ex10_5.htm


    
      

    

    Exhibit
10.5


    SECURITY
AGREEMENT

    


    This
SECURITY AGREEMENT, dated as of March 5, 2008 (this “Agreement”),
is among Blue Holdings, Inc., a Nevada corporation (the “Company”), all of the
Subsidiaries of the Company (such Subsidiaries, the “Guarantors”, and
together with the Company, the “Debtors”), and the
holders, each signatory hereto, of the Company’s 8% Senior Secured Convertible
Notes issued or to be issued in the original aggregate principal amount of
up to $3,000,000 (the “Notes”) pursuant to
the Purchase Agreement (as defined below) (collectively, together with their
endorsees, transferees and assigns, the “Secured Parties”, and
each individually, a “Secured
Party”).

    


    W
I T N E S S E T H:

    


    WHEREAS,
pursuant to that certain Securities Purchase Agreement dated on or about March
5, 2008 between the Debtor and the Secured Parties (the “Purchase Agreement”),
the Secured Parties have severally agreed to extend the loans to the Debtor
evidenced by the Notes;

    


    WHEREAS,
pursuant to that certain Subsidiary Guarantee, dated as of the date hereof
(“Guarantee”), the Guarantors
have jointly and severally agreed to guarantee and act as surety for payment of
such Notes;

    


    WHEREAS,
in order to induce the Secured Parties to extend the loans evidenced by the
Notes, each Debtor has agreed to execute and deliver to the Secured Parties this
Agreement and to grant the Secured Parties a security interest in certain
property of such Debtor to secure the prompt payment, performance and discharge
in full of all of the Company’s obligations under the Notes and other
Transaction Documents and the Guarantors’ obligations under the Guarantee;
and

    


    WHEREAS,
the rights of each Secured Party hereunder shall be pari passu with each other
Secured Party and enforced through the agent for the Secured Parties appointed
pursuant to Section 18 hereunder;

    


    NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

    


    1.            
Certain Definitions. As
used in this Agreement, the following terms shall have the meanings set forth in
this Section 1.  Terms used but not otherwise defined in this
Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel
paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”,
“fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”,
“investment property”, “letter-of-credit rights”, “proceeds” and “supporting
obligations”) shall have the respective meanings given such terms in Article 9
of the UCC.

    


    (a)           “Collateral” means the
collateral in which the Secured Parties are granted a security interest by this
Agreement and which shall include the following personal property of the
Debtors, whether presently owned or existing or hereafter acquired or coming
into existence, wherever situated, and all additions and accessions thereto and
all substitutions and replacements thereof, and all proceeds, products and
accounts thereof, including without limitation all proceeds from the sale or
transfer of the Collateral and of insurance covering the same and of any tort
claims in connection therewith, and all dividends, interest, cash, notes,
securities, equity interest or other property at any time and from time to time
acquired, receivable or otherwise distributed in respect of, or in exchange for,
any or all of the Pledged Securities (as defined below):


    
      
         


      

      
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    (i)         All
goods, including without limitation (A) all machinery, equipment, computers,
motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and
general tools, fixtures, test and quality control devices and other equipment of
every kind and nature and wherever situated, together with all documents of
title and documents representing the same, all additions and accessions thereto,
replacements therefor, all parts therefor, and all substitutes for any of the
foregoing and all other items used and useful in connection with any Debtor’s
businesses and all improvements thereto; and (B) all inventory;

    


    (ii)        All
contract rights and other general intangibles, including without limitation, all
partnership interests, membership interests, stock or other securities, rights
under any of the Organizational Documents, agreements related to the Pledged
Securities, licenses, distribution and other agreements, computer software
(whether “off-the-shelf”, licensed from any third party or developed by any
Debtor), computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill, trademarks,
service marks, trade styles, trade names, patents, patent applications,
copyrights, and income tax refunds;

    


    (iii)       All
accounts, together with all instruments, all documents of title representing any
of the foregoing, all rights in any merchandising, goods, equipment, motor
vehicles and trucks which any of the same may represent, and all right, title,
security and guaranties with respect to each account, including any right of
stoppage in transit;

    


    (iv)       All
documents, letter-of-credit rights, instruments and chattel paper;

    


    (v)        All
commercial tort claims;

    


    (vi)       All
deposit accounts and all cash (whether or not deposited in such deposit
accounts);

    


    (vii)      All
investment property;

    


    (viii)     All
supporting obligations; and

    


    (ix)       All
files, records, books of account, business papers, and computer programs,
including without limitation and all
files, records, books, ledger cards, correspondence, computer programs, tapes,
disks, digital storage  media and related data processing software that at
any time evidence or contain information relating to any of the Collateral set
forth in clauses (i)-(viii) above or are otherwise necessary or helpful in the
collection thereof or realization thereupon;


    
      
         


      

      
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    (x)         the
products, profits and proceeds of all of the foregoing Collateral set forth in
clauses (i)-(ix) above, and all payments under insurance (whether or not the
Secured Party is the loss payee thereof) or under any indemnity, warranty or
guaranty, payable by reason or loss or damage to, or otherwise with respect to,
any of the foregoing Collateral set forth in clauses (i)-(ix)
above.

    


    Without
limiting the generality of the foregoing, the “Collateral” shall
include all investment property and general intangibles respecting ownership
and/or other equity interests in each Guarantor, including, without limitation,
the shares of capital stock and the other equity interests listed on Schedule H hereto (as
the same may be modified from time to time pursuant to the terms hereof), and
any other shares of capital stock and/or other equity interests of any other
direct or indirect subsidiary of any Debtor obtained in the future, and, in each
case, all certificates representing such shares and/or equity interests and, in
each case, all rights, options, warrants, stock, other securities and/or equity
interests that may hereafter be received, receivable or distributed in respect
of, or exchanged for, any of the foregoing and all rights arising under or in
connection with the Pledged Securities, including, but not limited to, all
dividends, interest and cash.

     

    Notwithstanding
the foregoing, nothing herein shall be deemed to constitute an assignment of any
asset which, in the event of an assignment, becomes void by operation of
applicable law or the assignment of which is otherwise prohibited by applicable
law (in each case to the extent that such applicable law is not overridden by
Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law);
provided, however, that to the
extent permitted by applicable law, this Agreement shall create a valid security
interest in such asset and, to the extent permitted by applicable law, this
Agreement shall create a valid security interest in the proceeds of such
asset.

    


    (b)           “Intellectual
Property” means the
collective reference to all rights, priorities and privileges relating to
intellectual property, whether arising under United States, multinational or
foreign laws or otherwise, including without limitation (i) all copyrights
arising under the laws of the United States, any other country or any political
subdivision thereof, whether registered or unregistered and whether published or
unpublished, all registrations and recordings thereof, and all applications in
connection therewith, including without limitation all registrations, recordings
and applications in the United States Copyright Office, (ii) all letters patent
of the United States, any other country or any political subdivision thereof,
all reissues and extensions thereof, and all applications for letters patent of
the United States or any other country and all divisions, continuations and
continuations-in-part thereof, (iii) all trademarks, trade names, corporate
names, company names, business names, fictitious business names,
trade dress, service marks, logos, domain names and other source or
business identifiers, and all goodwill associated therewith, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, or
otherwise, and all common law rights related thereto, (iv) all trade secrets
arising under the laws of the United States, any other country or any political
subdivision thereof, (v) all rights to obtain any reissues, renewals or
extensions of the foregoing, (vi) all licenses for any of the foregoing, and
(vii) all causes of action for infringement of the
foregoing.


    
      
         


      

      
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    (c)           “Intercreditor
Agreement” means that certain letter agreement dated as of the date hereof among
the Secured Parties and FTC Commercial Corp.

    


    (d)           “Majority in
Interest” means, at any time of determination, at least a majority
in interest (based on then-outstanding principal amounts of Notes at the time of
such determination) of the Secured Parties.

    


    (e)           “Necessary
Endorsement” means undated stock powers endorsed in blank or other
proper instruments of assignment duly executed and such other instruments or
documents as the Agent (as that term is defined below) may reasonably
request.

    


    (f)           “Obligations” means
all of the liabilities and obligations (primary, secondary, direct,
contingent, sole, joint or several) due or to become due, or that are now or may
be hereafter contracted or acquired, or owing to, of any Debtor to the Secured
Parties either (i) under this Agreement, the Notes, the Guarantee, the other
Transaction Documents and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith, or (ii) related
to any other liabilities or obligations associated with any indebtedness for
borrowed money from any Secured Party to any Debtor, in each case, whether now
or hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Secured Parties as a
preference, fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term
“Obligations” shall include, without limitation: (i) principal of and interest
on the Notes and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time
to time under or in connection with this Agreement, the Notes, the
Guarantee, the other Transaction Documents and any other instruments,
agreements or other documents executed and/or delivered in connection herewith
or therewith; and (iii) all amounts (including but not limited to post-petition
interest) in respect of the foregoing that would be payable but for the fact
that the obligations to pay such amounts are unenforceable or not allowable due
to the existence of a bankruptcy, reorganization or similar proceeding involving
any Debtor.

    


    (g)           “Organizational
Documents” means with respect to any Debtor, the documents by which such
Debtor was organized (such as a certificate of incorporation, certificate of
limited partnership or articles of organization, and including without
limitation any certificates of designation for preferred stock or other
forms of preferred equity) and which relate to the internal governance of such
Debtor (such as bylaws, a partnership agreement or an operating, limited
liability or members agreement).

    


    (h)           “Pledged Securities”
shall have the meaning ascribed to such term in Section 4(i).


    
      
         


      

      
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    (i)           “Transaction
Documents” shall have the meaning ascribed to such term in the
Purchase Agreement.

    


    (j)           “UCC” means the
Uniform Commercial Code of the State of New York and/or any other applicable law
of any state or states which has jurisdiction with respect to all, or any
portion of, the Collateral or this Agreement from time to time.  It is
the intent of the parties that defined terms in the UCC should be construed in
their broadest sense so that the term “Collateral” will be construed in its
broadest sense.  Accordingly if there are, from time to time, changes
to defined terms in the UCC that broaden the definitions, they are incorporated
herein and if existing definitions in the UCC are broader than the amended
definitions, the existing ones shall be controlling.

    


    2.            
Grant of Security Interest in Collateral. As an
inducement for the Secured Parties to extend the loans as evidenced by the Notes
and to secure the complete and timely payment, performance and discharge in
full, as the case may be, of all of the Obligations, each Debtor hereby
unconditionally and irrevocably pledges, grants and hypothecates to the Secured
Parties a second priority security interest in and to, a lien upon and a right
of set-off against all of their respective right, title and interest of
whatsoever kind and nature in and to, the Collateral (a “Security Interest”
and, collectively, the “Security
Interests”).  Each Secured Party acknowledges that the
priorities set forth herein are subject to the terms of the Intercreditor
Agreement.

    


    3.        
    Delivery of Certain
Collateral.  Contemporaneously or prior to the execution of
this Agreement, each Debtor shall deliver or cause to be delivered to the Agent
(a) any and all certificates and other instruments representing or evidencing
the Pledged Securities, together with all Necessary Endorsements, and (b) any
and all certificates and other instruments or documents representing any of the
other Collateral, in each case, together with all Necessary
Endorsements.  The Debtors are, contemporaneously with the execution
hereof, delivering to the Agent, or have previously delivered to the Agent, a
true and correct copy of each Organizational Document governing any of the
Pledged Securities.

    


    4.        
    Representations, Warranties,
Covenants and Agreements
of the Debtors. Except as set forth under the corresponding section of
the disclosure schedules delivered to the Secured Parties concurrently herewith
(the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof,
each Debtor represents and warrants to, and covenants and agrees with, the
Secured Parties as follows:

    


    (a)           Each
Debtor has the requisite corporate, partnership, limited liability company or
other power and authority to enter into this Agreement and otherwise to carry
out its obligations hereunder.  The execution, delivery and performance by
each Debtor of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of such Debtor and no
further action is required by such Debtor.  This Agreement has been
duly executed by each Debtor.  This Agreement constitutes the legal,
valid and binding obligation of each Debtor, enforceable against each Debtor in
accordance with its terms.

    


    (b)           The
Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule A attached
hereto.  Except as specifically set forth on Schedule A, each
Debtor is the record owner of the real property where such Collateral is
located, and there exist no mortgages or other liens on any such real property
except for Permitted Liens (as defined in the Notes).  Except as
disclosed on Schedule
A, none of such Collateral is in the possession of any consignee, bailee,
warehouseman, agent or processor.


    
      
         


      

      
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    (c)           Except
for Permitted Liens (as defined in the Notes) and except as set forth on Schedule B attached
hereto, the Debtors are the sole owner of the Collateral, free and clear of any
liens, security interests, encumbrances, rights or claims, and are fully
authorized to grant the Security Interests.  Except as set forth on
Schedule B
attached hereto, there is not on file in any governmental or regulatory
authority, agency or recording office an effective financing statement, security
agreement, license or transfer or any notice of any of the foregoing (other than
those that will be filed in favor of the Secured Parties pursuant to this
Agreement) covering or affecting any of the Collateral.  Except as set
forth on Schedule
B attached hereto and except pursuant to this Agreement, as long as this
Agreement shall be in effect, the Debtors shall not execute and shall not
knowingly permit to be on file in any such office or agency any other financing
statement or other document or instrument (except to the extent filed or
recorded in favor of the Secured Parties pursuant to the terms of this
Agreement).

    


    (d)           Except
as set forth on Schedule 4(d) hereto, no written claim has been received that
any Collateral or Debtor's use of any Collateral violates the rights of any
third party. There has been no adverse decision to any Debtor's claim of
ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to any Debtor's right to keep and maintain such Collateral in
full force and effect, and there is no proceeding involving said rights pending
or, to the best knowledge of any Debtor, threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other governmental
authority.

    


    (e)           Each
Debtor shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule A attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Parties at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary documents
have been filed and recorded and other steps have been taken to perfect the
Security Interests to create in favor of the Secured Parties a valid, perfected
and continuing second priority lien in all the Collateral.

    


    (f)           This
Agreement creates in favor of the Secured Parties a valid security interest
in the Collateral, subject only to Permitted Liens (as defined in the Notes)
securing the payment and performance of the Obligations.  Upon making
the filings described in the immediately following paragraph, all security
interests created hereunder in any Collateral which may be perfected by filing
Uniform Commercial Code financing statements shall have been duly
perfected.  Except for the execution and delivery of this Agreement,
the filing of the Uniform Commercial Code financing statements referred to in
the immediately following paragraph, the recordation of the Intellectual
Property Security Agreement (as defined below) with the United States
Copyright Office or the United States Patent and Trademark Office with
respect to copyrights, patents and trademarks (and applications relating each of
the foregoing) as described in paragraph 4(mm), the execution and delivery of
deposit account control agreements satisfying the requirements of Section
9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and
the delivery of the certificates and other instruments provided in Section 3, no
further action is necessary to create, perfect or protect the security interests
created hereunder.  Without limiting the generality of the foregoing,
except for the execution and delivery of this Agreement by all (100%) of the
Secured Parties, the filing of said financing statements, the recordation of
said Intellectual Property Security Agreement, and the execution and delivery of
said deposit account control agreements, except as set forth on Schedule 4(f),
no consent of any third parties and no authorization, approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for (i) the execution, delivery and performance of this
Agreement, (ii) the creation or perfection of the Security Interests created
hereunder in the Collateral, or (iii) the enforcement of the rights of the Agent
and the Secured Parties hereunder (except that the Secured Parties shall have a
second priority security interest with respect to the
Collateral).


    
      
         


      

      
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    (g)           Each
Debtor hereby authorizes the Agent to file one or more financing statements
under the UCC, with respect to the Security Interests, with the proper filing
and recording agencies in any jurisdiction deemed proper by it.

    


    (h)           The
execution, delivery and performance of this Agreement by the Debtors does not
(i) violate any of the provisions of any Organizational Documents of any Debtor
or any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing any Debtor's debt or otherwise) or other understanding to
which any Debtor is a party or by which any property or asset of any Debtor is
bound or affected.  All required consents (including without
limitation from stockholders or creditors of any Debtor) necessary for any
Debtor to enter into and perform its obligations hereunder have been
obtained.

    


    (i)           The
capital stock and other equity interests listed on Schedule H hereto
(the “Pledged
Securities”) represent all of the capital stock and other equity
interests of the Guarantors, and represent all capital stock and other equity
interests owned, directly or indirectly, by the Company.  All of the
Pledged Securities are validly issued, fully paid and nonassessable, and the
Company is the legal and beneficial owner of the Pledged Securities, free and
clear of any lien, security interest or other encumbrance except for the
security interests created by this Agreement and other Permitted Liens (as
defined in the Notes).

    


    (j)           The
ownership and other equity interests in partnerships and limited liability
companies (if any) included in the Collateral (the “Pledged Interests”) by their
express terms do not provide that they are securities governed by Article 8 of
the UCC and are not held in a securities account or by any financial
intermediary.


    (k)           Except
for Permitted Liens (as defined in the Notes), until this Agreement and the
Security Interest hereunder shall be terminated pursuant to Section 11 hereof,
each Debtor shall at all times maintain in favor of the Secured Parties the
liens and Security Interests provided for hereunder as valid and perfected
second priority liens and security interests in all the
Collateral.  Each Debtor hereby agrees to defend the same against the
claims of any and all persons and entities.  Each Debtor shall safeguard
and protect all Collateral for the account of the Secured Parties.  At
the request of the Agent, each Debtor will sign and deliver to the Agent on
behalf of the Secured Parties at any time or from time to time one or more
financing statements pursuant to the UCC in form reasonably satisfactory to the
Agent and will pay the cost of filing the same in all public offices wherever
filing is, or is deemed by the Agent to be, necessary or desirable to effect the
rights and obligations provided for herein.  Without limiting the
generality of the foregoing, each Debtor shall pay all fees, taxes and other
amounts necessary to maintain the Collateral and the Security Interests
hereunder, and each Debtor shall obtain and furnish to the Agent from time to
time, upon demand, such releases and/or subordinations of claims and liens which
may be required to maintain the priority of the Security Interests
hereunder.

    

      
        
           


        

        
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    (l)           Except
as listed on Schedule
I, no Debtor will transfer, pledge, hypothecate, encumber, license, sell
or otherwise dispose of any of the Collateral (except for licenses granted by a
Debtor in its ordinary course of business and sales of inventory and other
unused or outdated assets by a Debtor in its ordinary course of business)
without the prior written consent of a Majority in Interest.

    


    (m)           Each
Debtor shall keep and preserve its equipment, inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.

    


    (n)           Each
Debtor shall maintain with financially sound and reputable insurers, insurance
with respect to the Collateral, including Collateral hereafter acquired, against
loss or damage of the kinds and in the amounts customarily insured against by
entities of established reputation having similar properties similarly situated
and in such amounts as are customarily carried under similar circumstances by
other such entities and otherwise as is prudent for entities engaged in similar
businesses but in any event sufficient to cover the full replacement cost
thereof.  Each Debtor shall cause each insurance policy issued in
connection herewith to provide, and the insurer issuing such policy to certify
to the Agent, that (a) the Agent will be named as lender loss payee and
additional insured under each such insurance policy; (b) if such insurance be
proposed to be cancelled or materially changed for any reason whatsoever, such
insurer will promptly notify the Agent and such cancellation or change shall not
be effective as to the Agent for at least thirty (30) days after receipt by
the Agent of such notice, unless the effect of such change is to extend or
increase coverage under the policy; and (c) the Agent will have the right (but
no obligation) at its election to remedy any default in the payment of
premiums within thirty (30) days of notice from the insurer of such
default.  If no Event of Default (as defined in the Notes) exists and
if the proceeds arising out of any claim or series of related claims do not
exceed $100,000, loss payments in each instance will be applied by the
applicable Debtor to the repair and/or replacement of property with respect to
which the loss was incurred to the extent reasonably feasible, and any loss
payments or the balance thereof remaining, to the extent not so applied, shall
be payable to the applicable Debtor; provided, however, that
payments received by any Debtor after an Event of Default occurs and is
continuing or in excess of $100,000 for any occurrence or series of related
occurrences shall be paid to the Agent on behalf of the Secured Parties and, if
received by such Debtor, shall be held in trust for the Secured Parties and
immediately paid over to the Agent unless otherwise directed in writing by the
Agent.   Copies of such policies or the related certificates, in
each case, naming the Agent as lender loss payee and additional insured shall be
delivered to the Agent at least annually and at the time any new policy of
insurance is issued.


    
      
         


      

      
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    (o)           Each
Debtor shall promptly, but no later than ten (10) days after obtaining knowledge
thereof, advise the Secured Parties, through the Agent, in sufficient
detail of any change in the Collateral and of the occurrence of any event which
would have a material adverse effect on the value of the Collateral or on the
Secured Parties’ security interest therein.

    


    (p)           Each
Debtor shall promptly execute and deliver to the Agent such further deeds,
mortgages, assignments, security agreements, financing statements or other
instruments, documents, certificates and assurances and take such further action
as the Agent may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce the Secured Parties’ security interest
in the Collateral including without limitation, if applicable, the execution and
delivery of a separate security agreement with respect to each Debtor’s
Intellectual Property (“Intellectual Property
Security Agreement”) in which the Secured Parties have been granted a
security interest hereunder, substantially in a form reasonably acceptable to
the Agent, which Intellectual Property Security Agreement, other than as stated
therein, shall be subject to all of the terms and conditions
hereof.

    


    (q)           Each
Debtor shall permit the Agent and its representatives and agents to inspect the
Collateral during normal business hours and upon reasonable prior notice, and to
make copies of records pertaining to the Collateral as may be reasonably
requested by the Agent from time to time.

    


    (r)        
   Each Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights, claims,
causes of action and accounts receivable in respect of the
Collateral.

    


    (s)           Each
Debtor shall promptly notify the Secured Parties in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by such
Debtor that may materially affect the value of the Collateral, the Security
Interests or the rights and remedies of the Secured Parties
hereunder.

    


    (t)           All
information heretofore, herein or hereafter supplied to the Secured Parties by
or on behalf of any Debtor with respect to the Collateral is and will be
accurate and complete in all material respects as of the date
furnished.

    


    (u)           The
Debtors shall at all times preserve and keep in full force and effect their
respective valid existence and good standing and any rights and franchises
material to its business.

    


    (v)           No
Debtor will change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at
least 30 days prior written notice to the Secured Parties of such change and, at
the time of such written notification, such Debtor provides any financing
statements or fixture filings necessary to perfect and continue the perfection
of the Security Interests granted and evidenced by this
Agreement.


    
      
         


      

      
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    (w)          Except
in the ordinary course of business, no Debtor may consign any of its inventory
or sell any of its inventory on bill and hold, sale or return, sale on approval,
or other conditional terms of sale without the consent of the Agent which shall
not be unreasonably withheld, subject to the Factor Indebtedness (as defined in
the Notes).

    


    (x)           No
Debtor may relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to the Secured Parties and
so long as, at the time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and continue the
perfection of the Security Interests granted and evidenced by this
Agreement.

    


    (y)           Each
Debtor was organized and remains organized solely under the laws of the state
set forth next to such Debtor’s name in Schedule D attached
hereto, which Schedule
D sets forth each Debtor’s organizational identification number or, if
any Debtor does not have one, states that one does not exist.

    


    (z)           (i)
The actual name of each Debtor is the name set forth in Schedule D attached
hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached
hereto; (iii) no Debtor has used any name other than that stated in the preamble
hereto or as set forth on Schedule E for the
preceding five years; and (iv) no entity has merged into any Debtor or been
acquired by any Debtor within the past five years except as set forth on Schedule
E.

    


    (aa)         At
any time and from time to time that any Collateral consists of instruments,
certificated securities or other items that require or permit possession by the
secured party to perfect the Security Interest created hereby, the applicable
Debtor shall deliver such Collateral to the Agent.

    


    (bb)         Each
Debtor, in its capacity as issuer, hereby agrees to comply with any and all
orders and instructions of the Agent regarding the Pledged Interests consistent
with the terms of this Agreement without the further consent of any Debtor as
contemplated by Section 8-106 (or any successor section) of the
UCC.  Further, each Debtor agrees that it shall not enter into a
similar agreement (or one that would confer “control” within the meaning of
Article 8 of the UCC) with any other person or entity.

     

    (cc)         Each
Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Agent, or, if such delivery is not possible, then to cause such
tangible chattel paper to contain a legend noting that it is subject to the
security interest created by this Agreement.  To the extent that any
Collateral consists of electronic chattel paper, the applicable Debtor shall
cause the underlying chattel paper to be “marked” within the meaning of Section
9-105 of the UCC (or successor section thereto).

    


    (dd)         If
there is any investment property or deposit account included as Collateral that
can be perfected by “control” through an account control agreement, the
applicable Debtor shall, promptly upon written request of the Agent following
the occurrence of an Event of Default, cause such an account control agreement,
in form and substance in each case satisfactory to the Agent, to be entered into
and delivered to the Agent for the benefit of the Secured
Parties.


    
      
         


      

      
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    (ee)         To
the extent that any Collateral consists of letter-of-credit rights, the
applicable Debtor shall, promptly upon written request of the Agent following
the occurrence of an Event of Default, cause the issuer of each underlying
letter of credit to consent to an assignment of the proceeds thereof to the
Secured Parties.

    


    (ff)          To
the extent that any Collateral is in the possession of any third party, the
applicable Debtor shall join with the Agent in notifying such third party of the
Secured Parties’ security interest in such Collateral and shall use its best
efforts to obtain an acknowledgement and agreement from such third party with
respect to the Collateral, in form and substance reasonably satisfactory to the
Agent.

    


    (gg)         If
any Debtor shall at any time hold or acquire a commercial tort claim, such
Debtor shall promptly notify the Secured Parties in a writing signed by such
Debtor of the particulars thereof and grant to the Secured Parties in such
writing a security interest therein and in the proceeds thereof, all upon the
terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to the Agent.

    


    (hh)         Each
Debtor shall immediately provide written notice to the Secured Parties of any
and all accounts which arise out of contracts with any governmental authority
and, to the extent necessary to perfect or continue the perfected status of the
Security Interests in such accounts and proceeds thereof, shall execute and
deliver to the Agent an assignment of claims for such accounts and cooperate
with the Agent in taking any other steps required, in its judgment, under the
Federal Assignment of Claims Act or any similar federal, state or local statute
or rule to perfect or continue the perfected status of the Security Interests in
such accounts and proceeds thereof.

    


    (ii)           Each
Debtor shall cause each subsidiary of such Debtor to immediately become a party
hereto (an “Additional
Debtor”), by executing and delivering an Additional Debtor Joinder in
substantially the form of Annex A attached
hereto and comply with the provisions hereof applicable to the
Debtors.  Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to (or referred
to in) this Agreement, as applicable, which replacement schedules shall
supersede, or supplements shall modify, the Schedules then in
effect.  The Additional Debtor shall also deliver such opinions of
counsel, authorizing resolutions, good standing certificates, incumbency
certificates, organizational documents, financing statements and other
information and documentation as the Agent may reasonably
request.  Upon delivery of the foregoing to the Agent, the Additional
Debtor shall be and become a party to this Agreement with the same rights and
obligations as the Debtors, for all purposes hereof as fully and to the same
extent as if it were an original signatory hereto and shall be deemed to have
made the representations, warranties and covenants set forth herein as of the
date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.

    


    (jj)           Each
Debtor shall vote the Pledged Securities to comply with the covenants and
agreements set forth herein and in the Notes.


    
      
         


      

      
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    (kk)         Each
Debtor shall register the pledge of the applicable Pledged Securities on the
books of such Debtor.  Each Debtor shall notify each issuer of Pledged
Securities to register the pledge of the applicable Pledged Securities in the
name of the Secured Parties on the books of such issuer.  Further,
except with respect to certificated securities delivered to the Agent, the
applicable Debtor shall deliver to the Agent an acknowledgement of pledge
(which, where appropriate, shall comply with the requirements of the relevant
UCC with respect to perfection by registration) signed by the issuer of the
applicable Pledged Securities, which acknowledgement shall confirm that: (a) it
has registered the pledge on its books and records; and (b) at any time directed
by the Agent during the continuation of an Event of Default, such issuer will
transfer the record ownership of such Pledged Securities into the name of any
designee of the Agent, will take such steps as may be necessary to effect the
transfer, and will comply with all other instructions of the Agent regarding
such Pledged Securities without the further consent of the applicable
Debtor.

    


    (ll)           In
the event that, upon an occurrence of an Event of Default, the Agent shall sell
all or any of the Pledged Securities to another party or parties (herein called
the “Transferee”) or shall
purchase or retain all or any of the Pledged Securities, each Debtor shall, to
the extent applicable: (i) deliver to the Agent or the Transferee, as the case
may be, the articles of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements, evidences of
indebtedness, books of account, financial records and all other Organizational
Documents and records of the Debtors and their direct and indirect subsidiaries;
(ii) use commercially reasonable efforts to obtain resignations of the persons
then serving as officers and directors of the Debtors and their direct and
indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain
any approvals that are required by any governmental or regulatory body in order
to permit the sale of the Pledged Securities to the Transferee or the purchase
or retention of the Pledged Securities by the Agent and allow the Transferee or
the Agent to continue the business of the Debtors and their direct and indirect
subsidiaries.

     

    (mm)    
 Without limiting the generality of the other obligations of the Debtors
hereunder, each Debtor shall promptly (i) cause to be registered at the United
States Copyright Office all of its material copyrights, (ii) cause the security
interest contemplated hereby with respect to all Intellectual Property
registered at the United States Copyright Office or United States Patent and
Trademark Office to be duly recorded at the applicable office, and (iii) give
the Agent notice whenever it acquires (whether absolutely or by license) or
creates any additional material Intellectual Property.

    


    (nn)         Each
Debtor will from time to time, at the joint and several expense of the Debtors,
promptly execute and deliver all such further instruments and documents, and
take all such further action as may be necessary or desirable, or as the Agent
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Secured Parties to
exercise and enforce their rights and remedies hereunder and with respect to any
Collateral or to otherwise carry out the purposes of this
Agreement.

    


    (oo)         Schedule F attached
hereto lists all of the patents, patent applications, trademarks, trademark
applications, registered copyrights, and domain names owned by any of the
Debtors as of the date hereof.  Schedule F lists all
material licenses in favor of any Debtor for the use of any patents, trademarks,
copyrights and domain names as of the date hereof.  All material
patents and trademarks of the Debtors have been duly recorded at the United
States Patent and Trademark Office and all material copyrights of the Debtors
have been duly recorded at the United States Copyright Office.


    
      
         


      

      
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    (pp)           Except
as set forth on Schedule G attached
hereto, none of the account debtors or other persons or entities obligated on
any of the Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
in respect of such Collateral.

    


    5.          
  Effect of Pledge on
Certain Rights. If any of the Collateral
subject to this Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including without limitation upon the transfer of all or any of the other stock
or assets of the issuer), it is agreed that the pledge of such equity or
ownership interests pursuant to this Agreement or the enforcement of any of the
Agent’s rights hereunder shall not be deemed to be the type of event which would
trigger such conversion rights notwithstanding any provisions in the
Organizational Documents or agreements to which any Debtor is subject or to
which any Debtor is party.

    


    6.          
  Defaults.
The following events shall be “Events of
Default”:

    


    (a)           The
occurrence of an Event of Default (as defined in the Notes) under the
Notes;

    


    (b)           Any
representation or warranty of any Debtor in this Agreement shall prove to have
been incorrect in any material respect when made;

    


    (c)           The
failure by any Debtor to observe or perform any of its obligations hereunder for
five (5) business days after delivery to such Debtor of notice of such failure
by or on behalf of a Secured Party unless such default is capable of cure but
cannot be cured within such time frame and such Debtor is using best efforts to
cure same in a timely fashion; or

    


    (d)           If
any material provision of this Agreement shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by
any governmental authority having jurisdiction over any Debtor, seeking to
establish the invalidity or unenforceability thereof, or any Debtor shall deny
that any Debtor has any material liability or obligation purported to be created
under this Agreement.

    


    7.          
  Duty to Hold in Trust.

    


    (a)           Upon
the occurrence of any Event of Default and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income, dividend, interest or other sums
subject to the Security Interests, whether payable pursuant to the Notes or
otherwise, or of any check, draft, note, trade acceptance or other instrument
evidencing an obligation to pay any such sum, hold the same in trust for the
Secured Parties and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Parties, pro-rata in proportion to their
respective then-currently outstanding principal amount of Notes for application
to the satisfaction of the Obligations.


    
      
         


      

      
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    (b)           If
any Debtor shall become entitled to receive or shall receive any securities or
other property (including without limitation shares of Pledged Securities
or instruments representing Pledged Securities acquired after the date hereof,
or any options, warrants, rights or other similar property or certificates
representing a dividend, or any distribution in connection with any
recapitalization, reclassification or increase or reduction of capital, or
issued in connection with any reorganization of such Debtor or any of its direct
or indirect subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of, or in exchange for, such Pledged Securities or
otherwise), such Debtor agrees to (i) accept the same as the agent of the
Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of
the Secured Parties; and (iii) deliver any and all certificates or instruments
evidencing the same to the Agent on or before the close of business on the fifth
business day following the receipt thereof by such Debtor, in the exact form
received together with the Necessary Endorsements, to be held by the Agent
subject to the terms of this Agreement as Collateral.

    


    8.           Rights and Remedies Upon
Default.

    


    (a)           Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Parties, acting through the Agent, shall have the right to exercise all of the
remedies conferred hereunder and under the Notes and other Transaction
Documents, and the Secured Parties, acting through the Agent, shall have all the
rights and remedies of a secured party under the UCC.  Without
limitation, the Agent, for the benefit of the Secured Parties, shall have the
following rights and powers:

    


    (i)         The
Agent shall have the right to take possession of the Collateral and, for that
purpose, enter, with the aid and assistance of any person, any premises where
the Collateral, or any part thereof, is or may be placed and remove the same,
and each Debtor shall assemble the Collateral and make it available to the Agent
at places which the Agent shall reasonably select, whether at such Debtor's
premises or elsewhere, and make available to the Agent, without rent, all of
such Debtor’s respective premises and facilities for the purpose of the Agent
taking possession of, removing or putting the Collateral in saleable or
disposable form.

    


    (ii)        Upon
notice to the Debtors by the Agent, all rights of each Debtor to exercise the
voting and other consensual rights which it would otherwise be entitled to
exercise and all rights of each Debtor to receive the dividends and interest
which it would otherwise be authorized to receive and retain, shall
cease.  Upon such notice, the Agent shall have the right to receive,
for the benefit of the Secured Parties, any interest, cash dividends or other
payments on the Collateral and, at the option of the Agent, to exercise in such
Agent’s discretion all voting rights pertaining thereto.  Without
limiting the generality of the foregoing, the Agent shall have the right (but
not the obligation) to exercise all rights with respect to the Collateral as it
were the sole and absolute owner thereof, including without limitation to vote
and/or to exchange, at its sole discretion, any or all of the Collateral in
connection with a merger, reorganization, consolidation, recapitalization or
other readjustment concerning or involving the Collateral or any Debtor or any
of its direct or indirect subsidiaries.


    
      
         


      

      
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    (iii)        The
Agent shall have the right to operate the business of each Debtor using the
Collateral and shall have the right to assign, sell, lease or otherwise dispose
of and deliver all or any part of the Collateral, at public or private sale or
otherwise, either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and at such time
or times and at such place or places, and upon such terms and conditions as the
Agent may deem commercially reasonable, all without (except as shall be required
by applicable statute and cannot be waived) advertisement or demand upon or
notice to any Debtor or right of redemption of a Debtor, which are hereby
expressly waived.  Upon each such sale, lease, assignment or other
transfer of Collateral, the Agent, for the benefit of the Secured Parties, may,
unless prohibited by applicable law which cannot be waived, purchase all or any
part of the Collateral being sold, free from and discharged of all trusts,
claims, right of redemption and equities of any Debtor, which are hereby waived
and released.

    


    (iv)      
 The Agent shall have the right (but not the obligation) to notify any
account debtors and any obligors under instruments or accounts to make payments
directly to the Agent, on behalf of the Secured Parties, and to enforce the
Debtors’ rights against such account debtors and obligors.

    


    (v)         The
Agent, for the benefit of the Secured Parties, may (but is not obligated to)
direct any financial intermediary or any other person or entity holding any
investment property to transfer the same to the Agent, on behalf of the Secured
Parties, or its designee.

    


    (vi)        The
Agent may (but is not obligated to) transfer any or all Intellectual Property
registered in the name of any Debtor at the United States Patent and Trademark
Office and/or Copyright Office into the name of the Secured Parties or any
designee or any purchaser of any Collateral.

    


    (b)           The
Agent shall comply with any applicable law in connection with a disposition of
Collateral and such compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral.  The Agent
may sell the Collateral without giving any warranties and may specifically
disclaim such warranties.  If the Agent sells any of the Collateral on
credit, the Debtors will only be credited with payments actually made by the
purchaser.  In addition, each Debtor waives any and all rights that it
may have to a judicial hearing in advance of the enforcement of any of the
Agent’s rights and remedies hereunder, including without limitation the Agent’s
right following an Event of Default to take immediate possession of the
Collateral and to exercise its rights and remedies with respect
thereto.

     

    (c)           For
the purpose of enabling the Agent to further exercise rights and remedies under
this Section 8 or elsewhere provided by agreement or applicable law, each Debtor
hereby grants to the Agent, for the benefit of the Agent and the Secured
Parties, an irrevocable, nonexclusive license (exercisable without payment of
royalty or other compensation to such Debtor) to use, license or sublicense
following an Event of Default, any Intellectual Property now owned or hereafter
acquired by such Debtor, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof.


    
      
         


      

      
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    9.       
     Inter Secured Party Rights;
Transaction/Applications of Proceeds.

    


    (a)           All
Obligations owed to the Secured Parties shall rank in the order of priority
pari passu and pro-rata in proportion to
each Secured Party’s outstanding principal amount of Notes at any given time
that a determination needs to be made of pro-rata holdings. If
an Event of Default occurs and any party hereto collects proceeds pursuant to
its rights under any Obligations, the Agent shall be immediately notified and
such payment shall be shared with all of the other Secured Parties as set forth
above.
Notwithstanding anything to the contrary contained in the Purchase
Agreement or any document executed in connection with the Obligations and
irrespective of: (i) the time, order or method of attachment or perfection of
the security interests created in favor of Secured Parties; (ii) the time or
order of filing or recording of financing statements or other documents filed or
recorded to perfect security interests in any Collateral; (iii) anything
contained in any filing or agreement to which any Secured Party now or hereafter
may be a party; and (iv) the rules for determining perfection or priority under
the Uniform Commercial Code or any other law governing the relative priorities
of secured creditors, each of the Secured Parties acknowledges that (x) all
other Secured Parties have a valid security interest in the Collateral and (y)
the security interests of the Secured Parties in any Collateral pursuant to any
outstanding Obligations shall be pari passu with each other
and enforced pursuant to the terms of this Agreement through the Agent. 
Each Secured Party, severally and not jointly with the other Secured Parties,
shall indemnify, defend, and hold harmless the other Secured Parties against and
in respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties, and reasonable professional and attorneys’ fees, including those
arising from settlement negotiations, that the other Secured Parties shall incur
or suffer, which arise, result from, or relate to a breach of, or failure by
such Secured Party to perform under this Agreement.

    


    (b)           The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy insuring any
portion of the Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like
(including without limitation any taxes, fees and other costs incurred in
connection therewith) of the Collateral, then to the reasonable attorneys’ fees
and expenses incurred by the Agent in enforcing the Secured Parties’ rights
hereunder and in connection with collecting, storing and disposing of the
Collateral, then to satisfaction of the Obligations pro rata among the Secured
Parties (based on then-outstanding principal amounts of Notes at the time of any
such determination), and then to the payment of any other amounts required by
applicable law.  If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Parties are legally entitled, the Debtors will be liable for the
deficiency, together with interest thereon, at the rate of 20% per annum or the
lesser amount permitted by applicable law (the “Default Rate”), and the
reasonable fees of any attorneys employed by the Secured Parties to collect such
deficiency.  To the extent permitted by applicable law, each Debtor
waives all claims, damages and demands against the Secured Parties arising out
of the repossession, removal, retention or sale of the Collateral, unless due
solely to the gross negligence or willful misconduct of the Secured Parties as
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction.


    
      
         


      

      
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    10.           Securities Law
Provision.  Each Debtor recognizes that the Agent may be
limited in its ability to effect a sale to the public of all or part of the
Pledged Securities by reason of certain prohibitions in the Securities Act of
1933, as amended, or other federal or state securities laws (collectively, the
“Securities
Laws”), and may be compelled to resort to one or more sales to a
restricted group of purchasers who may be required to agree to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof.  Each Debtor agrees that sales so
made may be at prices and on terms less favorable than if the Pledged Securities
were sold to the public and that the Agent has no obligation to delay the sale
of any Pledged Securities for the period of time necessary to register the
Pledged Securities for sale to the public under the Securities
Laws.  Each Debtor shall cooperate with the Agent in its attempt to
satisfy any requirements under the Securities Laws applicable to the sale of the
Pledged Securities by the Agent.

     

    11.           Costs and Expenses. Each
Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder, including without
limitation any financing statements pursuant to the UCC, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Agent.  The
Debtors shall also pay all other claims and charges which in the reasonable
opinion of the Agent is reasonably likely to prejudice, imperil or otherwise
affect the Collateral or the Security Interests therein.  The Debtors
will also, upon demand, pay to the Agent the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Agent, for the benefit of the Secured Parties, may
incur in connection with (i) the enforcement of this Agreement, (ii) the custody
or preservation of, or the sale of, collection from, or other realization upon,
any of the Collateral, or (iii) the exercise or enforcement of any of the rights
of the Secured Parties under the Notes.  Until so paid, any fees payable
hereunder shall be added to the principal amount of the Notes and shall bear
interest at the Default Rate.

    


    12.           Responsibility for Collateral.
The Debtors assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or its
unavailability for any reason.  Without limiting the generality of the
foregoing, (a) neither the Agent nor any Secured Party (i) has any duty
(either before or after an Event of Default) to collect any amounts in respect
of the Collateral or to preserve any rights relating to the Collateral, or (ii)
has any obligation to clean-up or otherwise prepare the Collateral for sale, and
(b) each Debtor shall remain obligated and liable under each contract or
agreement included in the Collateral to be observed or performed by such Debtor
thereunder.  Neither the Agent nor any Secured Party shall have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by the Agent or any Secured Party
of any payment relating to any of the Collateral, nor shall the Agent or any
Secured Party be obligated in any manner to perform any of the obligations of
any Debtor under or pursuant to any such contract or agreement, to make inquiry
as to the nature or sufficiency of any payment received by the Agent or any
Secured Party in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Agent or to
which the Agent or any Secured Party may be entitled at any time or
times.


    
      
         


      

      
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    13.           Security Interests Absolute. All rights of the
Secured Parties and all obligations of the Debtors hereunder, shall be absolute
and unconditional, irrespective of: (a) any lack of validity or enforceability
of this Agreement, the Notes, any other Transaction Documents or any agreement
entered into in connection with the foregoing, or any portion hereof or thereof;
(b) any change in the time, manner or place of payment or performance of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Notes, any other
Transaction Documents or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guarantee, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to a Debtor, or a
discharge of all or any part of the Security Interests granted
hereby.  Until the Obligations shall have been paid and performed in
full, the rights of the Secured Parties shall continue even if the Obligations
are barred for any reason, including without limitation the running of the
statute of limitations or bankruptcy.  Each Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance.  In the event that at any time any transfer of any
Collateral or any payment received by the Secured Parties hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Parties, then, in any such event, each Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof.  Each Debtor
waives all right to require the Secured Parties to proceed against any other
person or entity or to apply any Collateral which the Secured Parties may hold
at any time, or to marshal assets, or to pursue any other remedy.  Each
Debtor waives any defense arising by reason of the application of the statute of
limitations to any obligation secured hereby.

    


    14.           Term of Agreement. This
Agreement and the Security Interests shall terminate, automatically and without
any action on the part of the Agent or Secured Parties, on the date on which all
payments under the Notes have been indefeasibly paid or otherwise discharged in
full and all other Obligations have been paid or discharged; provided, however,
that all indemnities of the parties hereto contained in this Agreement
(including without limitation Annex B hereto) shall
survive and remain operative and in full force and effect regardless of the
termination of this Agreement.  The Agent and Secured Parties shall,
at Debtor’s request and expense, take any and all action required to discharge
any and all security interests and release to Debtor any and all Collateral in
the Agent’s or Secured Parties’ possession or control.  The Secured
Parties hereby agree that the Debtor shall have the right, and the Debtor is
hereby authorized, to take all necessary action to cause the termination and
release of all security interests granted hereunder upon termination of this
Agreement, including the filing of one or more UCC termination statements or
amendments relating to the Collateral.


    
      
         


      

      
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    15.           Power of Attorney; Further
Assurances.

    


    (a)           Each
Debtor authorizes the Agent, and does hereby make, constitute and appoint the
Agent and its officers, agents, successors or assigns with full power of
substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in
the name of the Agent or such Debtor, to, after the occurrence and during the
continuance of an Event of Default, (i) endorse any note, checks, drafts, money
orders or other instruments of payment (including payments payable under or in
respect of any policy of insurance) in respect of the Collateral that may come
into possession of the Agent; (ii) sign and endorse any financing statement
pursuant to the UCC or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral; (iv) demand, collect, receive, compromise, settle and
sue for monies due in respect of the Collateral; (v) transfer any Intellectual
Property or provide licenses respecting any Intellectual Property; and (vi)
generally, at the option of the Agent, and at the expense of the Debtors, at any
time, or from time to time, execute and deliver any and all documents and
instruments and do all acts and things which the Agent deems necessary to
protect, preserve and realize upon the Collateral and the Security Interests
granted therein in order to effect the intent of this Agreement, the Notes and
other Transaction Documents all as fully and effectually as the Debtors might or
could do; and each Debtor hereby ratifies all that said attorney shall lawfully
do or cause to be done by virtue hereof.  This power of attorney is
coupled with an interest and shall be irrevocable for the term of this
Agreement.  The designation set forth herein shall be deemed to amend
and supersede any inconsistent provision in the Organizational Documents or
other documents or agreements to which any Debtor is subject or to which any
Debtor is a party.  Without limiting the generality of the foregoing,
after the occurrence and during the continuance of an Event of Default, each
Secured Party is specifically authorized to execute and file any applications
for or instruments of transfer and assignment of any patents, trademarks,
copyrights or other Intellectual Property with the United States Patent and
Trademark Office and the United States Copyright Office.

    


    (b)           On
a continuing basis, each Debtor will make, execute, acknowledge, deliver, file
and record, as the case may be, with the proper filing and recording agencies in
any jurisdiction, including without limitation the jurisdictions indicated on
Schedule C
attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by the
Agent, to perfect the Security Interests granted hereunder and otherwise to
carry out the intent and purposes of this Agreement, or for assuring and
confirming to the Agent the grant or perfection of a perfected security interest
in all the Collateral under the UCC.

    


    (c)           Each
Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact,
with full authority in the place and instead of such Debtor and in the name of
such Debtor, from time to time in the Agent’s discretion, to take any action and
to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of such Debtor
where permitted by law, which financing statements may (but need not) describe
the Collateral as “all assets” or “all personal property” or words of like
import, and ratifies all such actions taken by the Agent.  This power
of attorney is coupled with an interest and shall be irrevocable for the term of
this Agreement.


    
      
         


      

      
        19

        
          

        

      

      
         


      

    


    16.           Notices. All notices,
requests, demands and other communications hereunder shall be subject to the
notice provision of the Purchase Agreement.

    


    17.           Other Security. To the extent
that the Obligations are now or hereafter secured by property other than the
Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other entity, then the Agent shall have the right, in its
sole discretion, to pursue, relinquish, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any of
the Secured Parties’ rights and remedies hereunder.

    


    18.           Appointment of Agent. The
Secured Parties hereby appoint Gemini Strategies, LLC or its appointed
agent to act as their agent (“Gemini” or
“Agent”) for
purposes of exercising any and all rights and remedies of the Secured Parties
hereunder. Such appointment shall continue until revoked in writing by a
Majority in Interest, at which time a Majority in Interest shall appoint a new
Agent.  The Agent shall have the rights, responsibilities and
immunities set forth in Annex B
hereto.  The Debtors shall be entitled to rely, without independent
verification and irrespective of contrary instructions from any Secured Party,
on any action or decision of the Agent as the act or decision of the Secured
Parties.

     

    19.           Miscellaneous.

    


    (a)           No
course of dealing between the Debtors and the Secured Parties, nor any failure
to exercise, nor any delay in exercising, on the part of the Secured Parties,
any right, power or privilege hereunder or under the Notes shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

    


    (b)           All
of the rights and remedies of the Secured Parties with respect to the
Collateral, whether established hereby or by the Notes or by any other
agreements, instruments or documents or by law, shall be cumulative and may be
exercised singly or concurrently.

    


    (c)           This
Agreement, together with the exhibits and schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into this
Agreement and the exhibits and schedules hereto.  No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Debtors and a Majority in
Interest or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought.

    


    (d)           If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.


    
      
         


      

      
        20

        
          

        

      

      
         


      

    


    (e)           No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such
right.

    


    (f)           This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The Company and the
Guarantors may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Secured Party (other than by
merger).  Any Secured Party may assign any or all of its rights under
this Agreement to any Person to whom such Secured Party assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions of this Agreement that apply to
the “Secured Parties.”

    


    (g)           Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

    


    (h)           All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof.  Each Debtor agrees that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and the Notes (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court or that such proceeding is improper.  Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.  Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.  If any party shall commence a proceeding to enforce any provisions
of this Agreement, then the prevailing party in such proceeding shall be
reimbursed by the other party for its reasonable attorney’s fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such proceeding.


    
      
         


      

      
        21

        
          

        

      

      
         


      

    


    (i)       
    This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same
Agreement.  In the event that any signature is delivered by facsimile
transmission or e-mail
transmission, such signature shall create a valid binding obligation of the
party executing the same (or on whose behalf such signature is executed) with
the same force and effect as if such facsimile signature were the original
thereof.

    


    (j)       
    All Debtors shall be jointly and severally be liable for
the obligations of each Debtor to the Secured Parties hereunder.

    


    (k)           Each
Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured
Parties and their respective partners, members, shareholders, officers,
directors, employees and agents (and any other persons with other titles that
have similar functions) (collectively, “Indemnitees”) from
and against any and all losses, claims, liabilities, damages, penalties, suits,
costs and expenses, of any kind or nature, (including fees relating to the cost
of investigating and defending any of the foregoing) imposed on, incurred by or
asserted against such Indemnitee in any way related to or arising from or
alleged to arise from this Agreement or the Collateral, except any such losses,
claims, liabilities, damages, penalties, suits, costs and expenses which result
from any violation of the terms or provisions of this Agreement or the
agreements underlying the Obligations or the negligence or willful misconduct of
the Indemnitee.  This indemnification provision is in addition to, and
not in limitation of, any other indemnification provision in the Notes, the
Purchase Agreement or any other agreement, instrument or other document executed
or delivered in connection herewith or therewith.

    


    (l)      
     Nothing in this Agreement shall be construed to
subject the Agent or any Secured Party to liability as a partner or member in or
of any Debtor or any of its direct or indirect subsidiaries, nor shall the Agent
or any Secured Party be deemed to have assumed any obligations under any
partnership agreement or limited liability company agreement, as applicable, of
any such Debtor or any of its direct or indirect subsidiaries or otherwise,
unless and until any such Secured Party exercises its right to be substituted
for such Debtor as a partner or member, as applicable, pursuant
hereto.

    


    (m)          To
the extent that the grant of the security interest in the Collateral and the
enforcement of the terms hereof require the consent, approval or action of any
partner or member, as applicable, of any Debtor or any direct or indirect
subsidiary of any Debtor or compliance with any provisions of any of the
Organizational Documents, the Debtors hereby grant such consent and approval and
waive any such noncompliance with the terms of said documents.

    


    (n)           For
clarification, the Debtors acknowledge and agree that there may be more than one
Closing under the Purchase Agreement and that this Agreement creates a security
interest in the Collateral in favor of all the Secured Parties regardless of
when (1) any Secured Party executes the Purchase Agreement or this Agreement,
(2) any Closing occurs or (3) any Notes are issued, without any need for the
Debtors to execute any further documentation or be notified of any Closing or
for any other action to occur.

    


    IN
WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be duly executed on the day and year first above written.


    
      
         


      

      
        22

        
          

        

      

      
         


      

    

    


    
      	
              BLUE
      HOLDINGS, INC.

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              By:

            	
              /s/ Glenn Palmer

            	 
      
	
              Name:

            	
              Glenn
      Palmer

            	 
      
	
              Title:

            	
              President

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              ANTIK
      DENIM, LLC

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              By:

            	
              /s/ Glenn Palmer

            	 
      
	
              Name:

            	 
      	 
      
	
              Title:

            	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              TAVERNITI
      SO JEANS, LLC

            	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
              By:

            	
              /s/ Glenn Palmer

            	 
      
	
              Name:

            	 
      	 
      
	
              Title:

            	 
      	 
      


    

    


    


    


    


    


    


    


    [SIGNATURE
PAGE OF HOLDERS FOLLOWS]


    
      
         


      

      
        23

        
          

        

      

      
         


      

    


    [SIGNATURE
PAGE OF HOLDERS TO BLUE SECURITY AGREEMENT]

    


    


    
      	
              GEMINI
      MASTER FUND, LTD.

            
	
              By:
      GEMINI STRATEGIES, LLC, as investment manager

            
	 
      	 
      	 
      
	 	 	 
	
              By:

            	
              /s/ Steven Winters

            	 
      
	
              Name:

            	
              Steven
      Winters

            	 
      
	
              Title:

            	
              Managing
      Member

            	 
      
	 	 	 
	 	 	 
	
              GEMINI STRATEGIES, LLC,
      as Agent

            	 
      
	 	 
	 
      	 
      	 
      
	
              By:

            	
              /s/ Steven Winters

            	 
      
	
              Name:

            	
              Steven
      Winters

            	 
      
	
              Title:

            	
              Managing
      Member

            	 
      


    

    


    


    


    


    


    


    [SIGNATURE
PAGE OF HOLDERS FOLLOWS]


    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    [SIGNATURE
PAGE OF HOLDERS TO BLUE SECURITY AGREEMENT]

    


    
      	
              Name
      of Investing Entity:

            	 
      	 


    

    


    
      	
              Signature of Authorized
      Signatory of Investing
    entity:

            	 
      	 


    

    


    
      	
              Name
      of Authorized Signatory:

            	 
      	 
	 	 	 
	
              Title
      of Authorized Signatory:

            	 
      	 


    


    
      
         


      

      
        25

        
          

        

      

      
         


      

    


    ANNEX
A

    to

    SECURITY AGREEMENT

    


    
      FORM
OF ADDITIONAL DEBTOR JOINDER

    

    


    Security
Agreement dated as of March 8, 2008 made by

    Blue
Holdings, Inc.

    and its
subsidiaries party thereto from time to time, as Debtors

    to and in
favor of

    the
Secured Parties identified therein (the “Security
Agreement”)

    


               Reference
is made to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in, or by reference in, the Security Agreement.

    


               The
undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
to the Secured Parties referred to above (or the Agent on their behalf), the
undersigned shall (a) be an Additional Debtor under the Security Agreement, (b)
have all the rights and obligations of the Debtors under the Security Agreement
as fully and to the same extent as if the undersigned was an original signatory
thereto, and (c) be deemed to have made the representations and warranties set
forth therein as of the date of execution and delivery of this Additional Debtor
Joinder.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN
THE COLLATERAL OWNED BY IT AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND
ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.

    


               Attached
hereto are supplemental and/or replacement Schedules to the Security Agreement,
as applicable. An executed copy of this Joinder shall be delivered to the
Secured Parties (or the Agent on their behalf), and the Secured Parties may rely
on the matters set forth herein on or after the date hereof.  This
Joinder shall not be modified, amended or terminated without the prior written
consent of the Secured Parties.

    


               IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the
name and on behalf of the undersigned.

    


    
      	 
      	[Name
      of Additional Debtor]	 
      
	 
      	 	 
      	 
      
	 
      	By:	
               

            	 
      
	 
      	 	 
      
	 
      	Name:	 
      
	 
      	Title:	 
      
	 
      	Address:	 
      


    

     

    Dated:


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ANNEX
B

    to

    SECURITY AGREEMENT

    


    THE
AGENT

    


                          1.  Appointment. The Secured Parties
(all capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Security Agreement to which this Annex B is
attached (the "Agreement")), by
their acceptance of the benefits of the Agreement, hereby designate Gemini
Strategies, LLC (“Gemini” or
“Agent”) as the
Agent to act as specified herein and in the Agreement.  Each Secured
Party shall be deemed irrevocably to authorize the Agent to take such action on
its behalf under the provisions of the Agreement and any other Transaction
Document (as such term is defined in the Notes) and to exercise such powers and
to perform such duties hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof and such other powers
as are reasonably incidental thereto.  The Agent may perform any of
its duties hereunder by or through its agents or employees.

    


                          2.
Nature of Duties.  The Agent shall
have no duties or responsibilities except those expressly set forth in the
Agreement.  Neither the Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of any
oversight or error of judgment or answerable for any loss, unless caused solely
by its or their gross negligence or willful misconduct as determined by a final
judgment (not subject to further appeal) of a court of competent
jurisdiction.  The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the Agreement or
any other Transaction Document a fiduciary relationship in respect of any Debtor
or any Secured Party; and nothing in the Agreement or any other Transaction
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of the Agreement or any
other Transaction Document except as expressly set forth herein and
therein.

    


                          3.
Lack of Reliance on the
Agent.  Independently and without reliance upon the Agent, each
Secured Party, to the extent it deems appropriate, has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of the Company and its subsidiaries in connection with such Secured
Party’s investment in the Debtors, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction Documents, and the
taking or not taking of any action in connection therewith, and (ii) its own
appraisal of the creditworthiness of the Company and its subsidiaries, and
of the value of the Collateral from time to time, and the Agent shall have no
duty or responsibility, either initially or on a continuing basis, to provide
any Secured Party with any credit, market or other information with respect
thereto, whether coming into its possession before any Obligations are incurred
or at any time or times thereafter.  The Agent shall not be
responsible to the Debtors or any Secured Party for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith, or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Agreement or any other
Transaction Document, or for the financial condition of the Debtors or the value
of any of the Collateral, or be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
the Agreement or any other Transaction Document, or the financial condition of
the Debtors, or the value of any of the Collateral, or the existence or possible
existence of any default or Event of Default under the Agreement, the Notes or
any of the other Transaction Documents.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


                          4.
Certain Rights of the
Agent.  The Agent shall have the right to take any action with
respect to the Collateral, on behalf of all of the Secured
Parties.  To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act or action
(including failure to act) in connection with the Agreement or any other
Transaction Document, and shall be entitled to act or refrain from acting in
accordance with the instructions of Secured Parties holding a majority in
principal amount of Notes (based on then-outstanding principal amounts of Notes
at the time of any such determination); if such instructions are not provided
despite the Agent’s request therefor, the Agent shall be entitled to refrain
from such act or taking such action, and if such action is taken, shall be
entitled to appropriate indemnification from the Secured Parties in respect of
actions to be taken by the Agent; and the Agent shall not incur liability to any
person or entity by reason of so refraining.  Without limiting the
foregoing, (a) no Secured Party shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
hereunder in accordance with the terms of the Agreement or any other Transaction
Document, and the Debtors shall have no right to question or challenge the
authority of, or the instructions given to, the Agent pursuant to the foregoing,
and (b) the Agent shall not be required to take any action which the Agent
believes (i) could reasonably be expected to expose it to personal liability or
(ii) is contrary to this Agreement, the Transaction Documents or applicable
law.

    


                          5.  Reliance.  The Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other Transaction
Documents and its duties thereunder, upon advice of counsel selected by it, and
upon all other matters pertaining to this Agreement and the other Transaction
Documents and its duties thereunder, upon advice of other experts selected by
it. Anything to the contrary notwithstanding, the Agent shall have no
obligation whatsoever to any Secured Party to assure that the Collateral exists
or is owned by the Debtors or is cared for, protected or insured or that the
liens granted pursuant to the Agreement have been properly or sufficiently or
lawfully created, perfected, or enforced or are entitled to any particular
priority.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


                          6.  Indemnification.  To the extent
that the Agent is not reimbursed and indemnified by the Debtors, the Secured
Parties will jointly and severally reimburse and indemnify the Agent, in
proportion to their initially purchased respective principal amounts of Notes,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in performing its duties hereunder or under the Agreement or
any other Transaction Document, or in any way relating to or arising out of the
Agreement or any other Transaction Document except for those determined by a
final judgment (not subject to further appeal) of a court of competent
jurisdiction to have resulted solely from the Agent's own gross negligence or
willful misconduct.  Prior to taking any action hereunder as Agent,
the Agent may require each Secured Party to deposit with it sufficient sums as
it determines in good faith is necessary to protect the Agent for costs and
expenses associated with taking such action.

    


                          7.  Resignation by the Agent.

     

      (a)           The
Agent may resign from the performance of all its functions and duties under the
Agreement and the other Transaction Documents at any time by giving 30 days'
prior written notice (as provided in the Agreement) to the Debtors and the
Secured Parties.  Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c)
below.

     

     
(b)           Upon any
such notice of resignation, the Secured Parties, acting by a Majority in
Interest, shall appoint a successor Agent hereunder.

     

     
(c)           If a
successor Agent shall not have been so appointed within said 30-day period, the
Agent shall then appoint a successor Agent who shall serve as Agent until such
time, if any, as the Secured Parties appoint a successor Agent as provided
above.  If a successor Agent has not been appointed within such 30-day
period, the Agent may petition any court of competent jurisdiction or may
interplead the Debtors and the Secured Parties in a proceeding for the
appointment of a successor Agent, and all fees, including, but not limited
to, extraordinary fees associated with the filing of interpleader and expenses
associated therewith, shall be payable by the Debtors on demand.

     

     
(d)           Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations under the
Agreement.  After any retiring Agent’s resignation or removal hereunder as
Agent, the provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.

    


                          8.  Rights with respect to Collateral.  Each Secured
Party agrees with all other Secured Parties and the Agent (i) that it shall not,
and shall not attempt to, exercise any rights with respect to its security
interest in the Collateral, whether pursuant to any other agreement or otherwise
(other than pursuant to this Agreement), or take or institute any action against
the Agent or any of the other Secured Parties in respect of the Collateral or
its rights hereunder (other than any such action arising from the breach of
this Agreement) and (ii) that such Secured Party has no other rights with
respect to the Collateral other than as set forth in this Agreement and the
other Transaction Documents.