------------------

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 of the Parent’s
and each of its Subsidiaries’ balance sheet as at the end of such fiscal year
and the related statements of each of the Parent’s and each of its Subsidiaries’
income, retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidating and consolidated basis to include the Parent, each
Subsidiary of the Parent and each other entity required to be consolidated with
the Parent in accordance with GAAP, 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 fiscal quarter of the Parent, an unaudited/internal balance sheet
and statements of income, retained earnings and cash flows of each of the
Parent’s and each of its Subsidiaries’ as at the end of and for such quarter and
for the year to date period then ended, prepared on a consolidating and
consolidated basis to include the Parent, each Subsidiary of the Parent and each
other entity required to be consolidated with the Parent in accordance with
GAAP, 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) As soon as available and in any event within twenty (20) days after the end
of the first two calendar months in each fiscal quarter of the Parent and thirty
(30) days after the end of the third month in each fiscal quarter, an
unaudited/internal trial balance and income statement substantially in the form
attached hereto as Schedule 11(c) for each of the Parent’s and each of its
Subsidiaries’ as at the end of and for such month, prepared on a consolidating
and consolidated basis to include the Parent, each Subsidiary of the Parent and
each other entity required to be consolidated with the Parent 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
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;

 

(d) Within fifteen (15) days after the end of each month (or more frequently if
Laurus so requests), agings of each Company’s Accounts, each Company’s 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 fifteen (15) days from
each such request to comply with Laurus’ demand, and, in the case of each
monthly report,

 

- 11 -

--------------------------------------------------------------------------------

accompanied by a certificate of the Parent’s President, Chief Executive Officer
or Chief Financial Officer stating 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;

 

(e) 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 Securities and Exchange Commission (the “SEC”),
and (ii) the issuance thereof, copies of such financial statements, reports and
proxy statements as the Parent shall send to its stockholders.

 

(f) The Parent shall deliver, or cause the applicable Subsidiary of the Parent
to deliver, such other information as the Purchaser shall reasonably request in
writing. Such delivery shall be made within a reasonable time following receipt
of such request.

 

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
conversion 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. The Parent has no direct and indirect Subsidiaries.

 

(c) Capitalization; Voting Rights.

 

(i) The authorized capital stock of the Parent, as of the date hereof consists
of 100,000,000 shares, of which 100,000,000 are shares of Common Stock, par
value $0.001 per share, 12,611,140 shares of which are issued and outstanding.

 

(ii) Except as disclosed on Schedule 12(c) or as disclosed in any Exchange Act
Filings, 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

 

- 12 -

--------------------------------------------------------------------------------

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.

 

(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 Notes 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.

 

- 13 -

--------------------------------------------------------------------------------

(f) Agreements; Action. Except as set forth on Schedule 12(f) or as disclosed in
any Exchange 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 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) Since December 31, 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;

 

- 14 -

--------------------------------------------------------------------------------

(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;

 

(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 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.

 

- 15 -

--------------------------------------------------------------------------------

(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;

 

- 16 -

--------------------------------------------------------------------------------

(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

 

- 17 -

--------------------------------------------------------------------------------

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 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 nonrenewal 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

 

- 18 -

--------------------------------------------------------------------------------

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 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, 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, 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, except for such violations which
have not had, or could

 

- 19 -

--------------------------------------------------------------------------------

reasonably be expected to not have, a Material Adverse Effect, 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 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) SEC Reports and Financial Statements. Except as set forth on Schedule 12(u),
it and each of its Subsidiaries has filed all proxy statements, reports and
other documents required to be filed by it under the Exchange Act. The Parent
has furnished Laurus with copies of: (i) its Annual Report on Form 10-K for its
fiscal year ended December 31, 2004; and (ii) its Quarterly Reports on Form 10-Q
for its fiscal quarters ended March 31, 2005 and June 30, 2005, and the Form 8-K
filings which it has made during its fiscal year 2005 to date (collectively, the
“SEC Reports”). Except as set forth on Schedule 12(u), each SEC Report was,

 

- 20 -

--------------------------------------------------------------------------------

at the time of its filing, in substantial compliance with the requirements of
its respective form and none of the SEC Reports, nor the financial statements
(and the notes thereto) included in the SEC Reports, as of their respective
filing 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. 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 SEC Report.

 

(v) Listing. The Parent’s Common Stock is listed or quoted, as applicable, on
the Principal Market and satisfies all requirements for the continuation of such
listing or quotation, as applicable, and the Parent shall do all things
necessary for the continuation of such listing or quotation, as applicable. The
Parent has not received any notice that its Common Stock will be delisted from,
or no longer quoted on, as applicable, the Principal Market or that its Common
Stock does not meet all requirements for such listing or quotation, as
applicable (except for prior notices which have been fully remedied).

 

(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 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 Notes 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

 

- 21 -

--------------------------------------------------------------------------------

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 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, determines, upon
advice of counsel, that it is required to disclose such information under the
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.

 

- 22 -

--------------------------------------------------------------------------------

(b) Listing. It shall promptly secure the listing or quotation, as applicable,
of the shares of Common Stock issuable upon conversion of the Notes and exercise
of the Warrants on the Principal Market upon which shares of Common Stock are
listed or quoted, as applicable, (subject to official notice of issuance) and
shall maintain such listing or quotation, as applicable, so long as any other
shares of Common Stock shall be so listed or quoted, as applicable. The Parent
shall maintain the listing or quotation, as applicable, 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 (i) $2,000,000 of the proceeds of the Loans fund
on the Closing Date to repay outstanding indebtedness of the Company and its
Subsidiaries owed to TECORE, Inc. and (ii) the remainder of the proceeds of the
Loans for general corporate purposes only.

 

(f) Intentionally deleted.

 

(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.

 

- 23 -

--------------------------------------------------------------------------------

(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 over $50,000 thereunder or if an Event of Default has occurred and is
continuing, the carriers shall make 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.

 

- 24 -

--------------------------------------------------------------------------------

(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 (i) Purchase Money
Indebtedness and standby letters of credit, not to exceed $500,000 in the
aggregate outstanding at any time (after giving full effect to the stated amount
of any such letter of credit), (ii) trade accounts payable and (iii) accrued
payroll not to exceed $500,000 at any one time) whether secured or unsecured
other than each Company’s indebtedness to Laurus and as set forth on
Schedule 13(l)(i) attached hereto and made a part hereof; (ii) cancel any debt
owing to it in excess of $50,000 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 the
endorsement of negotiable instruments by it or its Subsidiaries for deposit or
collection or similar transactions in the ordinary course of business and except
in connection with indebtedness permitted under clause (i) of this subsection
(l); (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
(except if the proceeds are used to repay the Obligations to Laurus in full);
(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 (x) travel advances, (y) loans to its
and its Subsidiaries’ officers and employees not exceeding at any one time an
aggregate of $10,000, and (z) 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; (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

 

- 25 -

--------------------------------------------------------------------------------

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)
except to make scheduled payments of principal and interest thereof;
(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) sales, leases,
transfers or dispositions by any Company to any other Company, (2) the sale of
Inventory in the ordinary course of business and (3) 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 40 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

 

(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 each Company’s legal 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 Notes and
the exercise of the Warrants.

 

- 26 -

--------------------------------------------------------------------------------

(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.

 

(s) Offering Restrictions. Except as previously disclosed in the SEC Reports 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 Notes (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).

 

(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 Notes and exercise of the Warrants.

 

- 27 -

--------------------------------------------------------------------------------

(u) Financing Right of First Offer.

 

(i) Each Company hereby grants to Laurus a right of first offer to provide any
Additional Financing (as defined below) to be issued by any Company and/or any
of its Subsidiaries (the “Additional Financing Parties”), subject to the
following terms and conditions. From and after the date hereof and on or prior
to the date that is three (3) months following the earlier of (x) the Maturity
Date and (y) such earlier date upon which all Obligations are satisfied and
repaid in full, if any Additional Financing Party desires to raise any funds by
the issuance of any convertible debt security (an “Additional Financing”),
Company Agent shall notify Laurus of the desire to engage in such Additional
Financing and state the amount sought to be raised thereunder. In connection
therewith, Laurus shall, within 5 business days after receipt of Company Agent’s
notice, submit a fully executed term sheet (a “Proposed Term Sheet”) to Company
Agent setting forth its proposal for the terms, conditions and pricing of any
such Additional Financing. The Company Agent shall review the Proposed Term
Sheet and indicate whether it accepts the Proposed Term Sheet within 10 days of
its receipt from Laurus. If Company Agent does not accept the Proposed Term
Sheet, then the Additional Financing Parties shall have the right to engage in
an Additional Financing with any other Person, provided that the material terms
of the Additional Financing are at least as favorable as those contained in the
Proposed Term Sheet. If the material terms of such deal are not as favorable,
then the Additional Financing Parties must either accept a deal the material
terms of which are at least as favorable as the Proposed Term Sheet or repeat
the process described above. This Section 13(u) shall not apply to
(i) convertible securities issued in connection with any merger, consolidation,
joint venture or similar transaction, (ii) convertible securities issued in a
financing the proceeds of which are used to pay off the Obligations to Laurus in
full and (iii) convertible securities issued the proceeds of which are used to
repay the principal amount of Loans outstanding which exceed the Formula Amount
as a result of any adjustment by Laurus to the Formula Amount through the
creation of reserves under Section 2(a)(i), the changing of advance percentages
in Section 2(a)(iii), the amount of Eligible Accounts by reason of clause (w) in
the definition thereunder and the amount of Eligible Inventory by reason of
clause (l) in the definition thereunder.

 

(ii) It shall not, and shall not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any Person which limits the ability of
Laurus to consummate an Additional Financing with it or any of its Subsidiaries.

 

(v) Prohibition of Amendments to Subordinated Debt Documentation. It shall not,
without the prior written consent of Laurus, amend, modify or in any way alter
the terms of any of the Subordinated Debt Documentation in any material respect.

 

(w) Prohibition of Grant of Collateral for Subordinated Debt Documentation. It
shall not, 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, other than Collateral granted prior
to the date hereof under the Subordinated Debt Documentation in effect on the
date hereof.

 

- 28 -

--------------------------------------------------------------------------------

(x) Prohibitions of Payment Under Subordinated Debt Documentation. 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, other than as expressly permitted by the terms of the
Subordination Agreement.

 

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. 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 Notes.

 

(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 acknowledges that it 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.

 

- 29 -

--------------------------------------------------------------------------------

(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.

 

(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 the Minimum Borrowing Note is 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 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

 

- 30 -

--------------------------------------------------------------------------------

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 Notes).

 

(j) Compliance with Securities Laws. Laurus represents that it is aware that the
United States securities laws may restrict persons with material non-public
information about a company obtained directly or indirectly from that company
from purchasing or selling securities of such company, or from communicating
such information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell such
securities on the basis of such information. Laurus hereto further represents
and covenants that it will comply with all applicable laws regarding the
foregoing and otherwise applicable to the handling of the Companies’ material
non-public information (including, without limitation, material non-public
information obtained by Laurus under this Agreement or any Ancillary Agreement),
and acknowledges that such material non-public information is deemed to be
“Confidential Information” as such term is used in the Confidentiality and
Non-Disclosure Agreement dated June 28, 2005 between Laurus and the Company. The
foregoing representations, covenant and acknowledgment (i) shall be deemed
repeated each time a Company discloses to Laurus any material non-public
information under this Agreement or any of the Ancillary Agreements and
(ii) shall survive the closing of the transactions contemplated by this
Agreement.

 

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, on or after
the occurrence and during the continuation of an Event of Default,: (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) 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.

 

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

 

- 31 -

--------------------------------------------------------------------------------

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 twenty
(20) days notice upon irrevocable payment to it of all Obligations if each
Company shall have 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. Upon payment in full of all Obligations owed by the
Companies to Laurus under this Agreement, the Notes and the other Ancillary
Agreements, this Agreement, the Notes and the other Ancillary Agreements shall
terminate and be of no further force and effect (other than the Warrant and the
Registration Rights Agreement, which shall terminate pursuant to the terms
therein).

 

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.

 

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;

 

(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;

 

- 32 -

--------------------------------------------------------------------------------

(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 (i) indebtedness
evidenced by the Subordinated Debt Documentation or (ii) indebtedness (exclusive
of trade debt) or contingent obligations of any Company or any of its
Subsidiaries, which indebtedness or contingent obligation exceeds $250,000 in
the aggregate principal amount at any time outstanding beyond the period of
grace (if any), in each case, 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 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;

 

(h) 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;

 

(i) 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;

 

(j) 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; provided that TECORE and SCP shall be
permitted to retain their respective security interests in the Intellectual
Property and shall be permitted to exercise all rights attendant thereto under
the UCC, as such security interests are in effect on the date hereof, in each
case subject to the terms of the Subordination Agreement;

 

- 33 -

--------------------------------------------------------------------------------

(k) 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), other than the
Holder, or those Persons identified on Schedule 19(k) 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, (ii) the Board of
Directors of the Parent shall cease to consist of a majority of the Board of
Directors of the Parent on the date hereof (or directors appointed by a majority
of the board of directors in effect immediately prior to such appointment) or
(iii) except as permitted under this Agreement, the Parent or any of its
Subsidiaries merges or consolidates with, or sells all or substantially all of
its assets to, any other person or entity;

 

(l) 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 by any Governmental Authority 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;

 

(m) an Event of Default shall occur under and as defined in any Note or in any
other Ancillary Agreement after any applicable cure or grace period provided in
respect thereof (if any);

 

(n) 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);

 

(o) 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);

 

(p) 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;

 

(q) 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

 

- 34 -

--------------------------------------------------------------------------------

(r) 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 either of the subordination provisions of applicable
Subordinated Debt Documentation or the Subordination Agreement.

 

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 Collateral. 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.
The proceeds of the sale of the Collateral 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.

 

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

 

- 35 -

--------------------------------------------------------------------------------

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 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’ reasonable and 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 (excluding taxes imposed on net income of Laurus and franchise taxes imposed
on it by the jurisdiction under the laws of which Laurus is organized or any
political subdivision thereof), 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 and any such
assignee shall succeed to all of Laurus’ rights with respect thereto; provided
that Laurus shall not be permitted to effect any such assignment to a competitor
of any Company unless an Event of Default has occurred and is continuing
provided further, that, each Company and its Subsidiaries shall only be required
to provide any material, non-public information to such assignee to the extent
such assignee is bound by the Non-Disclosure Agreement substantially similar to
that dated June 28, 2005 between Laurus and the Parent, as it may be amended or
modified, or such other

 

- 36 -

--------------------------------------------------------------------------------

substantially similar agreement under which the assignee agrees to keep such
information confidential. Upon such assignment, Laurus shall be released from
all responsibility for the Collateral to the extent same is assigned to any
transferee. Upon the prior written consent of Parent, which consent will not be
unreasonably withheld, 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. Subject to the foregoing, nothing in this Agreement shall
be construed to give to any Person other than the Companies and Laurus any legal
or equitable right or claim under this Agreement. This Agreement shall be for
the sole and exclusive benefit of the Companies and Laurus.

 

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 waives 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 indemnify and hold
Laurus, and its respective affiliates, employees, attorneys and agents (each, an
“Indemnified Person”), harmless from and against any and all suits, actions,
proceedings, claims, 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,

 

- 37 -

--------------------------------------------------------------------------------

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.

 

(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.

 

- 38 -

--------------------------------------------------------------------------------

(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.

 

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:   AirNet Communications Corporation    
3950 Dow Road     Melbourne, FL 32934     Attention: Stuart Dawley    
Telephone: 321-953-6780     Telecopy: 321-676-9914

 

- 39 -

--------------------------------------------------------------------------------

With a copy to:      Edwards Angell Palmer & Dodge, LLP        One North
Clematis Street, Suite #400        West Palm Beach, Florida 33401       
Attention: John G. Igoe, Esq.        Telephone: 561-833-7700        Facsimile:
561-655-8719

 

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 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 FIVE (5) DAYS AFTER BEING SENT BY CERTIFIED AND
REGISTERED U.S. MAIL, PROPER POSTAGE PREPAID.

 

- 40 -

--------------------------------------------------------------------------------

(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.

 

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

 

- 41 -

--------------------------------------------------------------------------------

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. Laurus may 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 reasonable
discretion, deem appropriate, or as required by applicable law; provided,
however, Laurus agrees not to make any announcement prior to an announcement by
Parent of the consummation of the transactions being consummated under this
Agreement and the Ancillary Agreements and will comply with applicable
securities laws with respect to any announcement.

 

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.

 

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

 

(a) The Notes 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,

 

- 42 -

--------------------------------------------------------------------------------

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 AIRNET COMMUNICATIONS CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

(b) Any shares of Common Stock issued pursuant to conversion of the Notes 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 AIRNET COMMUNICATIONS CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

(c) 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 AIRNET
COMMUNICATIONS CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

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

 

- 43 -

--------------------------------------------------------------------------------

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

 

AIRNET COMMUNICATIONS CORPORATION

By:

 

 

--------------------------------------------------------------------------------

Name:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

LAURUS MASTER FUND, LTD.

By:

 

 

--------------------------------------------------------------------------------

Name:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

 

- 44 -

--------------------------------------------------------------------------------

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 up to ninety percent (90%) of the net face amount
of Eligible Accounts.

 

“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, 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.

 

“Applicable Availability Adjustment Amount” shall mean (i) for the period from
the Closing Date to and including April 30, 2006, Two Million Dollars
($2,000,000) and

--------------------------------------------------------------------------------

(ii) thereafter, the difference of (x) Two Million Dollars ($2,000,000) minus
(y) the remainder of (I) Two Million Dollars ($2,000,000) divided by (II) the
number of complete calendar months remaining until the first business day of the
month in which the Maturity Date occurs.

 

“Available Minimum Borrowing” has the meaning given such term in
Section 2(a)(i).

 

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

 

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

 

“Books and Records” means all books, records, board minutes, contracts,
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 Seven Million Dollars ($7,000,000).

 

“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;

 

2

--------------------------------------------------------------------------------

(e) all General Intangibles;

 

(f) all Accounts;

 

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

 

(h) all Investment Property;

 

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

 

(p) (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

 

(q) 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;

 

provided that all Intellectual Property owned, possessed, or acquired by,
created by or for, licensed by or to, the Parent or any of its Subsidiaries
shall be explicitly excluded from the definition of “Collateral”.

 

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

 

“Company Agent” means the Parent.

 

“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.

 

3

--------------------------------------------------------------------------------

“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.

 

“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 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 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

 

4

--------------------------------------------------------------------------------

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 commercially reasonable judgment; provided that Laurus cannot determine that
an otherwise Eligible Account is not an Eligible Account under this subclause
(w) solely by reason of the results of the Company’s field trial involving its
“SuperCapacity” adaptive array base stations; and provided, further, that if
Laurus determines that an otherwise Eligible Account is no longer eligible
pursuant to this subclause (w), then the Formula Amount calculated after giving
effect to such determination (and solely with respect to such determination)
(i) shall not be used as the basis for payment of the interest due on
Overadvances under Section 5(b)(ii) and (ii) shall not be used for 60 days
following such determination to determine whether the aggregate outstanding
principal amount of the Loans prior to such increase or decrease are in excess
of the Formula Amount in order to require a payment under Section 3(d). 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
reasonable discretion.

 

“Eligible Inventory” means Inventory owned by a Company which conforms to the
following criteria: (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) is not determined by Laurus in the exercise
of commercially reasonable judgment to be ineligible for any other reason;
provided that Laurus cannot determine that otherwise Eligible Inventory is not
Eligible Inventory under this clause (l) solely by reason of the results of the
Company’s field trial involving its “SuperCapacity” adaptive array base
stations; and provided, further, that if Laurus determines that otherwise
Eligible Inventory is no longer eligible pursuant to this subclause (l), then
the Formula Amount calculated after such determination (and solely with respect
to such determination) (i) shall not be used as the basis for payment of the
interest due on Overadvances under Section 5(b)(ii) and (ii) shall not be used
for 60 days following such determination to determine whether the aggregate
outstanding principal amount of the Loans prior to such increase or decrease are
in excess of the Formula Amount in order to require a payment under
Section 3(d).

 

5

--------------------------------------------------------------------------------

“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.

 

“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 substitutions 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.

 

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

 

“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, 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, 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.

 

6

--------------------------------------------------------------------------------

“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,
fixtures, 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.

 

“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 currently existing, pending or
hereafter acquired U.S. and foreign patents, trademarks, service marks, trade
names, copyrights, trade secrets, Licenses, Software, and, in each case, all
information and other proprietary rights and processes related thereto, and all
Proceeds and products directly related to the disposition of the ownership
rights thereof.

 

“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 up to the lesser of (a) twenty percent (20%) 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) One Million Dollars
($1,000,000).

 

“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.

 

7

--------------------------------------------------------------------------------

“License” means any rights under any written agreement now or hereafter acquired
by any Person to use any Intellectual Property.

 

“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 the Parent and its Subsidiaries (taken 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.

 

“Maturity Date” shall have the meaning set forth in the Revolving Note.

 

“Minimum Borrowing Amount” means Four Million Dollars ($4,000,000).

 

“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 evidencing the Minimum Borrowing Amount, as may be amended, supplemented,
restated and/or otherwise modified from time to time.

 

“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

 

8

--------------------------------------------------------------------------------

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.

 

“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, but excluding any “payment intangible” to the extent constituting
Intellectual Property.

 

“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 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

 

9

--------------------------------------------------------------------------------

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.

 

“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 Secured Revolving Note dated as of the
Closing Date made by the Companies in favor of Laurus in the original principal
amount of Seven Million Dollars ($7,000,000), as the same may be amended,
supplemented, restated and/or otherwise modified from time to time.

 

“SCP” means SC Private Equity Partners II, L.P., a Delaware limited partnership.

 

“SEC” means the Securities and Exchange Commission.

 

“SEC Reports” has the meaning given such term in Section 12(u).

 

10

--------------------------------------------------------------------------------

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

 

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

 

“Security Documents” means all security agreements, mortgages, cash collateral
deposit letters, pledges and other agreements which are executed by any Company
or any of its Subsidiaries 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, code (source
and object) and all supporting information provided in connection with a
transaction related to any such 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).

 

“Subordinated Debt Documentation” means (a) Securities Purchase Agreement dated
as of June 5, 2003 by and among TECORE, SCP and the Parent; (b) Bridge Loan
Agreement dated as of January 24, 2003 by and among the Parent, TECORE and SCP;
(c) Bridge Loan Promissory Note in the amount of $3,000,000 dated as of
January 24, 2003 from the Parent to SCP, as modified by the Allonge dated
June 5, 2003; (d) Bridge Loan Promissory Note in the amount of $3,000,000 dated
as of January 24, 2003 from the Parent to TECORE, as modified by the Allonge
dated June 5, 2003; (e) Security Agreement dated as of January 24, 2003 by and
between the Parent, SCP and TECORE, as amended on August 13, 2003;
(f) Technology Collateral Escrow Agreement dated as of January 24, 2003 among
DSI Technology Escrow Services, Inc., the Parent, TECORE and SCP, as amended on
August 13, 2003; (g) Collateral Assignment of Patents, Trademarks and Copyrights
dated as of January 24, 2003 among the Parent, TECORE and SCP, as amended on
August 13, 2003 and on July 1, 2005; (h) Senior Secured Convertible Note in the
amount of $4,000,000 dated as of August 13, 2003 from the Parent to SCP; and
(i)Senior Secured Convertible Note in the amount of $12,000,000 dated as of
August 13, 2003 from the Parent to TECORE, as each such document is amended,
modified or supplemented from time to time in accordance with this Agreement,
the Subordination Agreement and any other Ancillary Agreement.

 

“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.

 

11

--------------------------------------------------------------------------------

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

 

“TECORE” means TECORE, Inc., a Texas corporation.

 

“Subordination Agreement” shall mean that certain Subordination Agreement, dated
as of November 8, 2005 by and among Laurus, SCP and TECORE, and acknowledged and
agreed to by the Company, as amended, modified or supplemented from time to
time.

 

“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).

 

“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.

 

12

--------------------------------------------------------------------------------

Exhibit A

 

Eligible Subsidiaries

 

None.

--------------------------------------------------------------------------------

Exhibit B

 

Borrowing Base Certificate

 

[To be inserted]

--------------------------------------------------------------------------------

SECURITY AGREEMENT

 

LAURUS MASTER FUND, LTD.

 

AIRNET COMMUNICATIONS CORPORATION

 

Dated: November 8, 2005

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

          Page

--------------------------------------------------------------------------------

1.    General Definitions and Terms; Rules of Construction.    1 2.    Loan
Facility.    2 3.    Repayment of the Loans    4 4.    Procedure for Loans.    4
5.    Interest and Payments.    4 6.    Security Interest.    6 7.   
Representations, Warranties and Covenants Concerning the Collateral.    7 8.   
Payment of Accounts.    9 9.    Collection and Maintenance of Collateral.    9
10.    Inspections and Appraisals.    10 11.    Financial Reporting.    10 12.
   Additional Representations and Warranties.    12 13.    Covenants.    22 14.
   Further Assurances    29 15.    Representations, Warranties and Covenants of
Laurus.    29 16.    Power of Attorney    31 17.    Term of Agreement    31 18.
   Termination of Lien.    32 19.    Events of Default.    32 20.    Remedies   
35 21.    Waivers    35 22.    Expenses    36 23.    Assignment By Laurus.    36
24.    No Waiver; Cumulative Remedies    37

 

i

--------------------------------------------------------------------------------

          Page(s)

--------------------------------------------------------------------------------

25.    Application of Payments    37 26.    Indemnity    37 27.    Revival.   
38 28.    Borrowing Agency Provisions.    38 29.    Notices    39 30.   
Governing Law, Jurisdiction and Waiver of Jury Trial.    40 31.    Limitation of
Liability.    41 32.    Entire Understanding; Maximum Interest.    41 33.   
Severability    41 34.    Survival    41 35.    Captions    42 36.   
Counterparts; Telecopier Signatures.    42 37.    Construction    42 38.   
Publicity    42 39.    Joinder    42 40.    Legends.    42

 

ii