Exhibit 10.8


                               SECURITY AGREEMENT

                            LAURUS MASTER FUND, LTD.

                         DIGITAL LIFESTYLES GROUP, INC.

                          HIP-E OPERATING COMPANY, INC.

                                       AND

                        NORTHGATE OPERATING COMPANY, INC.



                            DATED: NOVEMBER 29, 2004
                               SECURITY AGREEMENT

This Security Agreement is made as of November 29, 2004 by and among LAURUS
MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"), Digital Lifestyles
Group, Inc., a Delaware corporation ("Company"), and hip-e Operating Company,
Inc., a Delaware corporation ("HIP-E") and Northgate Operating Company, Inc. (a
California corporation) ("Northgate") each, of HIP-E and Northgate, being an
Eligible Subsidiary.

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                                   BACKGROUND

Company has requested that Laurus make advances available to Company; and

Laurus has agreed to make such advances to Company 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.   (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

     (e)  the Ancillary Agreements shall include any and all modifications or
          amendments thereto and any and all extensions or renewals thereof.

2.   Loans. (a)(i) Subject to the terms and conditions set forth herein and in
     the Ancillary Agreements, Laurus agrees to make loans (the "Loans") to
     Company from time to time during the Term which, in the aggregate at any
     time outstanding, will not exceed an amount equal to (I) the Accounts
     Availability plus (II) the Inventory Availability. The amount derived at
     any time from Section 2(a)(i)(I) plus Section 2(a)(i)(II) shall be referred
     to as the "Formula Amount". Company shall execute and deliver to Laurus on
     the Closing Date a Minimum Borrowing Note and a Revolving Note evidencing
     the Loans funded on the Closing Date. From time to time thereafter, Company
     shall execute and deliver to Laurus immediately prior to the final funding
     of each additional $2,750,000 tranche of Loans allocated to any Minimum
     Borrowing Note issued by Company to Laurus after the date hereof
     (calculated on a cumulative basis for each such tranche) an additional
     Minimum Borrowing Note evidencing such tranche, substantially in the form
     of the Minimum Borrowing Note delivered by Company to Laurus on the Closing
     Date. Notwithstanding anything herein to the contrary, whenever during the
     Term the outstanding balance on the Revolving Note should equal or exceed
     $1,500,000, to the extent that the outstanding balance on the Minimum
     Borrowing Note shall be less than $2,750,000 (the difference of $2,750,000
     less the actual balance of the Minimum Borrowing Note, the "Available
     Minimum Borrowing"), such portion of the balance of the Revolving Note that
     is in excess of $1,500,000, up to an amount equal the Available Minimum
     Borrowing shall be deemed to be simultaneously extinguished on the
     Revolving


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     Note and transferred to, and evidenced by, a new serialized Minimum
     Borrowing Note. Any such transfer shall be limited to an amount that, after
     such transfer, leaves an outstanding balance under the Revolving Note of at
     least $1,500,000.

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

          (iii) Company acknowledges that the exercise of Laurus' discretionary
               rights, exercised reasonably, 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 and Company hereby consents to any such
               increases or decreases which may limit or restrict advances
               requested by Company.

          (iv) If Company does not pay any interest, fees, costs or charges due
               to Laurus under this Agreement or any Ancillary Agreement when
               due (after giving effect to any cure or grace periods applicable
               thereto), Company shall thereby be deemed to have requested, and
               Laurus is hereby authorized at its discretion to make and charge
               to Company's account, a Loan to Company as of such date in an
               amount equal to such unpaid interest, fees, costs or charges.

          (v)  If Company at any time fails to perform or observe any of the
               covenants contained in this Agreement or any Ancillary Agreement
               (after giving effect to any cure or grace periods applicable
               thereto), Laurus may, but need not, perform or observe such
               covenant on behalf and in the name, place and stead of 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). 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 Company's account as a Loan and added
               to the Obligations. To facilitate Laurus' performance or
               observance of such covenants of Company, Company hereby
               irrevocably appoints Laurus, or Laurus' delegate, acting alone,
               as Company's attorney in fact (which appointment is coupled with
               an interest) with the right (but not the duty) from time to time,
               following the occurrence and during the continuance of an Event
               of Default, to create, prepare, complete, execute, deliver,
               endorse or file in the name and on behalf of 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 Company.

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

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

          (viii) If any Eligible Account is not paid by the Account Debtor
               within ninety (90) days after the date that such Eligible Account
               was invoiced or if any Account Debtor asserts a deduction,
               dispute, contingency, set-off, or counterclaim with respect to
               any Eligible Account (a "Delinquent Account"), Company shall (i)
               reimburse Laurus (X) for the amount of the Loans made with
               respect to such portion of such Delinquent Account that is not
               paid within such time or, in the case of the assertion of a
               deduction, dispute, contingency, set-off or counterclaim by an
               Account Debtor, such portion of such Delinquent Account that such
               Account Debtor has not confirmed its intention to pay, plus, (Y)
               in either case, an adjustment fee in an amount equal to one-half
               of one percent (0.50%) of the amount determined in clause (X) or
               (ii) immediately replace such Delinquent Account, or portion
               thereof, with an otherwise Eligible Account.

     (b)  Minimum Borrowing Amount. After a registration statement registering
          the resale of the Registrable Securities (as defined in the
          Registration Rights Agreement) has been declared effective by the SEC,
          conversions of the Minimum Borrowing Amount into the Common Stock of
          Company may be initiated as set forth in the respective Minimum
          Borrowing Note. From and after the date upon which the outstanding
          principal of the Minimum Borrowing Amount (as evidenced by the first
          Minimum Borrowing Note) is converted into Common Stock (the "First
          Conversion Date"), (i) amounts of all outstanding Loans (not
          attributable to the then outstanding Minimum Borrowing Note) existing
          on or made after the First Conversion Date corresponding to, and in
          amounts equal to, the principal amounts of the Minimum Borrowing Note
          that have been converted will be aggregated, as described in Section
          2(a)(i) and subject to the condition that no transfers or aggregations
          may be made out of the Revolving Note in any amount that would cause
          the outstanding balance under the Revolving Note to be less that
          $1,500,000, until they reach the sum of $2,750,000 and (ii) Company
          will, at the time of such aggregation reaches the sum of $2,750,000,
          issue a new (serialized) Minimum Borrowing Note to Laurus in respect
          of such

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          $2,750,000 aggregation, and (iii) Company shall prepare and file a
          subsequent registration statement with the SEC to register such
          subsequent Minimum Borrowing Note as set forth in the Registration
          Rights Agreement. Notwithstanding the immediately foregoing, in no
          event shall the Company be required to issue more than two serialized
          Minimum Borrowing Notes without the Company's prior written consent.

3.   Repayment of the Loans. Company (a) may prepay the Obligations from time to
     time in accordance with the terms and provisions of the Notes (and Section
     17 hereof if such prepayment is due to a termination of this Agreement);
     (b) shall repay on the expiration of the Term (i) the then aggregate
     outstanding principal balance of the Loans made by Laurus to Company
     hereunder together with accrued and unpaid interest, fees and charges and
     (ii) all other amounts owed Laurus under this Agreement and the Ancillary
     Agreements; and (c) shall, either repay upon demand the amount by which the
     aggregate amount of Loans outstanding at any time exceeds the Formula
     Amount or such overage shall be deemed an Overadvance (as defined below
     subject to the provisions of Section 5(b)(iii) hereof). 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 may by written notice request a borrowing of
     Loans prior to 12:00 p.m. (New York time) on the Business Day of its
     request to incur, on the next Business Day, a Loan. Together with each
     request for a Loan (or at such other intervals as Laurus may request),
     Company shall deliver to Laurus a Borrowing Base Certificate in the form of
     Exhibit A, which shall be certified as true and correct by the Chief
     Executive Officer or Chief Financial Officer of Company 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 Company's account on Laurus' books. The proceeds of
     each Loan made by Laurus shall be made available to Company on the Business
     Day following the Business Day so requested in accordance with the terms of
     this Section 4 by way of credit to Company's operating account maintained
     with such bank as Company may designate from time to time to Laurus. Any
     and all Obligations due and owing hereunder may be charged to Company's
     account and shall constitute Loans.

5. Interest and Payments.

     (a)  Interest.

          (i)  Except as modified by Section 5(a)(iii) below, interest on the
               unpaid balance of the Loans shall accrue at the Contract Rate and
               Company shall pay such interest in full in good funds in dollars
               of the United States of America, as set forth in the Notes.

          (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 Company's account for said interest.

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

          (iv) In no event shall the aggregate interest or any other amount
               constituting interest under applicable law 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)  Company shall 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 and delivery of this
               Agreement by Company and Laurus, Company shall pay to Laurus
               Capital Management, LLC a closing payment in an amount equal to
               three and nine-tenths percent (3.90%) 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.


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          (ii) Unused Line Payment. If, during any calendar month, the average
               of the aggregate Loans outstanding during such month (the
               "Average Loan Amount") do not equal the Capital Availability
               Amount, Company shall pay to Laurus at the end of such month a
               payment (calculated on a per annum basis) in an amount equal to
               three-tenths of one percent (0.30%) of the amount by which the
               Capital Availability Amount exceeds the Average Loan Amount.
               Notwithstanding the foregoing, any such due and unpaid fee shall
               come immediately due and payable upon termination of this
               Agreement.

          (iii) Overadvance Payment. Without affecting Laurus' rights hereunder
               in the event the Loans exceed the Formula Amount (each such
               event, an "Overadvance"), all such Overadvances shall bear
               interest at an annual rate equal to two percent (2%) of the
               amount of such Overadvances for each month or portion thereof
               such amounts shall be outstanding and in excess of the Formula
               Amount.

          (iv) Financial Information Default. Without affecting Laurus' other
               rights and remedies, in the event Company fails to deliver the
               financial information required by Section 11 on or before the
               date required by this Agreement, Company shall pay Laurus a fee
               in the amount of $500.00 per week for each such failure until
               such failure is cured to Laurus' reasonable satisfaction or
               waived in writing by Laurus. Such fee shall be charged to
               Company's account upon the occurrence of each such failure.

          (v)  Expenses. The Company shall reimburse Laurus for its reasonable
               expenses (including legal fees and expenses) incurred in
               connection with the preparation and negotiation of this Agreement
               and the Ancillary Agreements (as hereinafter defined), and
               expenses incurred in connection with Laurus' due diligence review
               of the Company and its subsidiaries and all related matters.
               Amounts required to be paid under this Section 5(b)(v) will be
               paid on the Closing Date and shall not exceed $44,500 for such
               expenses referred to in this Section 5(b)(v).

6.   Security Interest.

     (a)  To secure the prompt payment to Laurus of the Obligations, each of
          Company and each Eligible Subsidiary hereby assigns, pledges and
          grants to Laurus a continuing security interest in and Lien upon all
          of the Collateral. All of Company's and each Eligible Subsidiary's
          Books and Records relating to the Collateral shall, until delivered to
          or removed by Laurus, be kept by Company and each Eligible Subsidiary,
          as the case may be, in trust for Laurus until all Obligations have
          been paid in full. Each confirmatory assignment schedule or other form
          of assignment hereafter executed by Company and each Eligible
          Subsidiary shall be deemed to include the foregoing grant, whether or
          not the same appears therein.

     (b)  Company and each Eligible Subsidiary 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 Company or such Eligible Subsidiary, as the case
          may be, 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 of Company and each Eligible Subsidiary 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 Company's and
          such Eligible Subsidiary's rights under Section 9-509(d)(2) of the
          UCC.

7.   Representations, Warranties and Covenants Concerning the Collateral. Each
     of Company and each Eligible Subsidiary hereby, as of the date hereof,
     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 Company and/or an Eligible
          Subsidiary, as the case may be, free and clear of all Liens (including
          any claims of infringement) except those in Laurus' favor and
          Permitted Liens and (ii) is not subject to any agreement prohibiting
          the granting of a Lien or requiring notice of or consent to the
          granting of a Lien.

     (b)  During the Term, neither the Company nor any Eligible Subsidiary shall
          encumber, mortgage, pledge, assign or grant any Lien in any Collateral
          or any of Company's or any Eligible Subsidiary's 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) will constitute
          valid perfected security interests in all of the Collateral consisting
          of inventory, accounts, goods (other than goods subject to a
          certificate of title or goods in possession of a person other than
          Company, HIP-E, or Northgate), equipment,

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          general intangibles (other than intellectual property), the Pledged
          Shares (as defined in Schedule 7(c)), chattel paper, and instruments,
          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 creditors of and any purchasers from
          Company and the Eligible Subsidiaries and such security interest is
          prior to all other Liens in existence on the date hereof, except
          Permitted Liens.

     (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 the
          liens granted hereunder and to Permitted Liens.

     (e)  neither Company nor any Eligible Subsidiary shall dispose of any of
          the Collateral whether by sale, lease or otherwise except for the sale
          of Inventory in the ordinary course of business and for the
          disposition or transfer in the ordinary course of business during any
          fiscal year of obsolete and worn-out Equipment having an aggregate
          fair market value of not more than $25,000 and only to the extent that
          (i) the proceeds of any such disposition are used to acquire
          replacement Equipment which is subject to Laurus' first priority
          security interest or are used to repay Loans or to pay general
          corporate expenses, or (ii) following the occurrence of an Event of
          Default which continues to exist the proceeds of which are remitted to
          Laurus to be held as cash collateral for the Obligations.

     (f)  each of Company and each Eligible Subsidiary 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 Company and each Eligible
          Subsidiary, 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 Company and each
          Eligible Subsidiary (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 Company's, each Eligible
          Subsidiary's and/or Laurus' respective and several interests in the
          Collateral.

     (g)  each of Company and each Eligible Subsidiary 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, each of Company and/or each Eligible Subsidiary, as the case
          may be, shall enter into a supplement to this Agreement granting to
          Laurus a Lien in such commercial tort claim.

     (h)  each of Company and each Eligible Subsidiary shall place notations
          upon its Books and Records and any financial statement of Company and
          each Eligible Subsidiary, as the case may be, to disclose Laurus' Lien
          in the Collateral.

     (i)  If either Company and/or any Eligible Subsidiary 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."

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

     (l)  All Eligible Accounts (i) which are billed on a construction
          completion basis but not payable until the project is completed,
          represent complete bona fide transactions which require no further act
          under any circumstances on Company's or any Eligible Subsidiary's 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,


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          guaranteed sales, sale or return or other similar understandings or
          obligations of any Affiliate or subsidiary of either Company or any
          Eligible Subsidiary. Neither Company nor any Eligible Subsidiary has
          made, and neither Company nor any Eligible Subsidiary will 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 Company or any Eligible
          Subsidiary in the ordinary course of its business consistent with
          historical practice and as previously disclosed to Laurus in writing.

     (m)  each of Company and each Eligible Subsidiary 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. Neither Company nor any Eligible
          Subsidiary shall permit any such items to become a Fixture to real
          estate or accessions to other personal property not constituting
          Collateral.

     (n)  each of Company and each Eligible Subsidiary shall maintain and keep
          all of its Books and Records concerning the Collateral at such
          person's executive offices listed in Schedule 12(bb).

     (o)  each of Company and each Eligible Subsidiary shall maintain and keep
          the tangible Collateral at the addresses listed in Schedule 12(bb),
          provided, that each of Company and/or any such Eligible Subsidiary may
          change such locations or open a new location, provided that Company or
          any such Eligible Subsidiary, as the case may be, 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,
          Company and/or any such Eligible Subsidiary, as the case may be,
          executes and delivers to Laurus such agreements as Laurus may request,
          including landlord agreements, mortgagee agreements and warehouse
          agreements, each in form and substance satisfactory to Laurus.

     (p)  Schedule 7(p) lists all banks and other financial institutions at
          which Company and each Eligible Subsidiary 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. Neither the Company nor any
          Eligible Subsidiary shall 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 Company 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 of Company and each Eligible Subsidiary 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 Company and each
          Eligible Subsidiary (the "Lockboxes") with North Fork Bank (the
          "Lockbox Bank") pursuant to the terms of the Lockbox Agreement dated
          as of October 28, 2004 or such other financial institution accepted by
          Laurus in writing as may be selected by Company and/or any Eligible
          Subsidiary. On or prior to the Closing Date, each of Company and each
          Eligible Subsidiary 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 Company's and each Eligible Subsidiary's invoices, account
          statements and other written or oral communications directing,
          instructing, demanding or requesting payment of any Account of Company
          or any Eligible Subsidiary 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, Company or any
          Eligible Subsidiary receives any payments of any Account or any other
          property constituting Collateral, Company or such Eligible Subsidiary,
          as the case may be, shall promptly remit such payments to Laurus in
          their original form with all necessary endorsements. Until so
          remitted, Company and each Eligible Subsidiary 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 of Company's and each
          Eligible Subsidiary's Account Debtors of Laurus' security interest in
          the Accounts, collect them directly and charge the collection costs
          and expenses thereof to Company's and the Eligible Subsidiaries joint
          and several account.


<PAGE>


9.   Collection and Maintenance of Collateral.

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

     (b)  Proceeds of Accounts received by Laurus will be deemed received on the
          Business Day after Laurus' receipt of such proceeds in good funds in
          dollars of the United States of America in Laurus' account. 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 Company or any Eligible
          Subsidiary, it shall (i) apply such proceeds, as required, to 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 and/or any such Eligible
          Subsidiary upon request (but no more often than twice a week).
          Notwithstanding the foregoing, following the occurrence and during the
          continuance of an Event of Default, Laurus, at its option, may (a)
          apply such proceeds to the Obligations in such order as Laurus shall
          elect, (b) hold all such proceeds as cash collateral for the
          Obligations and each of Company and each Eligible Subsidiary hereby
          grants to Laurus a security interest in such cash collateral amounts
          as security for the Obligations and/or (c) do any combination of the
          foregoing.

10.  Inspections and Appraisals. At all times during normal business hours, and
     upon two (2) Business Days' prior notice to the Company or any Eligible
     Subsidiary, as applicable, Laurus, and/or any agent of Laurus shall have
     the right to (a) have access to, visit, inspect, review, evaluate and make
     physical verification and appraisals of each of Company's and each Eligible
     Subsidiary's properties and the Collateral, (b) inspect, audit and copy (or
     take originals if necessary) and make extracts from Company's and each
     Eligible Subsidiary's Books and Records, including management letters
     prepared by independent accountants, and (c) discuss with Company's and
     each Eligible Subsidiary's principal officers, and independent accountants,
     Company's and each Eligible Subsidiary's business, assets, liabilities,
     financial condition, results of operations and business prospects. Each of
     Company and each Eligible Subsidiary will deliver to Laurus any instrument
     necessary for Laurus to obtain records from any service bureau maintaining
     records for Company and such Eligible Subsidiary. 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, neither the
     Company nor any of its subsidiaries will provide any material, non-public
     information to Laurus unless Laurus signs a confidentiality agreement and
     otherwise complies with Regulation FD, under the federal securities laws.

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

     (a)  As soon as available, and in any event within ninety (90) days after
          the end of each fiscal year of Company, Company's audited financial
          statements with a report of independent certified public accountants
          of recognized standing selected by Company and acceptable to Laurus
          (the "Accountants"), which annual financial statements shall include
          Company's balance sheet as at the end of such fiscal year and the
          related statements of Company's income, retained earnings and cash
          flows for the fiscal year then ended, prepared, if Laurus so requests,
          on a consolidated basis to include all subsidiaries, all in reasonable
          detail and prepared in accordance with GAAP, together with (i) if and
          when available, copies of any management letters prepared by such
          accountants; and (ii) a certificate of Company's President, Chief
          Executive Officer or Chief Financial Officer stating that such
          financial statements have been prepared in accordance with GAAP and
          whether or not such officer has knowledge of the occurrence of any
          Default or Event of Default hereunder and, if so, stating in
          reasonable detail the facts with respect thereto;

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

     (c)  Within thirty (30) days after the end of each month (or more
          frequently if Laurus so requests), agings of Company's and each
          Eligible Subsidiary's Accounts, unaudited trial balances and their
          accounts payable and a calculation of Company's and each Eligible
          Subsidiary's Accounts, Eligible Accounts, Inventory and/or Eligible
          Inventory, provided, however, that if

<PAGE>


          Laurus shall request the foregoing information more often than as set
          forth in the immediately preceding clause, Company and/or any Eligible
          Subsidiary shall have thirty (30) days from each such request to
          comply with Laurus' demand; and

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

12.  Additional Representations and Warranties. Company hereby represents and
     warrants to Laurus as follows (which representations and warranties are
     supplemented by, and subject to, Company's filings under the Securities
     Exchange Act of 1934 made prior to the date of this Agreement
     (collectively, the "Exchange Act Filings"), copies of which have been
     provided to Laurus):

     (a)  Organization, Good Standing and Qualification. Each of Company and
          each of its Eligible Subsidiaries is a corporation duly organized,
          validly existing and in good standing under the laws of its
          jurisdiction of organization. Each of Company and each of its Eligible
          Subsidiaries has the corporate power and authority to own and operate
          its properties and assets, to execute and deliver this Agreement and
          the Ancillary Agreements to which it is a party, and to the extent
          applicable, to issue and sell the Notes and the shares of Common Stock
          issuable upon conversion of the Minimum Borrowing Note (the "Note
          Shares"), to issue and sell the Warrants and the shares of Common
          Stock issuable upon conversion of the Warrants (the "Warrant Shares"),
          and to carry out the provisions of this Agreement and the Ancillary
          Agreements to which it is a party, and to the extent applicable and to
          carry on its business as presently conducted. Each of Company and each
          of its Eligible Subsidiaries is duly qualified and is authorized to do
          business and is in good standing as a foreign corporation in all
          jurisdictions, except for those jurisdictions in which the failure to
          do so has not had, or could not reasonably be expected to have,
          individually or in the aggregate, a Material Adverse Effect.

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

     (c)  Capitalization; Voting Rights.

          (i)  The authorized capital stock of the Company, as of the date
               hereof consists of 105,000,000 shares, of which 100,000,000 are
               shares of Common Stock, par value $0.03 per share, 37,647,233
               shares of which are issued and outstanding, and 5,000,000 are
               shares of preferred stock, par value $0.01 per share of which no
               shares are issued and outstanding. The authorized capital stock
               of each Eligible Subsidiary of the Company is set forth on
               Schedule 12(c).

          (ii) Except as disclosed on Schedule 12(c), other than: (i) the shares
               reserved for issuance under Company's stock option plans; and
               (ii) shares which may be issued pursuant to this Agreement and
               the Ancillary Agreements, there are no outstanding options,
               warrants, rights (including conversion or preemptive rights and
               rights of first refusal), proxy or stockholder agreements, or
               arrangements or agreements of any kind for the purchase or
               acquisition from Company of any of its securities. Except as
               disclosed on Schedule 12(c), neither the offer, issuance or sale
               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 Company outstanding,
               under anti-dilution or other similar provisions contained in or
               affecting any such securities.

          (iii) All issued and outstanding shares of Company'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 Company's Restated
               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, the Ancillary Agreements and Company'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 action on the part
          of each of Company and each of its Eligible Subsidiaries, and their
          respective officers and directors necessary for the authorization of
          this Agreement and the Ancillary Agreements, the performance of all
          obligations of Company and each of its Eligible Subsidiaries hereunder
          and under the Ancillary Agreements on the Closing Date and, the
          authorization, sale, issuance and delivery of the Notes and the
          Warrants has been taken or will be taken prior to the Closing Date.
          This Agreement and the Ancillary Agreements, when executed and

<PAGE>


          delivered and to the extent it is a party thereto, will be valid and
          binding obligations of each of Company and each of its Eligible
          Subsidiaries enforceable 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 sale 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 Company nor any of its Eligible Subsidiaries has
          any contingent liabilities, except current liabilities incurred in the
          ordinary course of business and liabilities disclosed in any Exchange
          Act Filings.

     (f)  Agreements; Action. Except as set forth on Schedule 12(f) 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 Company 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, Company or any of
               its subsidiaries in excess of $50,000 (other than obligations of,
               or payments to, Company 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
               Company or any of its subsidiaries (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 Company's or any of its subsidiaries' products or
               services; or (iv) indemnification by Company or any of its
               subsidiaries with respect to infringements of proprietary rights.

          (ii) Since November 29, 2004, neither Company 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) above, all indebtedness, liabilities, agreements,
               understandings, instruments, contracts and proposed transactions
               involving the same Person (including Persons Company 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.

     (g)  Obligations to Related Parties. Except as set forth on Schedule 12(g),
          there are no obligations of Company or any of its subsidiaries to
          officers, directors, stockholders or employees of Company or any of
          its subsidiaries other than:

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

          (ii) reimbursement for reasonable expenses incurred on behalf of
               Company or any of its subsidiaries;

          (iii) for other standard employee benefits made generally available to
               all employees (including stock option agreements outstanding
               under any stock option plan approved by the Board of Directors of
               Company); and

          (iv) obligations listed in Company's financial statements or disclosed
               in any of its Exchange Act Filings.

Except as described in any Exchange Act Filing or as described above or set
forth on Schedule 12(g), none of the officers, directors or, to the best of
Company's knowledge, key employees or stockholders of Company, any of its
subsidiaries or any members of their immediate families, are indebted to Company
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 firm or
corporation with which Company or any of its subsidiaries is affiliated (other
than the Company) or with which Company or any of its subsidiaries has a
business

<PAGE>


relationship, or any firm or corporation which competes with Company or any of
its subsidiaries, in each case, other than passive investments in publicly
traded companies (representing less than one percent (1%) of such company) which
may compete with Company or any of its subsidiaries. Except as described above,
no officer, director or stockholder, or any member of their immediate families,
is, directly or indirectly, interested in any material contract with Company or
any of its subsidiaries and no agreements, understandings or proposed
transactions are contemplated between Company or any of its subsidiaries and any
such person. Except as set forth on Schedule 12(g), neither Company nor any of
its subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.

     (h)  Changes. Since November 29, 2004, 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 the business, assets, liabilities, condition
               (financial or otherwise), properties, operations or prospects of
               Company or any of its Eligible Subsidiaries, 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 officer, key employee or
               group of employees of Company or any of its Eligible
               Subsidiaries;

          (iii) any material change, except in the ordinary course of business,
               in the contingent obligations of Company or any of its Eligible
               Subsidiaries 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 Company or any of its Eligible Subsidiaries of a
               valuable right or of a material debt owed to it;

          (vi) any direct or indirect material loans made by Company or any of
               its Eligible Subsidiaries to any stockholder, employee, officer
               or director of Company or any of its Eligible Subsidiaries, 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 the assets of Company or any of its Eligible
               Subsidiaries;

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

          (x)  any debt, obligation or liability incurred, assumed or guaranteed
               by Company or any of its Eligible 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 patents, trademarks,
               copyrights, trade secrets or other intangible assets;

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

          (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, a Material Adverse Effect; or

          (xiv) any arrangement or commitment by Company or any of its Eligible
               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), each of Company and each of its Eligible Subsidiaries
          has good and marketable title to its properties and assets, and good
          title to its leasehold estates, in each case subject to no mortgage,
          pledge, lien, lease, encumbrance or charge, other than:

          (i)  those resulting from taxes which have not yet become delinquent;


<PAGE>


          (ii) minor liens and encumbrances which do not materially detract from
               the value of the property subject thereto or materially impair
               the operations of Company or any of its Eligible Subsidiaries;

          (iii) those that have otherwise arisen in the ordinary course of
               business; and

          (iv) Permitted Liens.

All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by Company or any of its Eligible Subsidiaries are in good
operating condition and repair (excepting ordinary wear and tear) and are
reasonably fit and usable for the purposes for which they are being used. Except
as set forth on Schedule 12(i), each of Company and each of its Eligible
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)  Each of Company and each of its Eligible Subsidiaries owns or
               possesses sufficient legal rights to all Intellectual Property
               necessary for its business as now conducted and to Company's
               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 such Intellectual Property of Company or any of its Eligible
               Subsidiaries, nor is Company or any of its Eligible 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 or entity other than such licenses or agreements arising
               from the purchase of "off the shelf" or standard products.

          (ii) Except as set forth on Schedule 12(j), neither Company nor any of
               its Eligible Subsidiaries has received any communications
               alleging that Company or any of its Eligible Subsidiaries has
               violated any of the patents, trademarks, service marks, trade
               names, copyrights or trade secrets or other proprietary rights of
               any other person or entity, nor is Company aware of any basis
               therefor.

          (iii) Company does not believe 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 Company or any
               of its Eligible Subsidiaries, except for inventions, trade
               secrets or proprietary information that have been rightfully
               assigned to Company or any such Eligible Subsidiary.

     (k)  Compliance with Other Instruments. Neither Company nor any of its
          Eligible Subsidiaries is in violation or default of (x) any term of
          its Charter or Bylaws, or (y) of any provision of any indebtedness,
          mortgage, indenture, contract, agreement or instrument to which it is
          party or by which it is bound or of any judgment, decree, order or
          writ, which violation or default, in the case of this clause (y), has
          had, or could reasonably be expected to have, either individually or
          in the aggregate, a Material Adverse Effect. The execution, delivery
          and performance of and compliance with this Agreement and the
          Ancillary Agreements to which it is a party, and the issuance and sale
          of the Notes by Company and the other Securities by Company 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 mortgage, pledge, lien,
          encumbrance or charge upon any of the properties or assets of Company
          or any of its Eligible Subsidiaries or the suspension, revocation,
          impairment, forfeiture or nonrenewal of any permit, license,
          authorization or approval applicable to Company or any of its Eligible
          Subsidiaries, its business or operations or any of its assets or
          properties.

     (l)  Litigation. Except as disclosed in any Exchange Act Filing or as set
          forth on Schedule 12(l), there is no action, suit, proceeding or
          investigation pending or, to Company's knowledge, currently threatened
          against Company or any of its Eligible Subsidiaries that prevents
          Company or any of its Eligible 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
          the current equity ownership of Company or any of its Eligible
          Subsidiaries, nor is Company aware that there is any basis to assert
          any of the foregoing. Neither Company nor any of its Eligible
          Subsidiaries is a party or subject to the provisions of any order,
          writ, injunction, judgment or decree of any court or government agency
          or instrumentality. Except as disclosed in any Exchange Act Filing,
          there is no action, suit, proceeding or investigation by Company or
          any of its Eligible Subsidiaries currently pending or which Company or
          any of its Eligible Subsidiaries intends to initiate.

     (m)  Tax Returns and Payments. Each of Company and each of its Eligible
          Subsidiaries has timely filed all tax returns (federal, state and
          local) required to be filed by it or has received extensions in
          respect thereof. All taxes shown to be due and payable on such
          returns, any assessments imposed, and all other taxes due and payable
          by each of Company and each of its

<PAGE>


          Eligible 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 Company nor any of its Eligible
          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 deficiency in assessment or proposed judgment to its
               federal, state or other taxes.

          Company has no 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 Company nor
          any of its Eligible Subsidiaries has any collective bargaining
          agreements with any of its employees. There is no labor union
          organizing activity pending or, to Company's knowledge, threatened
          with respect to Company or any of its Eligible Subsidiaries. Except as
          disclosed in the Exchange Act Filings or on Schedule 12(n), neither
          Company nor any of its Eligible 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 Company's knowledge, no employee of Company or any of its Eligible
          Subsidiaries, nor any consultant with whom Company or any of its
          Eligible Subsidiaries has contracted, is in violation of any term of
          any employment contract, proprietary information agreement or any
          other agreement relating to the right of any such individual to be
          employed by, or to contract with, Company or any of its Eligible
          Subsidiaries because of the nature of the business to be conducted by
          Company or any of its Eligible Subsidiaries; and to Company's
          knowledge the continued employment by Company and its Eligible
          Subsidiaries of their respective present employees, and the
          performance of Company's and its Eligible Subsidiaries contracts with
          its independent contractors, will not result in any such violation.
          Company is not aware that any of its or any of its Eligible
          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
          Company or any of its Eligible Subsidiaries. Neither Company nor any
          of its Eligible Subsidiaries has received any notice alleging that any
          such violation has occurred. Except for employees who have a current
          effective employment agreement with Company or any of its Eligible
          Subsidiaries, no employee of Company or any of its Eligible
          Subsidiaries has been granted the right to continued employment by
          Company or any of its Eligible Subsidiaries or to any material
          compensation following termination of employment with Company or any
          of its Eligible Subsidiaries. Except as set forth on Schedule 12(n),
          neither Company nor any of its Eligible Subsidiaries is aware that any
          officer, key employee or group of employees intends to terminate his,
          her or their employment with Company or any of its Eligible
          Subsidiaries, nor does Company or any of its Eligible 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 Company
          nor any of its Eligible Subsidiaries is presently under any
          obligation, and has not granted any rights, to register any of
          Company's or any such Eligible Subsidiary's 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 Company's knowledge, no stockholder of
          Company or any of its Eligible Subsidiaries has entered into any
          agreement with respect to the voting of equity securities of Company
          or any of its Eligible Subsidiaries.

     (p)  Compliance with Laws; Permits. Neither Company nor any of its Eligible
          Subsidiaries is in violation of any 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 has 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. Each of Company and each of its Eligible
          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 Company is nor any of its
          Eligible Subsidiaries is in violation of any applicable statute, law
          or regulation relating to the environment or occupational health and
          safety, and to its knowledge, no material expenditures are or will be
          required in order to comply with any such existing statute, law or
          regulation. Except as set forth on Schedule 12(q), no Hazardous
          Materials (as defined below) are used or have been used, stored, or
          disposed of by Company or any of its Eligible Subsidiaries or, to
          Company's knowledge, by any other person or entity on any property
          owned, leased or used by Company or any of its Eligible Subsidiaries.
          For the purposes of the preceding sentence, "Hazardous Materials"
          shall mean:

<PAGE>


          (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, sale 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. Each of Company and each of its Eligible Subsidiaries
          has provided Laurus with all information requested by Laurus in
          connection with its decision to purchase the Notes and the Warrants,
          including all information Company believes 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 Company or any of its Eligible
          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 Company and its Eligible Subsidiaries
          were based on Company's and its Eligible Subsidiaries' experience in
          the industry and on assumptions of fact and opinion as to future
          events which Company and/or such Eligible Subsidiary, at the date of
          the issuance of such projections or estimates, believed to be
          reasonable.

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

     (u)  SEC Reports and Financial Statements. Except as set forth on Schedule
          12(u), Company and each of its Eligible Subsidiaries has filed all
          proxy statements, reports and other documents required to be filed by
          it under the Exchange Act. Company has furnished Laurus with copies
          of: (i) its Annual Report on Form 10-K for its fiscal years ended
          December 31, 2003; and (ii) its Quarterly Reports on Form 10-Q for its
          fiscal quarters ended September 30, 2004, and the Form 8-K filings
          which it has made during its fiscal year 2004 to date (collectively,
          the "SEC Reports"). Except as set forth on Schedule 12(u), each SEC
          Report was, 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 generally accepted accounting principles ("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 the cash flows of Company and its subsidiaries, on a
          consolidated basis, as of, and for, the periods presented in each such
          SEC Report.

     (v)  Listing. The Company's Common Stock is traded on the Over the Counter
          Bulletin Board ("OTCBB") and satisfies all requirements for the
          continuation of such trading. The Company has not received any notice
          that its Common Stock will be ineligible to trade on the OTCBB or that
          its Common Stock does not meet all requirements for such continued
          trading.

     (w)  No Integrated Offering. Neither Company, nor any of its Eligible
          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 Company for purposes of the Securities Act in a
          manner that would prevent Company from selling the Securities pursuant
          to the Securities Act, or any applicable exchange-related stockholder
          approval provisions, nor will Company or any of its Affiliates or
          Eligible Subsidiaries take any action or steps that would cause the
          offering of the Securities to be integrated with other such offerings.

     (x)  Stop Transfer. The Securities are restricted securities as of the date
          of this Agreement. Company will not 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

<PAGE>


          registered for public sale or an exemption from registration is
          available, except as required by state and federal securities laws.

     (y)  Dilution. Company specifically acknowledges that its obligation to
          issue the shares of Common Stock upon conversion of the Notes and
          exercise of the Warrants is binding upon Company and enforceable
          regardless of the dilution such issuance may have on the ownership
          interests of other shareholders of Company.

     (z)  Patriot Act. Company certifies that, to the best of Company's
          knowledge, neither Company nor any of its subsidiaries has been
          designated, and is not owned or controlled, by a "suspected terrorist"
          as defined in Executive Order 13224. Company hereby acknowledges that
          Laurus seeks to comply with all applicable laws concerning money
          laundering and related activities. In furtherance of those efforts,
          Company hereby represents, warrants and agrees that: (i) none of the
          cash or property that Company or any of its subsidiaries will pay or
          will contribute to Laurus has been or shall be derived from, or
          related to, any activity that is deemed criminal under United States
          law; and (ii) no contribution or payment by Company or any of its
          subsidiaries to Laurus, to the extent that they are within Company's
          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. Company shall promptly notify Laurus if any of these
          representations ceases to be true and accurate regarding Company or
          any of its subsidiaries. Company agrees to provide Laurus with any
          additional information regarding Company and each subsidiary thereof
          that Laurus deems necessary or convenient to ensure compliance with
          all applicable laws concerning money laundering and similar
          activities. Company 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 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 Company. Company further understands that Laurus may
          release confidential information about Company and its subsidiaries
          and, if applicable, any underlying beneficial owners, to proper
          authorities if Laurus, in its sole discretion, exercised reasonably,
          determines that it is in the best interests of Laurus in light of
          relevant rules and regulations under the laws set forth in subsection
          (ii) above.

          (aa)Schedule 12(aa) sets forth Company's and each Eligible
          Subsidiary's name as it appears in official filings in the state of
          its incorporation, the type of entity of Company and each Eligible
          Subsidiary, the organizational identification number issued by
          Company's and each Eligible Subsidiary's state of incorporation or a
          statement that no such number has been issued, Company's and each
          Eligible Subsidiary's state of incorporation, and the location of
          Company's and each Eligible Subsidiary'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), neither Company nor any
          Eligible Subsidiary has been known as or conducted business in any
          other name (including trade names). Each of Company and each Eligible
          Subsidiary has only one state of incorporation.

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

     (a)  Stop-Orders. During the Term, Company will 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
          Company, or of the suspension of the qualification of the Common Stock
          of Company for offering or sale in any jurisdiction, or the initiation
          of any proceeding for any such purpose.

     (b)  Listing. Company shall maintain the trading of the shares of Common
          Stock issuable upon conversion of the Notes and exercise of the
          Warrants on the NASD OTC 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) (the
          "Principal Market"), and will comply in all material respects with
          Company's reporting, filing and other obligations under the bylaws or
          rules of the National Association of Securities Dealers ("NASD") and
          the Principal Market, as applicable.

     (c)  Market Regulations. During the Term, Company 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.

<PAGE>


     (d)  Reporting Requirements. During the Term, Company will 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. Company agrees that it will use the proceeds of the sale
          of the Notes and the Warrants for working capital purposes only.

     (f)  Reserved.

     (g)  Taxes . During the Term, Company will, and will cause each of its
          Eligible 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 the
          income, profits, property or business of Company or such Eligible
          Subsidiary, as the case may be; provided, however, that any such tax,
          assessment, charge or levy need not be paid if the validity thereof
          shall then be contested in good faith by appropriate proceedings and
          if Company and/or such Eligible Subsidiary shall have set aside on its
          books adequate reserves with respect thereto, and provided, further,
          that Company will, and will cause each of its Eligible Subsidiaries
          to, pay all such taxes, assessments, charges or levies forthwith upon
          the commencement of proceedings to foreclose any lien which may have
          attached as security therefor.

     (h)  Insurance. Each of Company and each Eligible Subsidiary, as the case
          may be, will bear the full risk of loss from any loss of any nature
          whatsoever with respect to the Collateral. Each of Company and each of
          its Eligible Subsidiaries will keep its assets which are of an
          insurable character insured by financially sound and reputable
          insurers against loss or damage by fire, flood, sprinkler leakage,
          those hazards covered by extended coverage insurance and such other
          hazards and other risks customarily insured against by companies in
          similar business similarly situated as Company and its Eligible
          Subsidiaries; and Company and its Eligible Subsidiaries will 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 Company and/or such Eligible Subsidiary
          thereof reasonably believes is customary for companies in similar
          business similarly situated as Company and its Eligible Subsidiaries
          and to the extent available on commercially reasonable terms. Company
          and each of its Eligible 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 Company's
          own cost and expense in amounts and with carriers reasonably
          acceptable to Laurus, Company and each of its Eligible Subsidiaries
          shall (ii) maintain all such worker's compensation or similar
          insurance as may be required under the laws of any state or
          jurisdiction in which Company or any of its Eligible Subsidiaries is
          engaged in business; and (iii) 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 Company's
          and its Eligible 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 loss payee, and
          (z) evidence that as to Laurus the insurance coverage shall not be
          impaired or invalidated by any act or neglect of Company or any of its
          Eligible Subsidiaries and the insurer will provide Laurus with at
          least thirty (30) days notice prior to cancellation. Company shall
          instruct the insurance carriers that in the event of any loss
          thereunder, the carriers shall make payment for such loss to Laurus
          and not to Company and/or any Eligible Subsidiary thereof and Laurus
          jointly. If any insurance losses are paid by check, draft or other
          instrument payable to Company and/or any Eligible Subsidiary thereof
          and Laurus jointly, Laurus may endorse Company's and/or such Eligible
          Subsidiary's 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 and/or such Eligible Subsidiary
          thereof. Any surplus shall be paid by Laurus to Company and/or such
          Eligible Subsidiary thereof or applied as may be otherwise required by
          law. Any deficiency thereon shall be paid by Company and its Eligible
          Subsidiaries to Laurus, on demand.

     (i)  Intellectual Property. Company shall, and shall cause each of its
          Eligible 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. During the Term, Company will, and will cause each of its
          Eligible 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 Company will, and will cause
          each of its Eligible 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.


<PAGE>


     (k)  Confidentiality. During the Term, Company agrees that it will not, and
          will not permit any of its Eligible 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. Company may disclose Laurus'
          identity and the terms of this Agreement to its current and
          prospective debt and equity financing sources.

     (l)  Required Approvals. During the Term, Company shall not, and shall not
          permit any of its Eligible Subsidiaries to, without the prior written
          consent of Laurus, (i) create, incur, assume or suffer to exist any
          indebtedness (exclusive of trade debt) whether secured or unsecured
          other than 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
          Company for deposit or collection or similar transactions in the
          ordinary course of business; (iv) directly or indirectly declare, pay
          or make any dividend or distribution on any class of its Stock other
          than to pay dividends on shares of its Preferred Stock outstanding on
          the date hereof or apply any of its funds, property or assets to the
          purchase, redemption or other retirement of any Stock of Company
          outstanding on the date hereof, or issue any Preferred Stock
          manditorily redeemable prior to the sixth month anniversary of the
          Maturity Date (as defined in the Notes); (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 Company's and its Eligible Subsidiaries'
          officers and employees not exceeding at any one time an aggregate of
          $10,000, and (z) existing subsidiaries of Company; (vi) create or
          permit to exist any subsidiary, other than any subsidiary in existence
          on the date hereof and listed in Schedule 12(b) unless such new
          subsidiary is a wholly-owned subsidiary and is designated by Laurus as
          either a co-borrower or guarantor hereunder and such subsidiary shall
          have entered into all such documentation required by Laurus,
          including, without limitation, to grant to Laurus a first priority
          perfected security interest in substantially all of such subsidiary's
          assets to secure the Obligations; (vii) directly or indirectly, prepay
          any indebtedness (other than to Laurus or in the ordinary course of
          business), or repurchase, redeem, retire or otherwise acquire any
          indebtedness (other than to Laurus or 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 constituting Collateral
          or permit any other Person to consolidate with or merge with it,
          unless (1) 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)
          Company shall have provided Laurus copies of all documentation
          relating to such merger or consolidation and (4) 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 the Company's right to perform the provisions
          of this Agreement or any of the agreements contemplated thereby; (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
          Company or its existing Eligible Subsidiaries; or (xiv) make any
          intercompany or inter-subsidiary loans or transfers of assets, other
          than loans and transfers in the ordinary course of business consistent
          with past practice among the Company and the Eligible Subsidiaries or
          with the prior written consent of Laurus (such consent not to be
          unreasonably withheld or conditioned) .

     (m)  Reissuance of Securities. Company agrees to reissue certificates
          representing the Securities without the legends set forth in Section
          38 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 or
               pursuant to Rule 144(d).

Company 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 Company and its counsel receive reasonably requested
representations from Laurus and broker, if any.

<PAGE>


     (n)  Opinion. On the Closing Date, Company will deliver to Laurus an
          opinion acceptable to Laurus from Company's legal counsel. Company
          will provide, at Company's expense, such other legal opinions in the
          future as are required by the transfer agent for the Common Stock and
          are reasonably necessary for the conversion of the Notes and the
          exercise of the Warrants.

     (o)  Legal Name, etc. During the Term, Neither Company nor any of its
          Eligible Subsidiaries will, 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 incorporation or formation, (ii)
          the type of legal entity it is, (iii) its organization identification
          number, if any, issued by its state of incorporation, (iv) its state
          of incorporation or (v) amend its certificate of incorporation,
          by-laws or other organizational document.

     (p)  Compliance with Laws. During the Term, the operation of each of the
          Company's and each of its Eligible Subsidiaries' business is and will
          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
          except where failure to so comply could not reasonably be expected to
          have a Material Adverse Effect.

     (q)  Notices. During the Term, each of the Company and each of its Eligible
          Subsidiaries will 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 (in excess of $50,000) to
          which Company or any of its Eligible Subsidiaries is a party or by
          which Company or any of its Eligible Subsidiaries or any of Company's
          or any such Eligible Subsidiary's properties may be bound the breach
          of which would have a Material Adverse Effect.

     (r)  Margin Stock. The Company will 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. During the Term, except as previously disclosed
          in the SEC Reports or in the Exchange Act Filings, or stock or stock
          options granted to employees or directors of the Company (these
          exceptions hereinafter referred to as the "Excepted Issuances"), the
          Company will not issue any securities with a continuously
          variable/floating conversion feature which are or could be (by
          conversion or registration) free-trading securities (i.e. common stock
          subject to a registration statement) prior to the full repayment or
          conversion of the Notes (together with all accrued and unpaid interest
          and fees related thereto.

     (t)  Authorization and Reservation of Shares. Company will 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.

     (u)  Financing Right of First Refusal. (i) Company hereby grants to Laurus
          a right of first refusal to provide any Additional Financing (as
          defined below) to be issued by Company and/or any of its Eligible
          Subsidiaries, subject to the following terms and conditions. From and
          after the date hereof, prior to the sale of any debt securities or
          convertible securities by the Company or any Eligible Subsidiary in a
          capital-raising transaction in excess of $50,000 by Company or any of
          its Eligible Subsidiaries (an "Additional Financing"), Company and/or
          any Eligible Subsidiary of Company, as the case may be, shall notify
          Laurus of its intention to enter into such Additional Financing. In
          connection therewith, Company and/or the applicable Eligible
          Subsidiary thereof shall submit a fully executed term sheet (a
          "Proposed Term Sheet") to Laurus setting forth the terms, conditions
          and pricing of any such Additional Financing (such financing to be
          negotiated on "arm's length" terms and the terms thereof to be
          negotiated in good faith) proposed to be entered into by Company
          and/or such Eligible Subsidiary. Laurus shall have the right, but not
          the obligation, to deliver its own proposed term sheet (the "Laurus
          Term Sheet") setting forth the terms and conditions upon which Laurus
          would be willing to provide such Additional Financing to Company
          and/or such Eligible Subsidiary. The Laurus Term Sheet shall contain
          terms no less favorable to Company and/or such Eligible Subsidiary
          than those outlined in Proposed Term Sheet. Laurus shall deliver such
          Laurus Term Sheet within five Business Days of receipt of each such
          Proposed Term Sheet. If the provisions of the Laurus Term Sheet are at
          least as favorable to Company and/or such Eligible Subsidiary, as the
          case may be, as the provisions of the Proposed Term Sheet, Company
          and/or such Eligible Subsidiary shall enter into and consummate the
          Additional Financing transaction outlined in the Laurus Term Sheet.
          Notwithstanding anything to the contrary contained above, Laurus shall
          not have a right of first

<PAGE>


          refusal with respect to (i) any proposed Additional Financing the
          proceeds of which the Company proposes uses to pay off the Obligations
          or the refinance the indebtedness created hereunder or under the
          Ancillary Agreements or (ii) any renewals, extensions or amendments to
          or of any indebtedness existing on the date hereof.

     (ii) Company will not, and will not permit its Eligible Subsidiaries to,
          agree, directly or indirectly, to any restriction with any person or
          entity which limits the ability of Laurus to consummate an Additional
          Financing with Company or any of its Eligible Subsidiaries.

14.  Further Assurances. At any time and from time to time, upon the written
     request of Laurus and at the sole expense of Company, each of Company and
     each Eligible Subsidiary shall promptly and duly execute and deliver any
     and all such further instruments and documents and take such further action
     as Laurus may 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, or (c) to enable Laurus to exercise all or any of the rights and
     powers herein granted or any Ancillary Agreement.

15.  Representations and Warranties and Covenants of Laurus.

     Laurus hereby represents and warrants to 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 will 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 and sold 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 Note to be purchased by it under this Agreement and the Securities
          acquired by it upon the conversion of the Note.

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

     (d)  Acquisition for Own Account. Laurus is acquiring the Securities for
          its own account for investment only, and not as a nominee or agent and
          not with a view towards or for resale in connection with their
          distribution.

     (e)  Laurus Can Protect Its Interest. Laurus represents that by reason of
          its, or of its management's, business and financial experience, Laurus
          has the capacity to evaluate the merits and risks of its investment in
          the Note, 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)  QIB. Laurus represents that it is a qualified institutional buyer,
          within the meaning of Rule 144A under the Securities Act.

     (g)  Shorting. Neither Laurus nor any of its Affiliates or investment
          partners has, directly or indirectly, engaged in short sales of
          Company's Common Stock. Neither Laurus nor any of its Affiliates or
          investments partners, directly or indirectly, will, or will cause any
          person or entity, to directly engage in "short sales" of Company's
          Common Stock as long as any Minimum Borrowing Note shall be
          outstanding.

<PAGE>


     (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 agrees that: (i) none of the cash or property
          that Laurus will use to purchase the Notes 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 the
          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 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 Company. Laurus further
          understands that the Company may release information about Laurus and,
          if applicable, any underlying beneficial owners, to proper authorities
          if the Company, in its sole discretion, determines that it is in the
          best interests of the Company in light of relevant rules and
          regulations under the laws set forth in subsection (ii) above.

     (i)  Limitation on Acquisition of Common Stock of the Company.
          Notwithstanding anything to the contrary contained in this Agreement,
          any Ancillary Agreement, any document, instrument or agreement entered
          into in connection with the transactions contemplated hereby or any
          document, instrument or agreement entered into in connection with any
          other transaction entered into by and between Laurus and the Company
          (and/or subsidiaries or affiliates of the Company), Laurus shall not
          acquire stock in the Company (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 Company, 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
          the Company to Laurus not to qualify as portfolio interest, within the
          meaning of Section 881(c)(2) of the Internal Revenue Code of 1986, as
          amended (the "Code") by reason of Section 881(c)(3) of the Code,
          taking into account the constructive ownership rules under Section
          871(h)(3)(C) of the Code.

16.  Power of Attorney. With effect from the occurrence and during the
     continuance of an Event of Default, each of Company and each Eligible
     Subsidiary hereby appoints Laurus, or any other Person whom Laurus may
     designate as Company's and/or any Eligible Subsidiary's attorney, with
     power to: (i) endorse Company's and each Eligible Subsidiary'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 Company's and
     each Eligible Subsidiary's name on any invoice or bill of lading relating
     to any Accounts, drafts against Account Debtors, schedules and assignments
     of Accounts, notices of assignment, financing statements and other public
     records, verifications of Account and notices to or from Account Debtors;
     (iii) verify the validity, amount or any other matter relating to any
     Account by mail, telephone, telegraph or otherwise with Account Debtors;
     (iv) do all things necessary to carry out this Agreement, any Ancillary
     Agreement and all related documents; and (v) on or after the occurrence and
     during the continuation of an Event of Default, notify the post office
     authorities to change the address for delivery of Company's and each
     Eligible Subsidiary's mail to an address designated by Laurus, and to
     receive, open and dispose of all mail addressed to Company or any Eligible
     Subsidiary. Each of Company and each Eligible Subsidiary 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 Ancillary Agreement shall continue in full force and effect until the
     expiration of the Initial 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 ten (10) days notice
     upon irrevocable payment to it of all Obligations if Company and each
     Eligible Subsidiary shall have (i) provided Laurus with an executed release
     of any and all claims which Company or any Eligible Subsidiary may have or
     thereafter have under this Agreement and all Ancillary Agreements and (ii)
     paid to Laurus an early payment fee in an amount equal to (1) four percent
     (4%) of the Capital Availability Amount if such payment occurs prior to the
     first anniversary of the Closing Date, (2) three percent (3%) 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) one percent (1%) of the Capital Availability Amount if
     such termination occurs thereafter on or prior to the last Business Day

<PAGE>


     before the expiration of the Term (other than at maturity); 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 by Company to Laurus upon termination by
     acceleration of this Agreement by Laurus due to the occurrence and
     continuance of an Event of Default.

18.  Termination of Lien. The Liens and rights granted to Laurus hereunder and
     any Ancillary Agreements and the financing statements filed in connection
     herewith or therewith shall continue in full force and effect,
     notwithstanding the termination of this Agreement or the fact that
     Company's account may from time to time be temporarily in a zero or credit
     position, until all of the Obligations of Company have been paid or
     performed in full after the termination of this Agreement. Laurus shall not
     be required to send termination statements to Company or any Eligible
     Subsidiary, 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 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 such failure shall continue unremedied for a period of
          three (3) Business Days from the date due;

     (b)  failure by the Company or any of its Eligible 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
          Company's and/or such Eligible Subsidiary's books and such failure
          shall continue unremedied for a period of 30 days from the date due,
          except where the failure to so pay would not reasonably be expected to
          have a Material Adverse Effect;

     (c)  failure to perform under, and/or committing any breach of, in any
          material respect, this Agreement or any Ancillary Agreement or any
          other agreement between Company and/or any Eligible Subsidiary
          thereof, on the one hand, and Laurus, on the other hand, which failure
          or breach shall continue for a period of thirty (30) days after the
          occurrence thereof;

     (d)  the occurrence of any event of default (or similar term), and the
          expiration of any grace or cure period applicable thereto under any
          indebtedness in excess of $50,000, which Company or any of its
          Eligible Subsidiaries is a party with third parties (except for any
          indebtedness listed on Schedule 19(d));

     (e)  any representation, warranty or statement made by Company or any of
          its Eligible 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 at any time be false or misleading in any material
          respect when made;

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

     (g)  any change in Company's and its Eligible Subsidiaries' condition or
          affairs (financial or otherwise), taken as a whole, which in Laurus'
          reasonable, good faith opinion, could reasonably be expected to have a
          Material Adverse Effect;

     (h)  any Lien created hereunder or under any Ancillary Agreement for any
          reason ceases to be or is not a valid and perfected Lien having a
          first priority interest, except where such priority is subject to a
          Permitted Lien with greater priority under law;

     (i)  if Company or any of its Eligible 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, or fail 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;

     (j)  Company or any of its Eligible 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;

<PAGE>



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

     (l)  the occurrence of a change in the controlling ownership of Company;

     (m)  the indictment or threatened indictment of Company or any of its
          Eligible Subsidiaries or any executive officer of Company or any of
          its Eligible Subsidiaries under any criminal statute, or commencement
          or threatened commencement of criminal or civil proceeding against
          Company or any of its Eligible Subsidiaries or any executive officer
          of Company or any of its Eligible Subsidiaries pursuant to which
          statute or proceeding penalties or remedies sought or available
          include forfeiture of any of the property of Company or any of its
          Eligible Subsidiaries; or

     (n)  if an Event of Default shall occur under and as defined in any Note or
          in any Ancillary Agreement;.

     (o)  the Company or any of its Eligible Subsidiaries shall breach any
          material term or provision of any Ancillary Agreement to which it is a
          party which is not cured within any applicable cure or grace period;

     (p)  if the Company of any of its Eligible Subsidiaries attempts to
          terminate, challenges the validity of, or its liability under any
          Ancillary Agreement;

     (q)  should the Company or any of its Eligible Subsidiaries default in its
          material obligations under any Ancillary Agreement to which it is a
          party or if any proceeding shall be brought to challenge the validity,
          binding effect of any Ancillary Agreement to which it is a party or
          should the Company or any of its Eligible Subsidiaries breach any
          material representation, warranty or covenant contained in any
          Ancillary Agreement to which it is a party or should any Ancillary
          Agreement cease to be a valid, binding and enforceable obligation of
          the Company of any of its Eligible Subsidiaries (to the extent such
          Persons are a party thereto); or

     (r)  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 Company 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. The "Principal Market" for the Common Stock, for the
          purpose of this clause (r), shall mean the NASD OTC 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).

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 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 Company and/or each Eligible Subsidiary to assemble
     the Collateral, at Company's and each Eligible Subsidiaries' 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 Company or any Eligible Subsidiary 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 Company or any Eligible Subsidiary, Company
     agrees not to charge Laurus for storage thereof), and the right to apply
     for the appointment of a receiver for Company's and each Eligible
     Subsidiary's property. Further, Laurus may, at any time or times after the
     occurrence of an Event of Default, sell and deliver all Collateral held by
     or for Laurus at public or private sale for cash, upon credit or otherwise,
     at such prices and upon such terms as Laurus, in Laurus' sole discretion,
     exercised reasonably, deems advisable or Laurus may otherwise recover upon
     the Collateral in any commercially reasonable manner as Laurus, in its sole
     discretion, exercised reasonably, deems advisable. The requirement of
     reasonable notice shall be met if such notice is mailed postage prepaid to
     Company or any such Eligible Subsidiary, as the case may be, at Company's
     or such Eligible Subsidiary's address as shown in Laurus' records, at least
     ten (10) days before the time of the event of which notice is being given.
     Laurus may be the purchaser at any sale, if it is public. In connection
     with the exercise of the foregoing remedies, Laurus is granted permission
     to use all of Company's and each Eligible Subsidiary's trademarks,
     tradenames, tradestyles, patents, patent applications, licenses, franchises
     and other proprietary rights. The proceeds of sale shall be applied first
     to all costs and expenses of sale, including attorneys' fees, and second to
     the payment (in whatever order Laurus elects) of all Obligations. After the
     indefeasible payment and satisfaction in full in cash of all of the
     Obligations, and after the payment by Laurus of any other amount required
     by any provision of law, including Section 608(a)(1) of the Code (but only
     after Laurus has received what Laurus considers reasonable proof of a
     subordinate party's security interest), the surplus, if any, shall be

<PAGE>


     paid to Company, such Eligible Subsidiary or its representatives or to
     whosoever may be lawfully entitled to receive the same, or as a court of
     competent jurisdiction may direct. Each of Company and each Eligible
     Subsidiary shall remain jointly and severally liable to Laurus for any
     deficiency. In addition, each of Company and each Eligible Subsidiary shall
     pay Laurus a liquidation fee ("Liquidation Fee") in the amount offive
     percent (5%) of the actual amount collected in respect of each Account
     outstanding at any time during a "liquidation period". For purposes hereof,
     "liquidation period" means a period: (i) beginning on the earliest date of
     (x) an event referred to in Section 19(i) or 19(j), or (y) the cessation of
     Company's or any such Eligible Subsidiary's business; and (ii) ending on
     the date on which Laurus has actually received all Obligations due and
     owing it under this Agreement and the Ancillary Agreements. The Liquidation
     Fee shall be paid on the date on which Laurus collects the applicable
     Account by deduction from the proceeds thereof Company and Laurus
     acknowledge that the actual damages that would be incurred by Laurus after
     the occurrence of an Event of Default would be difficult to quantify and
     that Company and Laurus have agreed that the fees and obligations set forth
     in this Section and in this Agreement would constitute fair and appropriate
     liquidated damages in the event of any such termination.

21.  Waivers. To the full extent permitted by applicable law, each of Company
     and each Eligible Subsidiary 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 Company or any such Eligible Subsidiary may in any
     way be liable, and hereby ratifies and confirms whatever Laurus may do in
     this regard; (b) all rights to notice and a hearing prior to Laurus' taking
     possession or control of, or to Laurus' replevy, attachment or levy upon,
     any Collateral or any bond or security that might be required by any court
     prior to allowing Laurus to exercise any of its remedies; and (c) the
     benefit of all valuation, appraisal and exemption laws. Each of Company and
     each Eligible Subsidiary 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. Company shall pay all of Laurus' reasonable 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
     subject to Section 5(v) above, 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. Company shall also 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 Company or any of its Eligible
     Subsidiaries as Collateral for, or any other Person as security for,
     Company's Obligations hereunder and (e) any consultations in connection
     with any of the foregoing. Company shall also pay Laurus' customary bank
     charges for all bank services (including wire transfers) performed or
     caused to be performed by Laurus for Company or any of its Eligible
     Subsidiaries at Company's or such Eligible Subsidiary's request or in
     connection with Company's loan account with Laurus. All such costs and
     expenses together with all filing, recording and search fees, taxes and
     interest payable by Company 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 Company
     and/or any Eligible Subsidiary thereof, on the one hand, and Laurus on the
     other hand, which Laurus is or may be required to withhold or pay, Company
     agrees to indemnify and hold Laurus harmless in respect of such taxes, and
     Company will repay to Laurus the amount of any such taxes which shall be
     charged to Company's account; and until Company 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 Company's credit and Laurus shall
     retain its Liens in any and all Collateral.

23.  Assignment By Laurus. Laurus may assign, with the prior written consent of
     Company (which consent shall not be unreasonably withheld or conditioned),
     any or all of the Obligations together with any or all of the security
     therefor to any Person and any such transferee shall succeed to all of
     Laurus' rights with respect thereto. Upon such transfer, Laurus shall be
     released from all responsibility for the Collateral to the extent same is
     assigned to any transferee. Laurus may from time to time sell or otherwise
     grant participations in any of the Obligations and the holder of any such
     participation shall, subject to the terms of any agreement between Laurus
     and such holder, be entitled to the same benefits as Laurus with respect to
     any security for the Obligations in which such holder is a participant.
     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 Company were directly indebted to
     such holder in the amount of such participation.


<PAGE>


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 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. 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 Company's behalf and 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. Company agrees to 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 COMPANY OR TO ANY OTHER PARTY OR TO ANY
     SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON
     ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
     EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF
     CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT
     OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION
     CONTEMPLATED HEREUNDER OR THEREUNDER.

27.  Revival. Company further agrees that to the extent 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.  Notices. Any notice or request hereunder may be given to Company 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:
<TABLE>
<CAPTION>

<S>     <C>                                              <C>
        If to Laurus:                                  Laurus Master Fund, Ltd.
                                                       c/o Laurus Capital Management, L.L.C.
                                                       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 Company or any Eligible Subsidiary:      Digital Lifestyles Group, Inc.
                                                       1001 S. Capital of Texas Highway
                                                       Building I, Suite 200
                                                       Austin, Texas 78746

<PAGE>




                                                       Attention: Theodore B. Muftic
                                                       Telephone: 512- 617-8282
                                                       Facsimile: 512- 671-8283

        With a copy to:                                Digital Lifestyles Group, Inc.
                                                       1001 S. Capital of Texas Highway
                                                       Building I, Suite 200
                                                       Austin, Texas 78746

                                                       Attention: General Counsel
                                                       Telephone: 512-617-8282
                                                       Facsimile: 512-617-8283
</TABLE>

or such other address as may be designated in writing hereafter in accordance
with this Section 28 by such Person.

29.  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.

     (b)  COMPANY AND EACH ELIGIBLE SUBSIDIARY 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 COMPANY AND/OR EACH ELIGIBLE
          SUBSIDIARY, 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, EACH ELIGIBLE SUBSIDIARY AND
          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 OF COMPANY AND EACH ELIGIBLE SUBSIDIARY
          EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
          ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY HEREBY WAIVES
          ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
          JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH OF COMPANY
          AND EACH ELIGIBLE SUBSIDIARY 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 AT
          THE ADDRESS SET FORTH IN SECTION 28 AND THAT SERVICE SO MADE SHALL BE
          DEEMED COMPLETED UPON THE EARLIER OF COMPANY'S OR SUCH ELIGIBLE
          SUBSIDIARY'S, AS THE CASE MAY BE, ACTUAL RECEIPT THEREOF OR THREE (3)
          DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

     (c)  THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
          SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
          THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
          HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
          PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
          CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS, ANY ELIGIBLE SUBSIDIARY
          AND/OR 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
          THERETO.

30.  Limitation of Liability. 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, willful
     misconduct or gross negligence.

<PAGE>


31.  Entire Understanding. This Agreement and the Ancillary Agreements contain
     the entire understanding between 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 Company's, the Eligible Subsidiaries' on the date hereof
     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.

32.  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.

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

34.  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.

35.  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.

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

37.  Joinder. It is understood and agreed that any person or entity that desires
     to become an Eligible Subsidiary 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 an
     Eligible Subsidiary hereunder by (x) executing a Joinder Agreement in form
     and substance satisfactory to Laurus, (y) delivering supplements to such
     exhibits and annexes to this Agreement and the Ancillary Agreements as
     Laurus shall reasonably request and (z) taking all actions as specified in
     this Agreement as would have been taken by such Eligible Subsidiary 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.

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

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

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

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

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

<PAGE>



     (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
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."

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


<PAGE>


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



                                DIGITAL LIFESTYLES GROUP, INC.


                                By:    /s/ Theodore B. Muftic
                                      ------------------------------------------
                                Name:  Theodore B. Muftic
                                Title: Chief Financial Officer


                                HIP-E OPERATING COMPANY, INC.

                                By:    /s/ Theodore B. Muftic
                                      ------------------------------------------
                                Name:  Theodore B. Muftic
                                Title: Chief Financial Officer




                                NORTHGATE OPERATING COMPANY, INC.

                                By:    /s/ Theodore B. Muftic
                                      ------------------------------------------
                                Name:  Theodore B. Muftic
                                Title: Chief Financial Officer



                                LAURUS MASTER FUND, LTD.

                                By:     ----------------------------------------
                                Name:   ----------------------------------------
                                Title:  ----------------------------------------


<PAGE>



                              ANNEX A - DEFINITIONS

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

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

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

"Accounts Availability" means the amount of Loans against Eligible Accounts
Laurus shall from time to time make available to Company up to ninety percent
(90%) of the net face amount of Eligible Accounts based on Accounts of the
Company and each Eligible Subsidiary.

"Affiliate" of any Person means (a) any Person (other than a subsidiary) which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such Person, (b) any 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 Company 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 the Company and Laurus.

"Available Minimum Borrowing" shall have the meaning given such term in Section
2(a)(i).

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

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

"Capital Availability Amount" means $7,500,000.

"Charter" shall have 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 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.

"Collateral" means all of Company's and each Eligible Subsidiary'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

<PAGE>


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 General Intangibles;

(e) all Accounts;

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

(g) all Investment Property;

(h) all Stock;

(i) all Chattel Paper;

(j) all Letter-of-Credit Rights;

(k) all Instruments;

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

(m) all Books and Records;

(n) reserved;

(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
Company and/or any Eligible Subsidiary (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 covering the Collateral in
whatever form.

"Common Stock" the shares of stock representing the Company's common equity
interests.

"Contract Rate" shall have the meaning set forth 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.

"Default Rate" has the meaning given to such term in Section 5(a)(iii).

"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 Lockbox Account(s).

"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.

<PAGE>



"Eligible Accounts" means and includes each portion of any Account of the
Company and/or each Eligible Subsidiary 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, except that, if the Account Debtor has rejected, disputed or
asserted any offset, defense or counterclaim with respect to only a portion of
an Account and has otherwise indicated its intention to pay the remaining
portion of such Account (and such Account is otherwise eligible as set forth
herein), then the portion that the Account Debtor has indicated its intention to
pay shall be an Eligible Account; (d) continues to be in full conformity with
the representations and warranties made by 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 reasonably likely to result in any
material adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus, in the exercise of its
reasonable discretion, 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 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 United States (Laurus
acknowledges that, so long as such Account is otherwise eligible as set forth
herein, the Account of The Business Depot, Ltd., is deemed an Eligible Account,
notwithstanding that such Account Debtor is located in Canada); (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 Company; (m) is
payable to 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 Company is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between Company, on the one hand, and
the United States, any state, or any department, agency or instrumentality of
any of them, on the other hand, 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 termsof goods sold by
Company or work, labor and/or services rendered by 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 fifty-five percent (55%) of
all Eligible Accounts (provided, however, only that portion of such Account that
exceeds 55% shall be excluded as ineligible); (t) Company's right to payment is
absolute and not contingent upon the fulfillment of any condition whatsoever;
(u) Company is able to bring suit and enforce its remedies against the Account
Debtor through judicial process; (v) does not represent interest payments, late
or finance charges owing to Company and (w) is otherwise satisfactory to Laurus
as determined by Laurus in the exercise of its sole discretion exercised
reasonably and in good faith. In the event Company requests that Laurus include
within Eligible Accounts certain Accounts of one or more of Company's
acquisition targets, Laurus shall at the time of such request consider such
inclusion, but any such inclusion shall be at the sole option of Laurus and
shall at all times be subject to the execution and delivery to Laurus of all
such documentation (including, without limitation, guaranty and security
documentation) as Laurus may require in its sole discretion.

"Eligible Inventory" means Inventory owned by Company and/or any Eligible
Subsidiary which Laurus, in its sole and absolute discretion exercised
reasonably and in good faith, determines: (a) is subject to a first priority
perfected Lien in favor of Laurus and is subject to no other Liens whatsoever
(other than Permitted Liens); (b) is located on premises with respect to which
Laurus has received a landlord or mortgagee waiver acceptable in form and
substance to Laurus; (c) is not in transit; (d) is in good condition and meets
all standards imposed by any governmental agency, or department or division
thereof having regulatory Governmental Authority over such Inventory, its use or
sale including the Federal Fair Labor Standards Act of 1938 as amended, and all
rules, regulations and orders thereunder; (e) is currently either usable or
salable in the normal course of business; (f) is not placed by Company on
consignment or held by Company on consignment from another Person; (g) is in
conformity with the representations and warranties made by 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
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
(l) not to be ineligible for any other reason. In no event shall any Loan(s)
made in respect of Eligible Inventory exceed $1,500,000 in the aggregate,
outstanding at any time.

<PAGE>


"Eligible Subsidiary" shall mean each of HIP-E and Northgate and each other
subsidiary of the Company consented to in writing by Laurus to be included as an
"Eligible Subsidiary" for the purposes of this Agreement.

"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.

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

"Excepted Issuances" shall have the meaning given such term in Section 13(t).

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchange Act Filings" shall have the meaning given to such term in Section 12.

"Exclusion Period" shall have the meaning given such term in Section 13(t).

"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 set forth 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 (excluding all Intellectual Property), now owned or hereafter acquired
by any Person including all right, title and interest that such Person may now
or hereafter have in or under any contract, all Payment Intangibles, customer
lists, Licenses 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
(excluding the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.

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

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

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

"Hazardous Materials" shall have the meaning given such term in Section 12(q).

"Indemnified Person" shall have the meaning given to such term in Section 26.

"Initial 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.

<PAGE>


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

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

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

"Inventory Availability" means the amount of Loans against Eligible Inventory
Laurus shall from time to time make available to Company equal to the lesser of
(a) fifty percent (50%) of the aggregate value of Company's and each Eligible
Subsidiary's Eligible Inventory (calculated on the basis of the lower of cost or
market, on a first-in first-out basis) and (b) $1,500,000.

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

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

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

"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" shall have the meaning set forth in Section 2(a)(i) and shall include
all other extensions of credit hereunder and under any Ancillary Agreement.

"Material Adverse Effect" means a material adverse effect on (a) on the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of Company or any of its Eligible Subsidiaries (taken as
a whole), (b) the ability of Company and its Eligible Subsidiaries 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.

"Maximum Legal Rate" shall have the meaning given to such term in Section
5(a)(iv).

"Minimum Borrowing Amount" means $2,750,000, which such aggregate amount shall
be evidenced by Minimum Borrowing Notes.

"Minimum Borrowing Notes" shall mean each Secured Convertible Note, which shall
be issued in a series, made by Company in favor of Laurus to evidence the
Minimum Borrowing Amount.

"NASD" shall have the meaning given to such term in Section 13(b).

"Note Shares" shall have the meaning given such term in Section 12(a).

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"Notes" means each of the Minimum Borrowing Notes and the Revolving Note made by
Company in favor of Laurus in connection with the transactions contemplated
hereby, as the same may be amended, modified and supplemented from time to time,
as applicable.

"Obligations" means all Loans, all advances, debts, liabilities, obligations,
covenants and duties owing by Company or any of its Eligible Subsidiaries to
Laurus (or any corporation that directly or indirectly controls or is controlled
by or is under common control with Laurus) of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including any debt, liability or
obligation owing from Company or any of its Eligible Subsidiaries to others
(other than unsecured trade payables) 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 in such
proceeding), charges or any other payments Company or any of its Eligible
Subsidiaries is required to make by law or otherwise arising under or as a
result of this Agreement and the Ancillary Agreements, together with all
reasonable expenses and reasonable attorneys' fees chargeable to Company's or
any of its Eligible Subsidiary's account or incurred by Laurus in connection
with Company's or any of its Eligible Subsidiary's account whether provided for
herein or in any Ancillary Agreement.

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

"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans, bailees,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (b) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (i) not
overdue or (ii) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of the Company or any
Eligible Subsidiary thereof 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 Company or any Eligible
Subsidiary thereof in conformity with GAAP provided, that, the Lien shall 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.

"Proceeds" means "proceeds", as such term is defined in the UCC and, in any
event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Company, any Eligible Subsidiary 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 Company or any
Eligible Subsidiary 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 Company or any
Eligible Subsidiary 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 Company or any
Eligible Subsidiary 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

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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 to the extent such Lien
relates 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 Agreement" means the registration rights agreement entered
into between Company and Laurus on the Closing Date, as amended, modified and
supplemented from time to time.

"Revolving Note" means that secured revolving note made by Company in favor of
Laurus in the aggregate principal amount of Four Million Seven Hundred Fifty
Thousand Dollars ($4,750,000).

"SEC" shall mean the Securities and Exchange Commission.

"SEC Reports" shall have the meaning provided such term in Section 12(u).

"Securities" means the Notes and the Warrants being issued by Company to Laurus
pursuant to this Agreement and the Ancillary Agreements and the Note Shares and
the Warrant Shares.

"Securities Act" shall have 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 the Company
or any of its Eligible Subsidiaries in favor of Laurus to secure the
Obligations.

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

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

"Subsidiary" of any Person means (i) a corporation or other entity 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 of such
corporation, or other persons or entities performing similar functions for such
person or entity, are owned, directly or indirectly, by such person or entity or
(ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.

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

"Term" means, as applicable, the Initial Term.

"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" shall have the meaning given such term in Section 12(a).


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"Warrants" has the meaning set forth in the Registration Rights Agreement.