Exhibit 10.4 - Security Agreement


    Exhibit
      10.4

    Form
      8-K

    Viking
      Systems, Inc.

    File
      No.
      000-49636

    


    


    


    SECURITY
      AGREEMENT

    


    dated
      as of August 12, 2005

    


    among

    


    VIKING
      SYSTEMS, INC.

    


    and

    


    ST.
      CLOUD CAPITAL PARTNERS, L.P.,

    as
      Collateral Agent

    


    


    


    


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    



    TABLE
      OF CONTENTS

    PAGE

    
      	
              Section
                1.

            	
              DEFINITIONS

            	
              1

            
	 	 	 
	
              Section
                2.

            	
              GRANT
                OF SECURITY

            	
              9

            
	 	 	 
	
              Section
                3.

            	
              SECURITY
                FOR OBLIGATIONS

            	
              10

            
	 	 	 
	
              Section
                4.

            	
              REPRESENTATIONS
                AND WARRANTIES AND COVENANTS

            	
              11

            
	 	 	 
	
              Section
                5.

            	
              DIVIDENDS,
                DISTRIBUTIONS AND VOTING

            	
              26

            
	 	 	 
	
              Section
                6.

            	
              FURTHER
                ASSURANCES

            	
              27

            
	 	 	 
	
              Section
                7.

            	
              COLLATERAL
                AGENT APPOINTED ATTORNEY-IN-FACT, IRREVOCABLE POWER OF
                ATTORNEY

            	
              28

            
	 	 	 
	
              Section
                8.

            	
              REMEDIES

            	
              29

            
	 	 	 
	
              Section
                9.

            	
              COLLATERAL
                AGENT

            	
              33

            
	 	 	 
	
              Section
                10.

            	
              CONTINUING
                SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS

            	
              34

            
	 	 	 
	
              Section
                11.

            	
              STANDARD
                OF CARE; COLLATERAL AGENT MAY PERFORM

            	
              34

            
	 	 	 
	
              Section
                12.

            	
              INDEMNITY
                AND EXPENSES

            	
              35

            
	 	 	 
	
              Section
                13.

            	
              MISCELLANEOUS

            	
              35

            


    

    


    SCHEDULE I
      - GENERAL
      INFORMATION

    SCHEDULE II
      - LOCATION
      OF INVENTORY AND EQUIPMENT

    SCHEDULE III
      - INVESTMENT
      RELATED PROPERTY

    SCHEDULE IV
      - MATERIAL
      CONTRACTS

    SCHEDULE V
      - LETTERS
      OF CREDIT

    SCHEDULE VI
      - INTELLECTUAL
      PROPERTY

    SCHEDULE VII
      - COMMERCIAL
      TORT CLAIMS

    


    EXHIBIT
      A - PLEDGE SUPPLEMENT 

    


    EXHIBIT
      B - JOINDER AGREEMENT 

    


    


    



    
      
        
          


        

        
        

      

      
        i

        
          

        

      

      
        
        

        
          


        

      

    



    This
      SECURITY
      AGREEMENT,
      dated
      as of August 12, 2005 (this “Agreement”),
      among
      Viking Systems, Inc., a Nevada corporation (together with any other Person
      that
      executes a Joinder Agreement each, a “Grantor”
and
      collectively, the “Grantors”),
      and
      ST. CLOUD CAPITAL PARTNERS, L.P., acting in the capacity of agent for the
      benefit of the Investors (the “Collateral
      Agent”).

     

    RECITALS:

    


    WHEREAS,
      reference is made to that certain Securities Purchase Agreement, dated as of
      the
      date hereof (as it may be amended, restated, supplemented or otherwise modified
      from time to time, the “Securities
      Purchase Agreement”),
      by
      and among Grantor, the Lead Lender and Collateral Agent and the Investors,
      pursuant to which the Secured Parties have purchased the Notes.

    


    WHEREAS,
      it is a
      condition precedent to the purchase of the Notes by the Investors under the
      Securities Purchase Agreement that Grantor shall have granted the security
      interests and undertaken the obligations contemplated by this
      Agreement.

    


    NOW,
      THEREFORE,
      in
      consideration of the premises and the agreements, provisions and covenants
      herein contained, and in order to induce the Secured Parties to purchase the
      Notes, Grantor and the Collateral Agent agree as follows:

    


    Section
      1.   DEFINITIONS 

    


    (a)   General
      Definitions. In this Agreement, the following terms shall have the following
      meanings:

    


    “Account
      Debtor”
shall
      mean each Person who is obligated on a Receivable or any Supporting Obligation
      related thereto.

    


    “Accounts”
shall
      mean all “accounts” as defined in Article 9 of the UCC.

    


    “Affiliate”
      shall
      mean, as applied to any Person, any other Person directly or indirectly
      controlling, controlled by, or under common control with, that Person. For
      the
      purposes of this definition, “control” (including, with correlative meanings,
      the terms “controlling,” “controlled by” and “under common control with”), as
      applied to any Person, means the possession, directly or indirectly, of the
      power (i) to vote ten percent (10%) or more of the Securities having ordinary
      voting power for the election of directors of such Person or (ii) to direct
      or
      cause the direction of the management and policies of that Person, whether
      through the ownership of voting securities or by contract or
      otherwise. 

    “Agreement”
shall
      have the meaning set forth in the preamble.

    


    “Authenticate”
shall
      mean “authenticate” as defined in Article 9 of the UCC.

    


    “Bankruptcy
      Code”
shall
      mean Title 11 of the United States Code entitled “Bankruptcy”, as now and
      hereafter in effect, or any successor statute.

    


    “Cash
      Proceeds”
shall
      mean all proceeds of any Collateral consisting of cash, checks and other
      near-cash items.

    


    “Chattel
      Paper”
shall
      mean all “chattel paper” as defined in Article 9 of the UCC, including,
      without limitation, “electronic chattel paper” or “tangible chattel paper”, as
      each term is defined in the UCC.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    “Collateral”
shall
      have the meaning set forth in Section 2(a) hereof.

    


    “Collateral
      Agent”
shall
      have the meaning set forth in the preamble.

    


    “Collateral
      Documents”
shall
      mean this Agreement and all other instruments, documents and agreements
      delivered by any of the parties to the Loan Documents pursuant to this Agreement
      or any other Loan Document in order to grant, perfect and/or establish or
      maintain the priority of a security interest in favor of the Secured Parties
      and
      Collateral Agent on any real, personal or mixed property of Grantor as security
      for the Secured Obligations.

    


    “Collateral
      Records”
shall
      mean books, records, ledger cards, files, correspondence, customer lists,
      blueprints, technical specifications, manuals, computer software, computer
      printouts, tapes, disks and other electronic storage media and related data
      processing software and similar items that at any time evidence or contain
      information relating to any of the Collateral or are otherwise necessary or
      helpful in the collection thereof or realization thereupon.

    


    “Collateral
      Support”
shall
      mean all property (real or personal) assigned, hypothecated or otherwise
      securing any Collateral and shall include any security agreement or other
      agreement granting a lien or security interest in such real or personal
      property.

    


    “Commercial
      Tort Claims”
shall
      mean all “commercial tort claims” as defined in the UCC, including, without
      limitation, all commercial tort claims listed and described with specification
      on Schedule VII hereto (as such Schedule may be amended or
      supplemented from time to time). 

    


    “Commodities
      Accounts”
(i)
      shall mean all “commodity accounts” as defined in Article 9 of the UCC and
      (ii) shall include, without limitation, all of the accounts listed on
      Schedule III hereto under the heading “Commodities Accounts” (as such
      Schedule may be amended or supplemented from time to time).

    


    “Copyright
      Licenses”
shall
      mean any and all agreements granting any right in, to or under Copyrights
      (whether such Grantor is licensee or licensor thereunder) including, without
      limitation, each agreement referred to in Schedule VI(B) (as such
      Schedule may be amended or supplemented from time to time).

    


    “Copyrights”
shall
      mean all United States, state and foreign copyrights, including but not limited
      to copyrights in software and databases, and all Mask Works (as defined under
      17
      U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered,
      now
      or hereafter in force throughout the world, all registrations and applications
      for any of the foregoing including, without limitation, the applications
      referred to in Schedule VI(A) (as such Schedule may be amended or
      supplemented from time to time), all rights corresponding thereto throughout
      the
      world, all extensions and renewals of any thereof, the right to sue for past,
      present and future infringements of any of the foregoing, and all proceeds
      of
      the foregoing, including, without limitation, licenses, royalties, income,
      payments, claims, damages, and proceeds of suit.

    


    “Deposit
      Accounts”
(i)
      shall mean all “deposit accounts” as defined in Article 9 of the UCC and
      (ii) shall include, without limitation, all of the accounts listed on
      Schedule III hereto under the heading “Deposit Accounts” (as such
      Schedule may be amended or supplemented from time to time). 

    


    “Documents”
shall
      mean all “documents” as defined in Article 9 of the UCC.


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    “Documents
      Evidencing Goods”
shall
      mean all Documents evidencing, representing or issued in connection with
      Goods.

    


    “Equipment”
shall
      mean: (i) all “equipment” as defined in the UCC, (ii) all machinery,
      manufacturing equipment, data processing equipment, computers, office equipment,
      furnishings, furniture, appliances, and tools (in each case, regardless of
      whether characterized as equipment under the UCC), (iii) all Fixtures and (iv)
      all accessions or additions thereto, all parts thereof, whether or not at any
      time of determination incorporated or installed therein or attached thereto,
      and
      all replacements therefor, wherever located, now or hereafter
      existing.

    


    “ERISA”
means
      the Employee Retirement Income Security Act of 1974, as amended from time to
      time, and any successor thereto.

    


    “Event
      of Default”
shall
      have the meaning set forth in the Notes.

    


    “Fixtures”
shall
      mean all “fixtures” as defined in Article 9 of the UCC.

    


    “General
      Intangibles”
(i)
      shall mean all “general intangibles” as defined in Article 9 of the UCC and
      (ii) shall include, without limitation, all interest rate or currency protection
      or hedging arrangements, all contracts, all tax refunds and all licenses,
      permits, concessions and authorizations, (in each case, regardless of whether
      characterized as general intangibles under the UCC).

    


    “Goods”
(i)
      shall mean all “goods” as defined in Article 9 of the UCC and (ii) shall
      include, without limitation, all Inventory, Equipment, Documents Evidencing
      Goods and Software Embedded In Goods.

    


    “Indemnitee”
shall
      mean the Secured Parties, the Collateral Agent, and their Affiliates’ officers,
      partners, directors, trustees, employees, agents.

    


    “Instruments”
shall
      mean all “instruments” as defined in Article 9 of the UCC.

    


    “Insurance”
shall
      mean: (i) all insurance policies covering any or all of the Collateral
      (regardless of whether the Collateral Agent is the loss payee thereof) and
      (ii)
      any key man life insurance policies. 

    


    “Intellectual
      Property”
shall
      mean, collectively, the Copyrights, the Copyright Licenses, the Patents, the
      Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets,
      and
      the Trade Secret Licenses.

    


    “Intellectual
      Property Licenses”
shall
      mean, collectively, the Copyright Licenses, Patent Licenses, Trademark Licenses,
      and Trade Secret Licenses.

    


    “Inventory”
shall
      mean: (i) all “inventory” as defined in the UCC and (ii) all goods held for sale
      or lease or to be furnished under contracts of service or so leased or
      furnished, all raw materials, work in process, finished goods, and materials
      used or consumed in the manufacture, packing, shipping, advertising, selling,
      leasing, furnishing or production of such inventory or otherwise used or
      consumed in Grantor’s business; all goods in which Grantor has an interest in
      mass or a joint or other interest or right of any kind; and all goods which
      are
      returned to or repossessed by Grantor, and all accessions thereto and products
      thereof (in each case, regardless of whether characterized as inventory under
      the UCC).


    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    


    “Investment
      Accounts”
shall
      mean the Securities Accounts, Commodities Accounts and Deposit
      Accounts.

    


    “Investment
      Related Property”
shall
      mean: (a) all “investment property” (as such term is defined in Article 9
      of the UCC) and (b) all of the following (regardless of whether classified
      as
      investment property under the UCC): all (i) Pledged Equity Interests, (ii)
      Pledged Debt, (iii) the Investment Accounts and (iv) Certificates of
      Deposit.

    


    “Investor”
shall
      have the meaning given such term in the Securities Purchase
      Agreement.

    


    “Joinder
      Agreement”
      means an
      agreement in the substantially the form of Exhibit
      B
      hereto
      whereby an additional person becomes a Grantor hereunder as required by the
      Securities Purchase Agreement.

    


    “Letter
      of Credit Right”
shall
      mean “letter-of-credit right” as defined in the UCC. 

    


    “Lien”
shall
      mean (i) any lien, mortgage, pledge, assignment, security interest, charge
      or
      encumbrance of any kind (including any agreement to give any of the foregoing,
      any conditional sale or other Title retention agreement, and any lease in
      the nature thereof) and any option, trust or other preferential arrangement
      having the practical effect of any of the foregoing and (ii) in the case of
      Pledged Equity Interests, any purchase option, call or similar right of a third
      party with respect to such Pledged Equity Interests.

    


    “Loan
      Documents”
shall
      have the meaning given such term in the Securities Purchase
      Agreement.

    


    “Material
      Adverse Effect”
shall
      mean a material adverse effect on (i) the business, operations, properties,
      assets, condition (financial or otherwise) or prospects of Grantor and its
      subsidiaries, if any, taken as a whole; (ii) the ability of Grantor to fully
      and
      timely perform its Secured Obligations; (iii) the legality, validity, binding
      effect or enforceability against Grantor of a Loan Document to which it is
      a
      party; or (iv) the rights, remedies and benefits available to, or conferred
      upon, any agent, the Secured Parties and Collateral Agent under any Secured
      Obligation.

    


    “Material
      Contract”
shall
      mean any contract or other arrangement to which Grantor is a party for which
      breach, nonperformance, cancellation or failure to renew could reasonably be
      expected to have a Material Adverse Effect. 

    


    “Money”
shall
      mean “money” as defined in the UCC.

    


    “Notes”
means
      those certain Secured Convertible Promissory Notes, each dated as of the date
      hereof and executed by Viking Systems, Inc. in favor of each of the Investors,
      as the same may be amended, restated, supplemented or otherwise modified from
      time to time.

    


    “Patent
      Licenses”
shall
      mean all agreements granting any right in, to, or under Patents (whether such
      Grantor is licensee or licensor thereunder) including without limitation, each
      agreement referred to in Schedule VI(D) hereto (as such Schedule may be
      amended or supplemented from time to time).


    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    “Patents”
shall
      mean all United States, state and foreign patents and applications for letters
      patent, including, but not limited to, each patent and patent application
      referred to in Schedule VI(C) hereto (as such Schedule may be amended
      or supplemented from time to time), all reissues, divisions, continuations,
      continuations-in-part, extensions, renewals, and reexaminations of any of the
      foregoing, all rights corresponding thereto throughout the world, the right
      to
      sue for past, present and future infringements of any of the foregoing and
      all
      proceeds of the foregoing including, without limitation, royalties, income,
      payments, claims, damages, and proceeds of suit.

    


    “Payment
      Intangible”
shall
      have the meaning specified in Article 9 of the UCC.

    


    
      	 	 	
              “Permitted
                Lien”
                shall mean:

            


    

    


    
      	 	
              (a)

            	
              Liens
                in favor of Collateral Agent granted pursuant to any Loan
                Document;

            


    

    


    
      	 	
              (b)

            	
              Liens
                for taxes if obligations with respect to such taxes are being contested
                in
                good faith by appropriate proceedings promptly instituted and diligently
                conducted;

            


    

    


    
      	 	
              (c)

            	
              Statutory
                Liens of landlords, banks (and rights of set-off), of carriers,
                warehousemen, mechanics, repairmen, workmen and materialmen, and
                other
                Liens imposed by law (other than any such Lien imposed pursuant to
                Section 401 (a)(29) or 412(n) of the Internal Revenue Code or by
                ERISA), in each case incurred in the ordinary course of business
                for
                amounts not yet overdue or for amounts that are overdue and that
                (in the
                case of any such amounts overdue for a period in excess of five days)
                are
                being contested in good faith by appropriate proceedings, so long
                as such
                reserves or other appropriate provisions, if any, as shall be required
                by
                generally accepted accounting principles shall have been made for
                any such
                contested amounts;

            


    

    


    
      	 	
              (d)

            	
              Liens
                incurred in the ordinary course of business in connection with workers’
                compensation, unemployment insurance and other types of social security,
                or to secure the performance of tenders, statutory obligations, surety
                and
                appeal bonds, bids, leases, government contracts, trade contracts,
                performance and return-of-money bonds and other similar obligations
                (exclusive of obligations for the payment of borrowed money or other
                indebtedness), so long as no foreclosure, sale or similar proceedings
                have
                been commenced with respect to any portion of the Collateral on account
                thereof;

            


    

    


    
      	 	
              (e)

            	
              Easements,
                rights-of-way, restrictions, encroachments, and other minor defects
                or
                irregularities in title, in each case which do not and will not interfere
                in any material respect with the ordinary conduct of the business
                of
                Grantor;

            


    

    


    
      	 	
              (f)

            	
              Any
                interest or Title of a lessor or sublessor under any lease of real
                estate permitted hereunder;

            


    

    


    
      	 	
              (g)

            	
              Liens
                solely on any cash earnest money deposits made by Grantor in connection
                with any letter of intent or purchase agreement permitted
                hereunder;

            


    

    


    
      	 	
              (h)

            	
              Purported
                Liens evidenced by the filing of precautionary UCC financing statements
                relating solely to operating leases of personal property entered
                into in
                the ordinary course of business;

            


    

    


    
      	 	
              (i)

            	
              Liens
                in favor of customs and revenue authorities arising as a matter of
                law to
                secure payment of customs duties in connection with the importation
                of
                goods;

            


    


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    


    
      	 	
              (j)

            	
              Any
                zoning or similar law or right reserved to or vested in any governmental
                office or agency to control or regulate the use of any real
                property;

            


    

    


    
      	 	
              (k)

            	
              Licenses
                of patents, trademarks and other intellectual property rights granted
                by
                Grantor in the ordinary course of business and not interfering in
                any
                respect with the ordinary conduct of the business of Grantor or such
                subsidiary;

            


    

    


    
      	 	
              (l)

            	
              Liens
                granted to Silicon Valley Bank pursuant to that certain Silicon Valley
                Bank Loan and Security Agreement, dated as of September 14, 2004,
                between
                Silicon Valley Bank and Viking Systems,
                Inc.

            


    

    


    
      	 	
              (m)

            	
              Liens
                granted to St. Cloud Capital Partners, L.P. as Collateral Agent pursuant
                to that certain Security Agreement dated as of March 22, 2005 between,
                St.
                Cloud Capital Partners, L.P. as Collateral Agent and Viking Systems,
                Inc.

            


    

    


    “Permitted
      Sale”
shall
      mean those sales, transfers or assignments permitted by the Securities Purchase
      Agreement.

    


    “Pledge
      Supplement”
means
      an agreement in substantially the form of Exhibit
      A
      hereto.

    


    “Person”
shall
      mean and include natural persons, corporations, limited partnerships, general
      partnerships, limited liability companies, limited liability partnerships,
      joint
      stock companies, joint ventures, associations, companies, trusts, banks, trust
      companies, land trusts, business trusts or other organizations, whether or
      not
      legal entities, and governmental authorities.

    


    “Pledged
      Debt”
shall
      mean all indebtedness for borrowed money owed to such Grantor, whether or not
      evidenced by any instrument or promissory note, including, without limitation,
      all indebtedness described on Schedule III
      hereto
      under the heading “Pledged Debt” (as such Schedule may be amended or
      supplemented from time to time), all monetary obligations owing to Grantor
      from
      any other third party, the instruments evidencing any of the foregoing, and
      all
      interest, cash, instruments and other property or proceeds from time to time
      received, receivable or otherwise distributed in respect of or in exchange
      for
      any or all of the foregoing.

    


    “Pledged
      Equity Interests”
shall
      mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests,
      Pledged Trust Interests and any other participation or other interests in any
      equity or profits of any business entity.

    


    “Pledged
      LLC Interests”
shall
      mean all interests in any limited liability company including, without
      limitation, all limited liability company interests listed on Schedule III
      hereto
      under the heading “Pledged LLC Interests” (as such Schedule may be amended
      or supplemented from time to time) and the certificates, if any, representing
      such limited liability company interests and any interest of such Grantor on
      the
      books and records of such limited liability company or on the books and records
      of any securities intermediary pertaining to such interest and all dividends,
      distributions, cash, warrants, rights, options, instruments, securities and
      other property or proceeds from time to time received, receivable or otherwise
      distributed in respect of or in exchange for any or all of such limited
      liability company interests and any other warrant, right or option to acquire
      any of the foregoing. 


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


    “Pledged
      Partnership Interests”
shall
      mean all interests in any general partnership, limited partnership, limited
      liability partnership or other partnership including, without limitation, all
      partnership interests listed on Schedule III
      hereto
      under the heading “Pledged Partnership Interests” (as such Schedule may be
      amended or supplemented from time to time) and the certificates, if any,
      representing such partnership interests and any interest of such Grantor on
      the
      books and records of such partnership or on the books and records of any
      securities intermediary pertaining to such interest and all dividends,
      distributions, cash, warrants, rights, options, instruments, securities and
      other property or proceeds from time to time received, receivable or otherwise
      distributed in respect of or in exchange for any or all of such partnership
      interests and any other warrant, right or option to acquire any of the
      foregoing. 

    


    “Pledged
      Stock”
shall
      mean all shares of capital stock owned by such Grantor, including, without
      limitation, all shares of capital stock described on Schedule III
      hereto
      under the heading “Pledged Stock” (as such Schedule may be amended or
      supplemented from time to time), and the certificates, if any, representing
      such
      shares and any interest of such Grantor in the entries on the books of the
      issuer of such shares or on the books of any securities intermediary pertaining
      to such shares, and all dividends, distributions, cash, warrants, rights,
      options, instruments, securities and other property or proceeds from time to
      time received, receivable or otherwise distributed in respect of or in exchange
      for any or all of such shares and any other warrant, right or option to acquire
      any of the foregoing. 

    


    “Pledged
      Trust Interests”
shall
      mean all interests in a Delaware business trust or other trust including,
      without limitation, all trust interests listed on Schedule III
      hereto
      under the heading “Pledged Trust Interests” (as such Schedule may be amended or
      supplemented from time to time) and the certificates, if any, representing
      such
      trust interests and any interest of such Grantor on the books and records of
      such trust or on the books and records of any securities intermediary pertaining
      to such interest and all dividends, distributions, cash, warrants, rights,
      options, instruments, securities and other property or proceeds from time to
      time received, receivable or otherwise distributed in respect of or in exchange
      for any or all of such trust interests and any other warrant, right or option
      to
      acquire any of the foregoing. 

    


    “Proceeds”
shall
      mean: (i) all “proceeds” as defined in Article 9 of the UCC,
      (ii) payments or distributions made with respect to any Investment Related
      Property and (iii) whatever is receivable or received when Collateral or
      proceeds are sold, leased, licensed, exchanged, collected or otherwise disposed
      of, whether such disposition is voluntary or involuntary.

    


    “Receivables”
shall
      mean all (i) Accounts, (ii) Chattel Paper, (iii) Payment Intangibles, (iv)
      Instruments and (v) to the extent not otherwise covered above, all other rights
      to payment, whether or not earned by performance, for goods or other property
      sold, leased, licensed, assigned or otherwise disposed of, or services rendered
      or to be rendered, regardless of how classified under the UCC together with
      all
      of Grantor’s rights, if any, in any goods or other property giving rise to such
      right to payment and all Collateral Support and Supporting Obligations related
      thereto and all Receivables Records.


    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    


    “Receivables
      Records”
shall
      mean (i) all original copies of all documents, instruments or other writings
      or
      electronic records or other Records evidencing the Receivables, (ii) all books,
      correspondence, credit or other files, Records, ledger sheets or cards,
      invoices, and other papers relating to Receivables, including, without
      limitation, all tapes, cards, computer tapes, computer discs, computer runs,
      record keeping systems and other papers and documents relating to the
      Receivables, whether in the possession or under the control of Grantor or any
      computer bureau or agent from time to time acting for Grantor or otherwise,
      (iii) all evidences of the filing of financing statements and the registration
      of other instruments in connection therewith, and amendments, supplements or
      other modifications thereto, notices to other creditors or agents thereof,
      and
      certificates, acknowledgments, or other writings, including, without limitation,
      lien search reports, from filing or other registration officers, (iv) all credit
      information, reports and memoranda relating thereto and (v) all other written
      or
      non-written forms of information related in any way to the foregoing or any
      Receivable.

    


    “Record”
shall
      have the meaning specified in the UCC.

    


    “Registered
      Organization” shall
      mean an organization organized solely under the law of a single State or the
      United States and as to which the State or the United States must maintain
      a
      public record showing the organization to have been organized.

    


    “Securities
      Purchase Agreement”
shall
      have the meaning set forth in the preamble.

    


    “Secured
      Obligations”
      shall
      mean all obligations of every nature of Grantor from time to time owing to
      the
      Collateral Agent or any Secured Party hereunder, under the Securities Purchase
      Agreement, the Notes or any other Loan Document, whether for principal, interest
      (including interest which, but for the filing of a petition in bankruptcy with
      respect to such Grantor, would have accrued on any obligation, whether or not
      a
      claim is allowed against such Grantor for such interest in the related
      bankruptcy proceeding).

    


    “Secured
      Party”
shall
      mean the Collateral Agent, the Investors, and the holders from time of time
      of
      any Secured Obligations.

    


    “Securities”
shall
      mean any stock, shares, units, limited liability company interests, partnership
      interests, voting trust certificates, certificates of interest or participation
      in any profit-sharing agreement or arrangement, options, warrants, bonds,
      debentures, notes, or other evidences of indebtedness, secured or unsecured,
      convertible, subordinated or otherwise, or in general any instruments commonly
      known as “securities” or any certificates of interest, shares or participations
      in temporary or interim certificates for the purchase or acquisition of, or
      any
      right to subscribe to, purchase or acquire, any of the foregoing.

    


    “Securities
      Accounts”
(i)
      shall mean all “securities accounts” as defined in Article 8 of the UCC and
      (ii) shall include, without limitation, all of the accounts listed on
Schedule III
      hereto
      under the heading “Securities Accounts” (as such Schedule may be amended or
      supplemented from time to time).

    


    “Software
      Embedded in Goods”
means,
      with respect to any Goods, any computer program embedded in Goods and any
      supporting information provided in connection with a transaction relating to
      the
      program if (i) the program is associated with the Goods in such a manner that
      it
      customarily is considered part of the Goods or (ii) by becoming the owner of
      the
      Goods a person acquires a right to use the program in connection with the
      Goods.


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    


    “State”
shall
      mean a State of the United States, the District of Columbia, Puerto Rico, the
      United States Virgin Islands, or any territory or insular possession subject
      to
      the jurisdiction of the United States. 

    


    “Supporting
      Obligation”
shall
      mean all “supporting obligations” as defined in the UCC. 

    


    “Trade
      Secret Licenses”
shall
      mean any and all agreements granting any right in or to Trade Secrets (whether
      such Grantor is licensee or licensor thereunder) including, without limitation,
      each agreement referred to in Schedule VI(G)
      hereto
      (as such Schedule may be amended or supplemented from time to time).


    


    “Trade
      Secrets”
shall
      mean all trade secrets and all other confidential or proprietary information
      and
      know-how, whether or not reduced to a writing or other tangible form, including
      all documents and things embodying, incorporating, or referring in any way
      to
      such Trade Secret, the right to sue for past, present and future infringement
      of
      any Trade Secret, and all proceeds of the foregoing, including, without
      limitation, royalties, income, payments, claims, damages, and proceeds of
      suit.

    


    “Trademark
      Licenses”
shall
      mean any and all agreements granting any right in or to Trademarks (whether
      such
      Grantor is licensee or licensor thereunder) including, without limitation,
      each
      agreement referred to in Schedule VI(F)
      hereto
      (as such Schedule may be amended or supplemented from time to
      time).

    


    “Trademarks”
shall
      mean all United States, state and foreign trademarks, service marks,
      certification marks, collective marks, trade names, corporate names, d/b/as,
      business names, fictitious business names, internet domain names, trade styles,
      logos, other source or business identifiers, designs and general intangibles
      of
      a like nature, rights of publicity and privacy pertaining to the right to use
      names likeness and biographical data as real, all registrations and applications
      for any of the foregoing including, but not limited to, the registrations and
      applications referred to in Schedule VI(E)
      hereto
      (as such Schedule may be amended or supplemented from time to time), the
      goodwill of the business symbolized by the foregoing, the right to sue for
      past,
      present and future infringement or dilution of any of the foregoing or for
      any
      injury to goodwill, and all proceeds of the foregoing, including, without
      limitation, royalties, income, payments, claims, damages, and proceeds of
      suit.

    


    “UCC”
shall
      mean the Uniform Commercial Code as in effect from time to time in the State
      of
      California.


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    


    (b)   Definitions;
      Interpretation. All capitalized terms used herein (including the preamble and
      recitals hereto) and not otherwise defined herein shall have the meanings
      ascribed thereto in the Securities Purchase Agreement or, if not defined
      therein, in the UCC. With respect to terms defined in more than one article
      of
      the UCC, unless otherwise specified such terms shall have the meaning specified
      in Article 9 of the UCC. References to “Sections,” “Exhibits” “Annexes” and
“Schedules” shall be to Sections, Exhibits, Annexes and Schedules, as the case
      may be, of this Agreement (as such Sections, Exhibits, Annexes and Schedules
      may
      be amended or supplemented from time to time in accordance with the terms of
      this Agreement), unless otherwise specifically provided. Section headings
      in this Agreement are included herein for convenience of reference only and
      shall not constitute a part of this Agreement for any other purpose or be given
      any substantive effect. Any of the terms defined herein may, unless the context
      otherwise requires, be used in the singular or the plural, depending on the
      reference. The use herein of the word “include” or “including”, when following
      any general statement, term or matter, shall not be construed to limit such
      statement, term or matter to the specific items or matters set forth immediately
      following such word or to similar items or matters, whether or not nonlimiting
      language (such as “without limitation” or “but not limited to” or words of
      similar import) is used with reference thereto, but rather shall be deemed
      to
      refer to all other items or matters that fall within the broadest possible
      scope
      of such general statement, term or matter. If any conflict or inconsistency
      exists between this Agreement and the Securities Purchase Agreement, the
      Securities Purchase Agreement shall govern. All references herein to provisions
      of the UCC shall include all successor provisions under any subsequent version
      or amendment to any Article of the UCC.

    


    Section
      2.   GRANT
      OF
      SECURITY

    


    (a)   Grant
      of Security.
      Grantor
      hereby grants to the Collateral Agent and the Secured Parties a security
      interest and continuing lien on all of such Grantor’s right, title and
      interest in, to and under all personal property of such Grantor including,
      but
      not limited to the following, in each case whether now owned or existing or
      hereafter acquired or arising and wherever located (all of which being
      hereinafter collectively referred to as the “Collateral”):

    


    (1) Documents;

    


    (2) General
      Intangibles;

    


    (3) Goods
      (including, without limitation, Documents Representing Goods and Software
      Embedded in Goods);

    


    (4) Insurance;

    


    (5) Intellectual
      Property;

    


    (6) Investment
      Related Property (including, without limitation, Deposit Accounts);

    


    (7) Letter
      of
      Credit Rights and letters of credit;

    


    (8) Money;

    


    (9) Receivables
      and Receivable Records;

    


    (10) Commercial
      Tort Claims;


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    


    (11) to
      the
      extent not otherwise included above, Material Contracts, motor vehicles, choses
      in action and all other personal property of any kind and all Collateral
      Records, Collateral Support and Supporting Obligations relating to any of the
      foregoing; and 

    


    (12) to
      the
      extent not otherwise included above, all Proceeds, products, accessions, rents
      and profits of or in respect of any of the foregoing.

    


    (b)   Certain
      Limited Exclusions.
      Notwithstanding anything herein to the contrary, in no event shall the security
      interest granted under Section 2(a)
      hereof
      attach to (i) any lease, license, contract, property rights or agreement to
      which Grantor is a party or any of its rights or interests thereunder if and
      for
      so long as the grant of such security interest shall constitute or result in
      (1)
      the abandonment, invalidation or unenforceability of any right, title or
      interest of Grantor therein or (2) in a breach or termination pursuant to the
      terms of, or a default under, any such lease, license, contract property rights
      or agreement (other than to the extent that any such term would be rendered
      ineffective pursuant to Sections 9406, 9407, 9408 or 9409 of the UCC (or any
      successor provision or provisions) of any relevant jurisdiction or any other
      applicable law or principles of equity), provided, however, that such security
      interest shall attach immediately at such time as the condition causing such
      abandonment, invalidation or unenforceability shall be remedied and, to the
      extent severable, shall attach immediately to any portion of such lease,
      license, contract, property rights or agreement that does not result in any
      of
      the consequences specified in (1) or (2) including, without limitation, any
      proceeds of such lease, license, contract, property rights or agreement; or
      (ii)
      in any of the outstanding capital stock of a “controlled foreign corporation”
(as defined in the Internal Revenue Code of 1986, as amended) in excess of
      65%
      of the voting power of all classes of capital stock of such controlled foreign
      corporation entitled to vote; provided that immediately upon the amendment
      of
      the Internal Revenue Code to allow the pledge of a greater percentage of the
      voting power of capital stock in a controlled foreign corporation without
      material adverse tax consequences to Grantor, the Collateral shall include,
      and
      the security interest granted by such Grantor shall attach to, such greater
      percentage of capital stock of each controlled foreign corporation.

    


    Section
      3.   SECURITY
      FOR OBLIGATIONS.

    


    (a)   Security
      for Obligations.
      This
      Agreement secures, and the Collateral is collateral security for, the prompt
      and
      complete payment or performance in full when due, whether at stated maturity,
      by
      required prepayment, declaration, acceleration, demand or otherwise (including
      the payment of amounts that would become due but for the operation of the
      automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
§362(a) (and any successor provision thereof)), of all Secured
      Obligations.

    



    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    


    (b)   Continuing
      Liability under Collateral.
      Notwithstanding anything herein to the contrary, (i) Grantor shall remain liable
      for all obligations under the Collateral and nothing contained herein is
      intended or shall be a delegation of duties to the Collateral Agent or any
      Secured Party and (ii) Grantor shall remain liable under each of the agreements
      included in the Collateral, including, without limitation, any agreements
      relating to Pledged Partnership Interests or Pledged LLC Interests, to perform
      all of the obligations undertaken by it thereunder all in accordance with and
      pursuant to the terms and provisions thereof and neither the Collateral Agent
      nor any Secured Party shall have any obligation or liability under any of such
      agreements by reason of or arising out of this Agreement or any other document
      related thereto nor shall the Collateral Agent nor any Secured Party have any
      obligation to make any inquiry as to the nature or sufficiency of any payment
      received by it or have any obligation to take any action to collect or enforce
      any rights under any agreement included in the Collateral, including, without
      limitation, any agreements relating to Pledged Partnership Interests or Pledged
      LLC Interests, (iii) the exercise by the Collateral Agent or Secured Party
      of
      any of its rights hereunder shall not release Grantor from any of its duties
      or
      obligations under the contracts and agreements included in the
      Collateral.

    


    Section
      4.   REPRESENTATIONS
      AND WARRANTIES AND COVENANTS.

    


    (a)   Generally.

    


    (i) Representations
      and Warranties.
      Grantor
      hereby represents and warrants that:

    


    (1) such
      Grantor owns the Collateral purported to be owned by it or otherwise has the
      rights it purports to have in each
      item
      of Collateral and, as to all Collateral whether now existing or hereafter
      acquired, will continue to own or have such rights in each item of the
      Collateral (unless otherwise disposed of in connection with a Permitted Sale),
      in each case free and clear of any and all Liens, rights or claims of all other
      Persons (other than Permitted Liens), including, without limitation, liens
      arising as a result of such Grantor becoming bound (as a result of merger or
      otherwise) as debtor under a security agreement entered into by another
      Person;

    


    (2) such
      Grantor has been duly organized as a corporation solely under the laws of the
      jurisdiction set forth in Schedule
      I(A)
      hereto
      and remains duly existing as such. Such Grantor has not filed any certificates
      of domestication, transfer or continuance in any other
      jurisdiction;

    


    (3) the
      execution and delivery of this Agreement by such Grantor and the performance
      by
      it of its obligations under this Agreement are within its corporate or other
      powers and have been duly authorized by all necessary corporate or other
      action;

    


    (4) upon
      the
      filing of UCC financing statements naming such
      Grantor as debtor and the Collateral Agent as secured party and describing
      the
      Collateral in the filing offices set forth opposite such Grantor’s name on
Schedule I(E)
      hereof
      (as such Schedule may be amended or supplemented from time to time) and
      other filings delivered by such Grantor, the security interests granted to
      the
      Collateral Agent hereunder constitute valid and perfected Liens;

    



    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    


    (5) other
      than the financing statements filed in favor of the Collateral Agent, no
      effective UCC financing statement, fixture filing or other instrument similar
      in
      effect under any
      applicable law covering all or any part of the Collateral is on file in any
      filing or recording office except for (x) financing statements for which proper
      termination statements have been delivered to the Collateral Agent for filing
      and (y) financing statements filed in connection with Permitted
      Liens;

    


    (6) no
      authorization, approval or other action by, and no notice to or filing with,
      any
      Governmental Authority or regulatory body is required for either (i) the pledge
      or grant by Grantor of the Liens purported to be created in favor of the
      Collateral Agent hereunder or (ii) the exercise by Collateral Agent of any
      rights or remedies in respect of any Collateral (whether specifically granted
      or
      created hereunder or created or provided for by applicable law), except (A)
      for
      the filings contemplated by clause (4) above and (B) as may be required, in
      connection with the disposition of any Investment Related Property, by laws
      generally affecting the offering and sale of Securities and as may be required
      under federal laws pertaining to Intellectual Property;

    


    (7) all
      actions and consents, including all filings, notices, registrations and
      recordings necessary or desirable for the exercise by the Collateral Agent
      of
      the voting or other rights provided for in this Agreement or the exercise of
      remedies in respect of the Collateral have been made or obtained;

    


    (8) such
      Grantor has indicated on Schedule I(A)
      hereto
      (as such Schedule may be amended or supplemented from time to time): (w)
      the type of organization of such Grantor, (x) the jurisdiction of organization
      of such Grantor, (y) its organizational identification number, if any, and
      (z)
      the jurisdiction where the chief executive office or its sole place of business
      is (or if such Grantor is a natural person principal residence and principal
      place of business), and for the one-year period preceding the date hereof has
      been, located. 

    


    (9) the
      full
      legal name of such Grantor is as set forth on Schedule I(A)
      and it
      has not done in the last five (5) years, and does not do, business under any
      other name (including any trade-name or fictitious business name) except for
      those names set forth on Schedule I(B)
      (as such
      Schedule may be amended or supplemented from time to time);

    


    (10) except
      as
      provided on Schedule I(C),
      it has
      not changed its jurisdiction of organization, chief executive office or sole
      place of business (or, if such Grantor is a natural person, principal residence
      or principal place of business) or its corporate structure in any way (e.g.
      by
      merger, consolidation, change in corporate form or otherwise) within the past
      five (5) years;

    


    (11) such
      Grantor has not within the last five (5) years become bound (whether as a result
      of merger or otherwise) as debtor under a security agreement entered into by
      another Person, which has not heretofore been terminated other than the
      agreements identified on Schedule I(D)
      hereof
      (as such Schedule may be amended or supplemented from time to time);


    


    (12) all
      information supplied by Grantor
      with respect to any of the Collateral (in each case taken as a whole with
      respect to any particular Collateral) is accurate and complete in all material
      respects; and


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    


    (13) none
      of
      the Collateral constitutes, or is the Proceeds of, “farm products” (as defined
      in the UCC). 

    


    (ii) Covenants
      and Agreements.
      Grantor
      hereby covenants and agrees that:

    


    (1) except
      for the security interest created by this Agreement, it shall not create or
      suffer to exist any
      Lien
      upon or with respect to any of the Collateral, except Permitted Liens, and
      such
      Grantor shall defend the Collateral against all Persons at any time claiming
      any
      interest therein;

    


    (2) such
      Grantor shall not produce, use or permit any
      Collateral to be used unlawfully or in violation of any provision of this
      Agreement or any applicable statute, regulation or ordinance or any policy
      of
      insurance covering the Collateral; 

    


    (3) without
      limiting any
      prohibitions or restrictions on mergers in the Securities Purchase Agreement,
      such Grantor shall not change such Grantor’s name, identity, corporate structure
      (e.g. by merger, consolidation, change in corporate form or otherwise), sole
      place of business (or principal residence if such Grantor is a natural person),
      chief executive office, type of organization or jurisdiction of organization
      or
      establish any trade names unless such Grantor shall have (a) notified the
      Collateral Agent in writing at least thirty (30) days prior to any such change
      or establishment, identifying such new proposed name, identity, corporate
      structure, sole place of business (or principal residence if such Grantor is
      a
      natural person), chief executive office, jurisdiction of organization or trade
      name and providing such other information in connection therewith as the
      Collateral Agent may reasonably request and (b) taken all actions necessary
      or
      advisable to maintain the continuous validity, perfection and the same or better
      priority of the Collateral Agent’s security interest in the Collateral granted
      or intended to be granted and agreed to hereby, which in the case of any merger
      or other change in corporate structure shall include, without limitation,
      executing and delivering to the Collateral Agent a completed Pledge Supplement,
      substantially in the form of Exhibit
      A
      attached
      hereto, upon completion of such merger or other change in corporate structure
      confirming the grant of the security interest hereunder; 

    


    (4) if
      the
      Collateral Agent or any
      Secured Party gives value to enable Grantor to acquire rights in or the use
      of
      any Collateral, such Grantor shall use such value for such purposes and such
      Grantor further agrees that repayment of any Obligation shall apply on a
“first-in, first-out” basis so that the portion of the value used to acquire
      rights in any Collateral shall be paid in the chronological order such Grantor
      acquired rights therein; 

    


    (5) such
      Grantor shall pay promptly when due all property and other taxes, assessments
      and governmental charges or levies imposed upon, and all claims (including
      claims for labor, materials and supplies) against, the Collateral, except to
      the
      extent the validity thereof is being contested in good faith; provided, such
      Grantor shall in any
      event
      pay such taxes, assessments, charges, levies or claims not later than five
      (5)
      days prior to the date of any proposed sale under any judgment, writ or warrant
      of attachment entered or filed against such Grantor or any of the Collateral
      as
      a result of the failure to make such payment; 

    



    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    


    (6) upon
      such
      Grantor or any
      officer of such Grantor obtaining knowledge thereof, such Grantor shall promptly
      notify the Collateral Agent in writing of any event that may materially and
      adversely affect the value of the Collateral or any portion thereof, the ability
      of Grantor or the Collateral Agent to dispose of the Collateral or any portion
      thereof, or the rights and remedies of the Collateral Agent in relation thereto,
      including, without limitation, the levy of any legal process against the
      Collateral or any portion thereof; 

    


    (7) such
      Grantor shall not take or permit any
      action which could impair the Collateral Agent’s rights in the Collateral;
      and

    


    (8) such
      Grantor shall not sell, transfer or assign (by operation of law or otherwise)
      any
      Collateral except for Permitted Sales.

    


    (b)   Equipment
      and Inventory.

    


    (i) Representations
      and Warranties.
      Grantor
      represents and warrants that:

    


    (1) all
      of
      the Equipment and Inventory included in the Collateral is kept for the past
      five
      (5) years only at the locations specified in Schedule II
      hereto
      (as such Schedule may be amended or supplemented from time to time);


    


    (2) any
      Inventory now or hereafter produced by Grantor included in the Collateral have
      been and will be produced in compliance with the requirements of the Fair Labor
      Standards Act, as amended, and the rules and regulations thereunder;
      and

    


    (3) except
      as
      set forth on Schedule
      II,
      none
      of the Inventory or Equipment is in the possession of an issuer of a negotiable
      document (as defined in Section 7104 of the UCC) therefor or otherwise in
      the possession of a bailee or warehouseman. 

    


    (ii) Covenants
      and Agreements.
      Grantor
      covenants and agrees that:

    


    (1) such
      Grantor shall keep the Equipment and Inventory in the locations specified on
      Schedule II
      hereto
      unless it shall have (a) notified the Collateral Agent in writing at least
      thirty (30) days prior to any change in locations, identifying such new
      locations and providing such other information in connection therewith as the
      Collateral Agent may reasonably request and (b) taken all actions necessary
      or
      advisable to maintain the continuous validity, perfection and the same or better
      priority of the Collateral Agent’s security interest in the Collateral intended
      to be granted and agreed to hereby, or to enable the Collateral Agent to
      exercise and enforce its rights and remedies hereunder, with respect to such
      Equipment and Inventory; 

    


    (2) such
      Grantor shall keep correct and accurate records of the Inventory, including,
      without limitation, itemizing and describing the kind, type and quantity of
      such
      Inventory, such Grantor’s cost therefor and, where applicable, the current list
      prices for such Inventory and such other information as is customarily
      maintained under similar circumstances by Persons of established reputation
      engaged in similar business, and in any
      event
      in conformity with generally accepted accounting principles;


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    


    (3) such
      Grantor shall not deliver any Document Evidencing Goods to any Person other
      than
      the issuer of such Document to claim the Goods evidenced therefor or the
      Collateral Agent;

    


    (4) if
      any
      Equipment or Inventory is in possession or control of any third party,
      including, without limitation, any warehouseman, bailee or agent, Grantor shall
      join with the Collateral Agent in notifying the third party of the Collateral
      Agent’s security interest and obtaining an Authenticated acknowledgment from
      such third party that it is holding the Equipment and Inventory for the benefit
      of the Collateral Agent; and

    


    (5) with
      respect to any
      item
      of Equipment which is covered by a certificate of Title under a statute of
      any jurisdiction under the law of which indication of a security interest on
      such certificate is required as a condition of perfection thereof, upon the
      reasonable request of the Collateral Agent, (A) provide information with respect
      to any such Equipment, (B) execute and file with the registrar of motor vehicles
      or other appropriate authority in such jurisdiction an application or other
      document requesting the notation or other indication of the security interest
      created hereunder on such certificate of title, and (C) deliver to the
      Collateral Agent copies of all such applications or other documents filed during
      such calendar quarter and copies of all such certificates of Title issued
      during such calendar quarter indicating the security interest created hereunder
      in the items of Equipment covered thereby. 

    


    (c)   Receivables.
      

    


    (i) Representations
      and Warranties.
      Grantor
      represents and warrants that:

    


    (1) each
      Receivable (a) is and will be the legal, valid and binding obligation of the
      Account Debtor in respect thereof, representing an unsatisfied obligation of
      such Account Debtor, (b) is and will be enforceable in accordance with its
      terms, (c) is not and will not be subject to any setoffs, defenses, taxes,
      counterclaims (except with respect to refunds, returns and allowances in the
      ordinary course of business with respect to damaged merchandise) and (d) is
      and
      will be in compliance with all applicable laws, whether federal, state, local
      or
      foreign;

    


    (2) none
      of
      the Account Debtors in respect of any Receivable is the government of the United
      States, any agency or instrumentality thereof, any state or municipality or
      any
      foreign sovereign. No Receivable requires the consent of the Account Debtor
      in
      respect thereof in connection with the security interest hereunder, except
      any
      consent which has been obtained; 

    


    (3) such
      Grantor has delivered to the Collateral Agent a complete and correct copy of
      each standard form of document under which a Receivable may arise.

    


    (ii) Covenants
      and Agreements:
      Grantor
      hereby covenants and agrees that:

    


    (1) such
      Grantor shall keep and maintain at its own cost and expense satisfactory and
      complete records of the Receivables, including, but not limited to, the
      originals of all documentation with respect to all Receivables and records
      of
      all payments received and all credits granted on the Receivables, all
      merchandise returned and all other dealings therewith; 


    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    


    (2) such
      Grantor shall perform in all material respects all of its obligations with
      respect to the Receivables;

    


    (3) such
      Grantor shall not amend, modify, terminate or waive any provision of any
      Receivable in any manner which could reasonably be expected to have a Material
      Adverse Effect on the value of such Receivable as Collateral. Other than in
      the
      ordinary course of business as generally conducted by such Grantor on and prior
      to the date hereof, and except as otherwise provided in subsection (5)
      below, following an Event of Default, such Grantor shall not, without the prior
      written consent of the Collateral Agent (w) grant any extension or renewal
      of
      the time of payment of any Receivable, (x) compromise or settle any dispute,
      claim or legal proceeding with respect to any Receivable in an amount in excess
      of One Hundred Thousand Dollars ($100,000) for less than the total unpaid
      balance thereof, (y) release, wholly or partially, any Person liable for the
      payment thereof, or (z) allow any credit or discount thereon;

    


    (4) at
      the
      reasonable request of the Collateral Agent, such Grantor shall mark
      conspicuously, in form and manner reasonably satisfactory to the Collateral
      Agent, all Chattel Paper, Instruments and other evidence of Receivables (other
      than any delivered to the Collateral Agent as provided herein), as well as
      the
      Receivables Records with an appropriate reference to the fact that the
      Collateral Agent has a security interest therein;

    



    
      
        
        

      

      
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    (5) except
      as
      otherwise provided in this subsection, such Grantor shall continue to collect
      all amounts due or to become due to such Grantor under the Receivables and
      any
      Supporting Obligation and diligently exercise each material right it may have
      under any Receivable, any Supporting Obligation or Collateral Support, in each
      case, at its own expense, and in connection with such collections and exercise,
      such Grantor shall take such action as such Grantor or the Collateral Agent
      may
      deem necessary or advisable. Notwithstanding the foregoing, the Collateral
      Agent
      shall have the right at any time to notify, or require Grantor to notify, any
      Account Debtor of the Collateral Agent’s security interest in the Receivables
      and any Supporting Obligation and, in addition, at any time following the
      occurrence and during the continuation of an Event of Default, the Collateral
      Agent may: (1) direct the Account Debtors under any Receivables to make payment
      of all amounts due or to become due to such Grantor thereunder directly to
      the
      Collateral Agent; (2) notify, or require Grantor to notify, each Person
      maintaining a lockbox or similar arrangement to which Account Debtors under
      any
      Receivables have been directed to make payment to remit all amounts representing
      collections on checks and other payment items from time to time sent to or
      deposited in such lockbox or other arrangement directly to the Collateral Agent;
      and (3) and subject to Section 8 below, enforce, at the expense of such Grantor,
      collection of any such Receivables and to adjust, settle or compromise the
      amount or payment thereof, in the same manner and to the same extent as such
      Grantor might have done. If the Collateral Agent notifies Grantor that it has
      elected to collect the Receivables in accordance with the preceding sentence,
      any payments of Receivables received by such Grantor shall be forthwith (and
      in
      any event within two (2) Business Days) deposited by such Grantor in the exact
      form received, duly indorsed by such Grantor to the Collateral Agent if
      required, into an account maintained under the sole dominion and control of
      the
      Collateral Agent, and until so turned over, all amounts and proceeds (including
      checks and other instruments) received by such Grantor in respect of the
      Receivables, any Supporting Obligation or Collateral Support shall be received
      in trust for the benefit of the Collateral Agent hereunder and shall be
      segregated from other funds of such Grantor and such Grantor shall not adjust,
      settle or compromise the amount or payment of any Receivable, or release wholly
      or partly any Account Debtor or obligor thereof, or allow any credit or discount
      thereon; and

    


    (6) such
      Grantor shall use its best efforts to keep in full force and effect any
      Supporting Obligation or Collateral Support relating to any
      Receivable.

    



    
      
        
        

      

      
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    (iii) Delivery
      and Control of Receivables.
      With
      respect to any Receivables in excess of $100,000 in the aggregate from a single
      Person or its affiliates that are evidenced by, or constitutes, Tangible Chattel
      Paper or Instruments, Grantor shall cause each originally executed copy thereof
      to be delivered to the Collateral Agent (or its agent or designee) appropriately
      indorsed to the Collateral Agent or indorsed in blank: (a) with respect to
      any
      such Receivables in existence on the date hereof, on or prior to the date hereof
      and (b) with respect to any such Receivables hereafter arising, within ten
      (10)
      days of such Grantor acquiring rights therein. With respect to any Receivables
      in excess of $100,000 in the aggregate from a single Person or its affiliate
      which would constitute “electronic chattel paper” under the UCC, Grantor shall
      take all steps necessary to give the Collateral Agent control (within the
      meaning of Section 9105 of the UCC) over such Receivables : (a) with
      respect to any such Receivables in existence on the date hereof, on or prior
      to
      the date hereof and (b) with respect to any such Receivables hereafter arising,
      within ten (10) days of such Grantor acquiring rights therein. Any Receivable
      not otherwise required to be delivered or subjected to the control of the
      Collateral Agent in accordance with this subsection (iii) shall be
      delivered or subjected to such control upon request of the Collateral
      Agent.

    


    (d)   Pledged
      Equity Interests and Pledged Debt.

    


    (i) Representations
      and Warranties.
      Grantor
      hereby represents and warrants that:

    


    (1) Schedule III
      hereto
      (as such Schedule may be amended or supplemented from time to time) sets
      forth under the headings “Pledged Stock,” “Pledged LLC Interests,” “Pledged
      Partnership Interests,” and “Pledged Trust Interests,” respectively, all of the
      Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged
      Trust Interests owned by Grantor and such Pledged Equity Interests constitute
      the percentage of issued and outstanding shares of stock, percentage of
      membership interests, percentage of partnership interests or percentage of
      beneficial interest of the respective issuers thereof indicated on such
      Schedule;

    


    (2) except
      as
      set forth on Schedule III(B)
      hereto,
      such Grantor has not acquired any equity interests of another entity within
      the
      past five (5) years.

    


    (3) such
      Grantor is the record and beneficial owner of the Pledged Equity Interests
      free
      of all Liens, rights or claims of other Persons other than Permitted Liens
      and
      there are no outstanding warrants, options or other rights to purchase, or
      shareholder, voting trust or similar agreements outstanding with respect to,
      or
      property that is convertible into, or that requires the issuance or sale of,
      any
      Pledged Equity Interests;

    


    (4) except
      for any
      consents that have been obtained and remain in full force and effect, no consent
      of any Person including any other general or limited partner, any other member
      of a limited liability company, any other shareholder or any other trust
      beneficiary is necessary or desirable in connection with the creation,
      perfection or first priority status of the security interest of the Collateral
      Agent in any Pledged Equity Interests or the exercise by the Collateral Agent
      of
      the voting or other rights provided for in this Agreement or the exercise of
      remedies in respect thereof; and

    



    
      
        
        

      

      
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    (5) Schedule III
      hereto
      (as such Schedule may be amended or supplemented from time to time) sets
      forth under the heading “Pledged Debt” all of the Pledged Debt owned by Grantor
      and all of such Pledged Debt has been duly authorized, authenticated or issued,
      and delivered and is the legal, valid and binding obligation of the issuers
      thereof and is not in default and constitutes all of the issued and outstanding
      inter-company indebtedness evidenced by an instrument or certificated security
      of the respective issuers thereof owing to such Grantor.

    


    (ii) Covenants
      and Agreements.
      Grantor
      hereby covenants and agrees that:

    


    (1) without
      the prior written consent of the Collateral Agent, such Grantor shall not vote
      to enable or take any
      other
      action to: (a) amend or terminate any partnership agreement, limited liability
      company agreement, certificate of incorporation, by-laws or other organizational
      documents in any way that materially changes the rights of such Grantor with
      respect to any Investment Related Property or adversely affects the validity,
      perfection or priority of the Collateral Agent’s security interest, (b) permit
      any issuer of any Pledged Equity Interest that is a direct or indirect
      subsidiary of Grantor to issue any additional stock, partnership interests,
      limited liability company interests or other equity interests of any nature
      or
      to issue securities convertible into or granting the right of purchase or
      exchange for any stock or other equity interest of any nature of such issuer,
      (c) other than as permitted under the Securities Purchase Agreement, permit
      any
      issuer of any Pledged Equity Interest that is a direct or indirect subsidiary
      of
      Grantor to dispose of all or a material portion of their assets, (d) waive
      any
      default under or breach of any terms of organizational document relating to
      the
      issuer of any Pledged Equity Interest or the terms of any Pledged Debt, or
      (e)
      cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests
      which are not securities (for purposes of the UCC) on the date hereof to elect
      or otherwise take any action to cause such Pledged Partnership Interests or
      Pledged LLC Interests to be treated as securities for purposes of the UCC;
      provided, however, notwithstanding the foregoing, if any issuer of any Pledged
      Partnership Interests or Pledged LLC Interests takes any such action in
      violation of the foregoing in this clause (e), such Grantor shall promptly
      notify the Collateral Agent in writing of any such election or action and,
      in
      such event, shall take all steps necessary or advisable to establish the
      Collateral Agent’s “control” thereof;

    


    (2) such
      Grantor shall comply with all of its obligations under any
      partnership agreement or limited liability company agreement relating to Pledged
      Partnership Interests or Pledged LLC Interests and shall enforce all of its
      rights with respect to any Investment Related Property;

    



    
      
        
        

      

      
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    (3) without
      the prior written consent of the Collateral Agent, such Grantor shall not permit
      any
      issuer of any Pledged Equity Interest that is a direct or indirect subsidiary
      of
      Grantor to merge or consolidate unless (i) such issuer creates a security
      interest that is perfected by a filed financing statement (that is not effective
      solely under Section 9508 of the UCC) in collateral in which such new
      debtor has or acquires rights, and (ii) all the outstanding capital stock or
      other equity interests of the surviving or resulting corporation, limited
      liability company, partnership or other entity is, upon such merger or
      consolidation, pledged hereunder and no cash, securities or other property
      is
      distributed in respect of the outstanding equity interests of any other
      constituent Grantor; provided that if the surviving or resulting Grantors upon
      any such merger or consolidation involving an issuer which is a controlled
      foreign corporation (as defined in the U.S. Internal Revenue Code of 1986,
      as
      amended), then such Grantor shall only be required to pledge equity interests
      in
      accordance with Section 2(b);
      

    


    (4) such
      Grantor consents to the grant of a security interest in all Investment Related
      Property to the Collateral Agent and, without limiting the foregoing, consents
      to the transfer
      of any Pledged Partnership Interest and any Pledged LLC Interest to the
      Collateral Agent or its designee following an Event of Default and to the
      substitution of the Collateral Agent or its designee as a partner in any
      partnership or as a member in any limited liability company with all the rights
      and powers related thereto;

    


    (5) such
      Grantor shall notify the Collateral Agent of any
      default under any Pledged Debt that has caused, either in any case or in the
      aggregate, a Material Adverse Effect; and

    


    (6) in
      the
      event such Grantor acquires rights in any
      Pledged Equity Interest or Pledged Debt after the date hereof, it shall deliver
      to the Collateral Agent a completed Pledge Supplement, substantially in the
      form
      of Exhibit
      A
      attached
      hereto, together with all Supplements to Schedules thereto, reflecting such
      new
      Pledged Equity Interest or Pledged Debt and all other Pledged Equity Interest
      or
      Pledged Debt. Notwithstanding the foregoing, it is understood and agreed that
      the security interest of the Collateral Agent shall attach to all Pledged Equity
      Interest or Pledged Debt immediately upon Grantor’s acquisition of rights
      therein and shall not be affected by the failure of Grantor to deliver a
      supplement to Schedule III
      as
      required hereby.

    



    
      
        
        

      

      
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    (iii) Delivery
      and Control. Grantor
      agrees that with respect to any Pledged Equity Interest or Pledged Debt
      hereafter acquired by such Grantor, it shall comply with the provisions of
      this
subsection (iii)
      immediately upon acquiring rights therein, in each case in form and substance
      satisfactory to the Collateral Agent. With respect to any Pledged Equity
      Interest or Pledged Debt that is represented by a certificate or that is an
      “instrument” (other than any Investment Related Property credited to a
      Securities Account) such Grantor shall cause such certificate or instrument
      to
      be delivered to the Collateral Agent, indorsed in blank by an “effective
      indorsement” (as defined in Section 8107 of the UCC), regardless of whether
      such certificate constitutes a “certificated security” for purposes of the UCC.
      With respect to any Pledged Equity Interest or Pledged Debt that is an
“uncertificated security” for purposes of the UCC (other than any
“uncertificated securities” credited to a Securities Account), such Grantor
      shall cause the issuer of such uncertificated security to either (i) register
      the Collateral Agent as the registered owner thereof on the books and records
      of
      the issuer or (ii) execute an agreement, in form and substance satisfactory
      to
      the Collateral Agent, pursuant to which such issuer agrees to comply with the
      Collateral Agent’s instructions with respect to such uncertificated security
      without further consent by such Grantor. If any issuer of any Pledged Equity
      Interest or Pledged Debt is located in a jurisdiction outside of the United
      States, Grantor shall take such additional actions, including, without
      limitation, causing the issuer to register the pledge on its books and records
      or making such filings or recordings, in each case as may be necessary or
      advisable, under the laws of such issuer’s jurisdiction to insure the validity,
      perfection and priority of the security interest of the Collateral Agent. Upon
      the occurrence of an Event of Default, the Collateral Agent shall have the
      right, without notice to Grantor, to transfer all or any portion of Pledged
      Equity Interest or Pledged Debt to its name or the name of its nominee or agent.
      In addition, the Collateral Agent shall have the right at any time, without
      notice to Grantor, to exchange any certificates or instruments representing
      any
      Pledged Equity Interest or Pledged Debt for certificates or instruments of
      smaller or larger denominations. 

    


    (e)   Investment
      Accounts.

    


    (i) Representations
      and Warranties.
      Grantor
      hereby represents and warrants that:

    


    (1) Schedule III
      hereto
      (as such Schedule may be amended or supplemented from time to time) sets
      forth under the headings “Securities Accounts” and “Commodities Accounts,”
respectively, all of the Securities Accounts and Commodities Accounts in which
      such Grantor
      has an interest. Such Grantor is the sole entitlement holder of each such
      Securities Account and Commodities Account, and such Grantor has not consented
      to, and is not otherwise aware of, any Person (other than the Collateral Agent
      pursuant hereto) having “control” (within the meanings of Sections 8106 and 9106
      of the UCC) over, or any other interest in, any such Securities Account or
      Commodity Account or any securities or other property credited
      thereto;

    


    (2) Schedule III
      hereto
      (as such Schedule may be amended or supplemented from time to time) sets
      forth under the heading “Deposit Accounts” all of the Deposit Accounts in which
      such Grantor has an interest and such Grantor is the sole account holder of
      each
      such Deposit Account and such Grantor has not consented to, and is not otherwise
      aware of, any Person (other than the Collateral Agent pursuant hereto) having
      either sole dominion and control (within the meaning of common law) or “control”
(within the meaning of Section 9104 of the UCC) over, or any other interest
      in, any such Deposit Account or any money or other property deposited therein;
      and


    
      
        
        

      

      
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    (ii) Covenants
      and Agreements.
      In the
      event Grantor acquires rights in any Securities Accounts, Securities
      Entitlements, Deposit Accounts or Commodity Accounts after the date hereof,
      such
      Grantor shall deliver to the Collateral Agent a completed Pledge Supplement,
      substantially in the form of Exhibit
      A
      attached
      hereto, together with all Supplements to Schedules thereto, reflecting such
      new
      Securities Accounts, Securities Entitlements, Deposit Accounts or Commodity
      Accounts and all other Securities Accounts, Securities Entitlements, Deposit
      Accounts or Commodity Accounts. Notwithstanding the foregoing, it is understood
      and agreed that the security interest of the Collateral Agent shall attach
      to
      all Securities Accounts, Securities Entitlements, Deposit Accounts or Commodity
      Accounts immediately upon Grantor’s acquisition of rights therein and shall not
      be affected by the failure of Grantor to deliver a supplement to Schedule III
      as
      required hereby.

    


    (iii) Delivery
      and Control.
      Grantor
      agrees that with respect to any Investment Related Property consisting of
      Securities Accounts or Securities Entitlements, such Grantor shall cause the
      securities intermediary maintaining such Securities Account or Securities
      Entitlement to enter into an agreement, in form and substance satisfactory
      to
      the Collateral Agent, pursuant to which such securities intermediary shall
      agree
      to comply with the Collateral Agent’s “entitlement orders” without further
      consent by such Grantor and shall establish the Collateral Agent shall have
      “control” (within the meaning of Section 9106 of the UCC) over such
      Securities Accounts or Securities Entitlements. With respect to any Investment
      Related Property that is a “Deposit Account,” such Grantor shall cause the
      depositary institution maintaining such account to enter into an agreement,
      in
      form and substance satisfactory to the Collateral Agent, pursuant to which
      the
      depositary institution shall agree to comply with the Collateral Agent’s
      instructions without further consent by such Grantor and shall establish the
      Collateral Agent shall have “control” (within the meaning of Section 9104
      of the UCC) over such Deposit Account. With respect to any Investment Related
      Property that is a “Commodity Account,” such Grantor shall cause the commodity
      intermediary maintaining such account to enter into an agreement, in form and
      substance satisfactory to the Collateral Agent, pursuant to which the Collateral
      Agent shall have “control” (within the meaning of Section 9106 of the UCC)
      over such Commodity Account. Each 
      Grantor
      shall have entered into such control agreement or agreements with respect to:
      (i) any Securities Accounts, Securities Entitlements or Deposit Accounts that
      exist on the date hereof, on or prior to the date hereof and (ii) any Securities
      Accounts, Securities Entitlements, Deposit Accounts or Commodity Accounts that
      are created or acquired after the date hereof, as of or prior to the deposit
      or
      transfer of any such Securities Entitlements or funds, whether constituting
      moneys or investments, into such Securities Accounts, Deposit Accounts or
      Commodity Accounts. 

    


    (f)   Material
      Contracts.

    


    (i) Representations
      and Warranties.
      Grantor
      hereby represents and warrants that:

    


    (1) Schedule IV
      hereto
      sets forth all of the Material Contracts to which such Grantor has rights;
      

    



    
      
        
        

      

      
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    (2) the
      Material Contracts, true and complete copies (including any
      amendments or supplements thereof) of which have been furnished to the
      Collateral Agent, have been duly authorized, executed and delivered by Grantor,
      are in full force and effect and are binding upon and enforceable against such
      Grantor in accordance with their respective terms. There exists no default
      under
      any Material Contract by any party thereto and neither such Grantor, nor to
      its
      best knowledge, any other Person party thereto is likely to become in default
      thereunder and no Person party thereto has any defenses, counterclaims or right
      of set-off with respect to any Material Contract; and

    


    (3) no
      Material Contract prohibits assignment or requires consent of or notice to
      any
      Person in connection with the transactions contemplated hereunder, except such
      as has been given or made.

    


    (ii) Covenants
      and Agreements.
      Grantor
      hereby covenants and agrees that:

    


    (1) in
      addition to any
      rights under this Agreement relating to Receivables, the Collateral Agent may
      at
      any time notify, or require Grantor to so notify, the counterparty on any
      Material Contract of the security interest of the Collateral Agent therein.
      In
      addition, after the occurrence and during the continuance of an Event of
      Default, the Collateral Agent may upon written notice to Grantor, notify, or
      require Grantor to notify, the counterparty to make all payments under the
      Material Contracts directly to the Collateral Agent;

    


    (2) such Grantor
      shall deliver promptly to the Collateral Agent a copy of each material demand,
      notice or document received by it relating in any way to any Material
      Contract;

    


    (3)  such
      Grantor shall deliver promptly to the Collateral Agent, and in any event within
      ten (10) Business Days, after (1) any Material Contract of such Grantor is
      terminated or amended in a manner that is materially adverse to such Grantor
      or
      (2) any new Material Contract is entered into by such Grantor, a written
      statement describing such event, with copies of such material amendments or
      new
      contracts, delivered to the Collateral Agent (to the extent such delivery is
      permitted by the terms of any such Material Contract, provided, no prohibition
      on delivery shall be effective if it were bargained for by such Grantor with
      the
      intent of avoiding compliance with this Agreement, and an explanation of any
      actions being taken with respect thereto);

    


    (4) such
      Grantor shall perform in all material respects all of its obligations with
      respect to the Material Contracts; 

    


    (5) such
      Grantor shall promptly and diligently exercise each
      material right (except the right of termination) it may have under any Material
      Contract, any Supporting Obligation or Collateral Support, in each case, at
      its
      own expense, and in connection with such collections and exercise, such Grantor
      shall take such action as such Grantor or the Collateral Agent may deem
      necessary or advisable; and

    


    (6) such
      Grantor shall use its best efforts to keep in full force and effect any
      Supporting Obligation or Collateral Support relating to any Material
      Contract.

    



    
      
        
        

      

      
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    (g)   Letter
      of Credit Rights.

    


    (i) Representations
      and Warranties.
      Grantor
      hereby represents and warrants that:

    


    (1) all
      material letters of credit to which such Grantor has rights is listed on
Schedule V
      hereto;
      and

    


    (2) such
      Grantor has obtained the consent of each
      issuer of any material letter of credit to the assignment of the proceeds of
      the
      letter of credit to the Collateral Agent. 

    


    (ii) Covenants
      and Agreements.
      Grantor
      hereby covenants and agrees that with respect to any material letter of credit
      hereafter arising, such Grantor shall obtain the consent of the issuer thereof
      to the assignment of the proceeds of the letter of credit to the Collateral
      Agent and shall deliver to the Collateral Agent a completed Pledge Supplement,
      substantially in the form of Exhibit
      A
      attached
      hereto, together with all Supplements to Schedules thereto. Notwithstanding
      the
      foregoing, it is understood and agreed that the security interest of the
      Collateral Agent shall attach to all letters of credit immediately upon
      Grantor’s acquisition of rights therein and shall not be affected by the failure
      of Grantor to deliver a supplement to Schedule V
      as
      required hereby.

    


    (h)    Intellectual
      Property.

    


    (i) Representations
      and Warranties.
      Except
      as disclosed in Schedule VI(H)
      (as such
      Schedule may be amended or supplemented from time to time), Grantor hereby
      represents and warrants that:

    


    (1) Schedule VI
      (as such
      Schedule may be amended or supplemented from time to time) sets forth a
      true and complete list of (i) all United States, state and foreign registrations
      of and applications for Patents, Trademarks, and Copyrights owned by such
      Grantor and (ii) all Patent Licenses, Trademark Licenses and Copyright Licenses,
      granting rights in any Patents, Trademarks or Copyrights owned by Grantor and
      any other such licenses that are material to the business of such
      Grantor;

    


    (2) all
      registrations and applications of such Grantor for Copyrights, Patents and
      Trademarks are standing in the name of such
      Grantor;

    


    (3) such
      Grantor is the sole and exclusive owner of the entire right, title, and interest
      in and to all Intellectual Property on Schedule VI
      (as such
      Schedule may be amended or supplemented from time to time), and owns or has
      the valid right to use all other Intellectual Property used in or necessary
      to
      conduct its business, free and clear of all Liens, claims, encumbrances and
      licenses, except for Permitted Liens and the Intellectual Property Licenses
      set
      forth on Schedule VI(B),
      (D), (F)
      and
(G)
      (as each
      may be amended or supplemented from time to time); 

    



    
      
        
        

      

      
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    (4) all
      Intellectual Property owned by such Grantor and, to the best of such Grantor’s
      knowledge, licensed to such Grantor: (i) is subsisting, (ii) is valid and
      enforceable and (iii) has not been adjudged invalid or unenforceable, in whole
      or in part; and such Grantor has performed all acts and has paid all renewal,
      maintenance, and other fees and taxes required to maintain each
      and
      every registration and application of Intellectual Property that such Grantor
      owns in full force and effect;

    


    (5) no
      action
      or proceeding before any
      court
      or administrative authority is pending or, to such Grantor’s knowledge,
      threatened against such Grantor challenging such Grantor’s right to register,
      the validity of, or such Grantor’s rights to own, use, or license any
      Intellectual Property;

    


    (6) such
      Grantor has been using appropriate statutory notice of registration in
      connection with its use of registered Trademarks, proper marking practices
      in
      connection with the use of Patents, and appropriate notice of copyright in
      connection with the publication of Copyrights material to the business of such
      Grantor;

    


    (7) such
      Grantor uses adequate standards of quality in the manufacture, distribution,
      and
      sale of all products sold and in the provision of all services rendered under
      or
      in connection with all Trademarks owned by such Grantor and has taken all action
      necessary to insure that all licensees of such Trademarks use such adequate
      standards of quality;

    


    (8) the
      conduct of such Grantor’s business does not infringe upon any
      trademark, patent, copyright, trade secret or similar intellectual property
      right owned or controlled by a third party; no claim is pending, or to the
      best
      of such Grantor’s knowledge, threatened, that the conduct of such Grantor’s
      business or the use of any Intellectual Property owned or used by Grantor
      violates the asserted rights of any third party; 

    


    (9) to
      the
      best of such Grantor’s knowledge, no third party is infringing upon any
      Intellectual Property owned or used by such Grantor;

    


    (10) no
      settlement or consents, covenants not to sue, nonassertion assurances, or
      releases have been entered into by such
      Grantor or to which such Grantor
      is bound that adversely effect such Grantor’s rights to own or use any
      Intellectual Property; and

    


    (11) such
      Grantor has not made any
      agreements to assign, sell, transfer or grant an option or license for any
      Intellectual Property that has not been terminated or released. There is no
      effective financing statement or other document or instrument now executed,
      or
      on file or recorded in any public office, granting a security interest in or
      otherwise encumbering any part of the Intellectual Property, other than
      in
      favor of
      the Collateral Agent.

    


    (ii) Covenants
      and Agreements.
      Grantor
      hereby covenants and agrees as follows:

    



    
      
        
        

      

      
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    (1) except
      for Intellectual Property that is not in use and has negligible value, such
      Grantor shall not do any
      act
      or omit to do any act whereby any of the Intellectual Property which is material
      to the business of Grantor may lapse, or become abandoned, dedicated to the
      public, or unenforceable, or which would adversely affect the validity, grant,
      or enforceability of the security interest granted therein;

    


    (2) except
      for copyrights of negligible value, such Grantor shall, within thirty (30)
      days
      of the creation or acquisition of any
      Copyrightable work which is material to the business of Grantor, apply to
      register the Copyright in the United States Copyright Office;

    


    (3) such
      Grantor shall promptly notify the Collateral Agent if such Grantor knows or
      has
      reason to know that any
      item
      of the Intellectual Property of Grantor that is in use or has more than
      negligible value may become (a) abandoned or dedicated to the public or placed
      in the public domain, (b) invalid or unenforceable, or (c) subject to any
      adverse determination or development (including the institution of proceedings)
      in any action or proceeding in the United States Patent and Trademark Office,
      the United States Copyright Office, and state registry, any foreign counterpart
      of the foregoing, or any court arbitral tribunal or regulatory
      agency;

    


    (4) such
      Grantor shall take all reasonable steps in the United States Patent and
      Trademark Office, the United States Copyright Office, any
      state
      registry or any foreign counterpart of the foregoing, to pursue any application
      and maintain any registration of each Trademark, Patent, and Copyright owned
      by
      Grantor and which is now or shall become included in the Intellectual Property
      including, but not limited to, those items on Schedule VI(A),
      (C)
      and
(E)
      (as each
      may be amended or supplemented from time to time) except for those pertaining
      to
      Intellectual Property that are no longer in use and have negligible value;
      

    


    (5) in
      the
      event that any
      Intellectual Property owned by or exclusively licensed to Grantor is infringed,
      misappropriated, or diluted by a third party, such Grantor shall promptly take
      all reasonable actions to stop such infringement, misappropriation, or dilution
      and protect its exclusive rights in such Intellectual Property including, but
      not limited to, the initiation of a suit for injunctive relief and to recover
      damages;

    


    (6) Grantor
      shall maintain the level of the quality of products sold and services rendered
      under any Trademark at a level at least substantially consistent with the
      quality of such products and services as of the date hereof, and Grantor shall
      take all steps necessary to insure that licensees of such Trademarks use such
      standards of quality;

    


    (7) such
      Grantor shall take all steps reasonably necessary to protect the confidentiality
      of all material Trade Secrets of Grantor, including, without limitation,
      entering into confidentiality agreements with employees and labeling and
      restricting access to confidential information and documents;

    



    
      
        
        

      

      
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    (8) such
      Grantor shall promptly (but in no event more than thirty (30) days) report
      to
      the Collateral Agent (i) the filing of any application to register any
      Intellectual Property whether it owns in whole or in part or to the best of
      its
      knowledge which it is exclusively licensing from a third party with the United
      States Patent and Trademark Office, the United States Copyright Office, or
      any
      state registry or foreign counterpart of the foregoing (whether such application
      is filed by such Grantor or through any agent, employee, licensor, licensee,
      or
      designee thereof), (ii) the registration of any Intellectual Property by any
      such office, or (iii) the acquisition of any application or registration and,
      in
      each case, shall execute and deliver to the Collateral Agent a completed Pledge
      Supplement, substantially in the form of Exhibit
      A
      attached
      hereto, together with all Supplements to Schedules thereto an executed Trademark
      Security Agreement, Patent Security Agreement, or Copyright Security Agreement
      in form and substance satisfactory to the Agent; 

    


    (9) except
      with the prior consent of the Collateral Agent or as permitted under the
      Securities Purchase Agreement, Grantor shall not execute, and there will not
      be
      on file in any
      public office, any financing statement or other document or instruments, except
      financing statements or other documents or instruments filed or to be filed
      in
      favor of the Collateral Agent, and Grantor shall not sell, assign, transfer,
      license, grant any option, or create or suffer to exist any Lien upon or with
      respect to the Intellectual Property, except for the Lien created by and under
      this Security Agreement and the other Loan Documents.

    


    (10) such
      Grantor shall hereafter use commercially reasonable efforts so as not to permit
      the inclusion in any
      contract to which it hereafter becomes a party of any provision that would
      impair or prevent the creation of a security interest in, or the assignment
      of,
      such Grantor’s rights and interests in any Intellectual Property acquired under
      such Contracts;

    


    (11) such
      Grantor shall use proper statutory notice in connection with its use of
any
      of
      the Intellectual Property; and 

    


    (12) such
      Grantor shall continue to collect, at its own expense, all amounts due or to
      become due to such Grantor in respect of any
      Intellectual Property. In connection with such collections, such Grantor may
      take (and, at the Collateral Agent’s reasonable direction, shall take) such
      action as such Grantor or the Collateral Agent may deem reasonably necessary
      or
      advisable to enforce collection of such amounts. Notwithstanding the foregoing,
      the Collateral Agent shall have the right at any time, to notify, or require
      Grantor to notify, any obligors with respect to any such amounts of the
      existence of the security interest created hereby.

    


    (i)   Commercial
      Tort Claims

    


    (i) Representations
      and Warranties.
      Grantor
      hereby represents and warrants that Schedule VII
      (as such
      Schedule may be amended or supplemented from time to time) sets forth all
      Commercial Tort Claims of Grantor.

    



    
      
        
        

      

      
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    (ii) Covenants
      and Agreements.
      Grantor
      hereby covenants and agrees that with respect to any Commercial Tort Claim
       hereafter
      arising, such Grantor shall deliver to the Collateral Agent a completed Pledge
      Supplement, substantially in the form of Exhibit
      A
      attached
      hereto, together with all Supplements to Schedules thereto, identifying such
      new
      Commercial Tort Claims. 

    


    Section
      5.   DIVIDENDS,
      DISTRIBUTIONS AND VOTING

    .

    (a)   Dividends
      and Distributions.
      Except
      as provided in the next sentence, in the event Grantor receives (x) any
      dividends, interest or distributions on any Investment Related Property, or
      (y)
      any securities or other property upon the merger, consolidation, liquidation
      or
      dissolution of any issuer of any Investment Related Property, then (1) such
      dividends, interest or distributions and securities or other property shall
      be
      included in the definition of Collateral without further action and (2) such
      Grantor shall immediately take all steps, if any, necessary or advisable to
      ensure the validity, perfection, priority and, if applicable, control of the
      Collateral Agent over such dividends, distributions, interest, securities or
      other property (including, without limitation, delivery thereof to the
      Collateral Agent) and pending any such action such Grantor shall be deemed
      to
      hold such dividends, distributions, interest, securities or other property
      in
      trust for the benefit of the Collateral Agent and shall be segregated from
      all
      other property of such Grantor. Notwithstanding the foregoing, so long as no
      Event of Default shall have occurred and be continuing, the Collateral Agent
      authorizes Grantor to retain all ordinary cash dividends and distributions
      paid
      in the normal course of the business of the issuer and consistent with the
      past
      practice of the issuer and all scheduled payments of interest;

    


    (b)   Voting.
      

    


    (i) So
      long
      as no Event of Default shall have occurred and be continuing: 

    


    (1) except
      as
      otherwise provided under the covenants and agreements relating to Investment
      Related Property in this Agreement or elsewhere herein or in the Securities
      Purchase Agreement, Grantor
      shall be entitled to exercise or refrain from exercising any and all voting
      and
      other consensual rights pertaining to the Investment Related Property or any
      part thereof for any purpose not inconsistent with the terms of this Agreement
      or the Securities Purchase Agreement; provided, Grantor shall not exercise
      or
      refrain from exercising any such right if the Collateral Agent shall have
      notified such Grantor that, in the Collateral Agent’s reasonable judgment, such
      action would have a Material Adverse Effect on the value of the Investment
      Related Property or any part thereof; and provided further, such Grantor shall
      give the Collateral Agent at least five (5) Business Days prior written notice
      of the manner in which it intends to exercise, or the reasons for refraining
      from exercising, any such right; it being understood, however, that neither
      the
      voting by such Grantor of any Pledged Stock for, or such Grantor’s consent to,
      the election of directors (or similar governing body) at a regularly scheduled
      annual or other meeting of stockholders or with respect to incidental matters
      at
      any such meeting, nor such Grantor’s consent to or approval of any action
      otherwise permitted under this Agreement and the Securities Purchase Agreement,
      shall be deemed inconsistent with the terms of this Agreement or the Securities
      Purchase Agreement, and no notice of any such voting or consent need be given
      to
      the Collateral Agent; and

    



    
      
        
        

      

      
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    (2) the
      Collateral Agent shall promptly execute and deliver (or cause to be executed
      and
      delivered) to Grantor
      all proxies, and other instruments as such Grantor may from time to time
      reasonably request for the purpose of enabling such Grantor to exercise the
      voting and other consensual rights when and to the extent which it is entitled
      to exercise pursuant to clause (1) above;  

    


    (ii) Upon
      the
      occurrence and during the continuation of an Event of Default: 

    


    (1) all
      rights of Grantor
      to exercise or refrain from exercising the voting and other consensual rights
      which it would otherwise be entitled to exercise pursuant hereto shall cease
      and
      all such rights shall thereupon become vested in the Collateral Agent who shall
      thereupon have the sole right to exercise such voting and other consensual
      rights; and

    


    (2) in
      order
      to permit the Collateral Agent to exercise the voting and other consensual
      rights which it may be entitled to exercise pursuant hereto and to receive
      all
      dividends and other distributions which it may be entitled to receive hereunder:
      (1) Grantor
      shall promptly execute and deliver (or cause to be executed and delivered)
      to
      the Collateral Agent all proxies, dividend payment orders and other instruments
      as the Collateral Agent may from time to time reasonably request and (2) Grantor
      acknowledges that the Collateral Agent may utilize the power of attorney set
      forth in Section 7.

    


    Section
      6.   ACCESS;
      RIGHT OF INSPECTION AND FURTHER ASSURANCES.

    


    (a)   Access;
      Right of Inspection.
      The
      Collateral Agent shall have the same access and inspection rights as the
      Investors under the Securities Purchase Agreement.

    


    (b)   Further
      Assurances.

    


    (i) Grantor
      agrees that from time to time, at the expense of such Grantor, that such Grantor
      shall promptly Authenticate, execute and deliver all further instruments and
      documents, and take all further action, that may be necessary or desirable,
      or
      that the Collateral Agent may reasonably request, in order to create and/or
      maintain the validity, perfection or priority of and protect any security
      interest granted or purported to be granted hereby or to enable the Collateral
      Agent to exercise and enforce its rights and remedies hereunder with respect
      to
      any Collateral. Without limiting the generality of the foregoing, Grantor
      shall:

    


    (1) file
      such
      financing or continuation statements, or amendments thereto, and execute and
      deliver such other agreements, instruments, endorsements, powers of attorney
      or
      notices, as may be necessary or desirable, or as the Collateral Agent may
      reasonably request, in order to perfect and preserve the security interests
      granted or purported to be granted hereby;

    


    (2) take
      all
      actions necessary to ensure the recordation of appropriate evidence of the
      liens
      and security interest granted hereunder in the Intellectual Property with
any
      intellectual property registry in which said Intellectual Property is registered
      or in which an application for registration is pending including, without
      limitation, the United States Patent and Trademark Office, the United States
      Copyright Office, the various Secretaries of State, and the foreign counterparts
      on any of the foregoing;


    
      
        
        

      

      
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    (3) at
      any
      reasonable time, upon request by the Collateral Agent, exhibit the Collateral
      to
      and allow inspection of the Collateral by the Collateral Agent, or persons
      designated by the Collateral Agent; and 

    


    (4) at
      the
      Collateral Agent’s request, appear in and defend any
      action or proceeding that may affect such Grantor’s title to or the
      Collateral Agent’s security interest in all or any part of the Collateral.


    


    (ii) Grantor
      hereby authorizes the filing of any financing statements or continuation
      statements, and amendments to financing statements, or any similar document,
      or
      the filing or recording of this Agreement (and all schedules, annexes and
      exhibits hereto), in any jurisdictions and with any filing offices as the
      Collateral Agent may determine, in its sole discretion, are necessary or
      advisable to perfect or otherwise protect the security interest granted to
      the
      Secured Parties and Collateral Agent herein. Such financing statements may
      describe the Collateral in the same manner as described herein or may contain
      an
      indication or description of collateral that describes such property in any
      other manner as the Collateral Agent may determine, in its sole discretion,
      is
      necessary, advisable or prudent to ensure the perfection of the security
      interest in the Collateral granted to the Collateral Agent herein, including,
      without limitation, describing such property as “all assets” or “all personal
      property, whether now owned or hereafter acquired. Grantor shall furnish to
      the
      Collateral Agent from time to time statements and schedules further identifying
      and describing the Collateral and such other reports in connection with the
      Collateral as the Collateral Agent may reasonably request, all in reasonable
      detail.

    


    (iii) Grantor
      hereby authorizes the Collateral Agent to modify this Agreement after obtaining
      such Grantor’s approval of or signature to such modification by amending
Schedule VI
      hereto
      (as such Schedule may be amended or supplemented from time to time) to
      include reference to any right, Title or interest in any existing
      Intellectual Property or any Intellectual Property acquired or developed by
      Grantor after the execution hereof.

    


    Section
      7.   COLLATERAL
      AGENT APPOINTED ATTORNEY-IN-FACT, IRREVOCABLE POWER OF ATTORNEY

    


    Grantor
      hereby irrevocably appoints the Collateral Agent (such appointment being coupled
      with an interest) as such Grantor’s attorney-in-fact, with full authority in the
      place and stead of such Grantor and in the name of such Grantor, the Collateral
      Agent or otherwise, from time to time in the Collateral Agent’s discretion to
      take any action and to execute any instrument that the Collateral Agent may
      deem
      reasonably necessary or advisable to accomplish the purposes of this Agreement,
      including, without limitation, the following: 

    


    (i) upon
      the
      occurrence and during the continuance of any
      Event
      of Default, to obtain and adjust insurance required to be maintained by such
      Grantor or paid to the Collateral Agent pursuant to the Loan Documents;


    


    (ii) upon
      the
      occurrence and during the continuance of any
      Event
      of Default, to ask for, demand, collect, sue for, recover, compound, receive
      and
      give acquittance and receipts for moneys due and to become due under or in
      respect of any of the Collateral; 

    


    (iii) upon
      the
      occurrence and during the continuance of any
      Event
      of Default, to receive, endorse and collect any drafts or other instruments,
      documents and chattel paper in connection with clause (ii) above;



    
      
        
        

      

      
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    (iv) upon
      the
      occurrence and during the continuance of any Event of Default, to file any
      claims or take any action or institute any proceedings that the Collateral
      Agent
      may deem necessary or desirable for the collection of any of the Collateral
      or
      otherwise to enforce the rights of the Secured Parties and the Collateral Agent
      with respect to any of the Collateral; 

    


    (v) to
      prepare, sign, and file for recordation in any
      intellectual property registry, appropriate evidence of the lien and security
      interest granted herein in the Intellectual Property in the name of such Grantor
      as assignor;

    


    (vi) to
      take
      or cause to be taken all actions necessary to perform or comply or cause
      performance or compliance with the terms of this Agreement, including, without
      limitation, access to pay or discharge taxes or Liens (other than Permitted
      Liens) levied or placed upon or threatened against the Collateral, the legality
      or validity thereof and the amounts necessary to discharge the same to be
      determined by the Collateral Agent in its sole discretion, any
      such
      payments made by the Collateral Agent to become obligations of such Grantor
      to
      the Secured Parties and the Collateral Agent, due and payable immediately
      without demand; and 

    


    (vii) upon
      the
      occurrence and during the continuance of any
      Event
      of Default, generally to sell, transfer, lease, license, pledge, make any
      agreement with respect to or otherwise deal with any of the Collateral as fully
      and completely as though the Collateral Agent were the absolute owner thereof
      for all purposes, and to do, at the Collateral Agent’s option and such Grantor’s
      expense, at any time or from time to time, all acts and things that the
      Collateral Agent deems reasonably necessary or appropriate to protect, preserve
      or realize upon the Collateral and the Collateral Agent’s and the Secured
      Parties’ security interest therein in order to effect the intent of this
      Agreement, all as fully and effectively as such Grantor might do.

    


    Section
      8.   REMEDIES.

    


    (a)   Generally.

    


    (i) If
      any
      Event
      of Default shall have occurred and be continuing, the Collateral Agent may
      exercise in respect of the Collateral, in addition to all other rights and
      remedies provided for herein or otherwise available to it at law or in equity,
      all the rights and remedies of the Collateral Agent and the Secured Parties
      on
      default under the UCC (whether or not the UCC applies to the affected
      Collateral) to collect, enforce or satisfy any Secured Obligations then owing,
      whether by acceleration or otherwise, and also may pursue any of the following
      separately, successively or simultaneously: 

    


    (1) require
      Grantor
      to, and Grantor hereby agrees that it shall at its expense and promptly upon
      request of the Collateral Agent forthwith, assemble all or part of the
      Collateral as directed by the Collateral Agent and make it available to the
      Collateral Agent at a place to be designated by the Collateral Agent that is
      reasonably convenient to both parties; 

    


    (2) enter
      onto the property where any
      Collateral is located and take possession thereof with or without judicial
      process; 

    


    (3) prior
      to
      the disposition of the Collateral, store, process, repair or recondition the
      Collateral or otherwise prepare the Collateral for disposition in any
      manner to the extent the Collateral Agent deems appropriate; 


    
      
        
        

      

      
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    (4) without
      notice except as specified below or under the UCC, sell, assign, lease, license
      (on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral
      or any part thereof in one or more parcels at public or private sale, at any
      of
      the Collateral Agent’s offices or elsewhere, for cash, on credit or for future
      delivery, at such time or times and at such price or prices and upon such other
      terms as the Collateral Agent may deem commercially reasonable; and


    


    (ii) The
      Collateral Agent or any
      Secured Party may be the purchaser of any or all of the Collateral at any public
      or private (to the extent to portion of the Collateral being privately sold
      is
      of a kind that is customarily sold on a recognized market or the subject of
      widely distributed standard price quotations) sale in accordance with the UCC
      and the Collateral Agent, as collateral agent for and representative of the
      Secured Parties, shall be entitled, for the purpose of bidding and making
      settlement or payment of the purchase price for all or any portion of the
      Collateral sold at any such sale made in accordance with the UCC, to use and
      apply any of the Secured Obligations as a credit on account of the purchase
      price for any Collateral payable by the Collateral Agent at such sale. Each
      purchaser at any such sale shall hold the property sold absolutely free from
      any
      claim or right on the part of Grantor, and Grantor hereby waives (to the extent
      permitted by applicable law) all rights of redemption, stay and/or appraisal
      which it now has or may at any time in the future have under any rule of law
      or
      statute now existing or hereafter enacted. Grantor agrees that, to the extent
      notice of sale shall be required by law, at least ten (10) days notice to such
      Grantor of the time and place of any public sale or the time after which any
      private sale is to be made shall constitute reasonable notification. The
      Collateral Agent shall not be obligated to make any sale of Collateral
      regardless of notice of sale having been given. The Collateral Agent may adjourn
      any public or private sale from time to time by announcement at the time and
      place fixed therefor, and such sale may, without further notice, be made at
      the
      time and place to which it was so adjourned. Grantor agrees that it would not
      be
      commercially unreasonable for the Collateral Agent to dispose of the Collateral
      or any portion thereof by using Internet sites that provide for the auction
      of
      assets of the types included in the Collateral or that have the reasonable
      capability of doing so, or that match buyers and sellers of assets. Grantor
      hereby waives any claims against the Collateral Agent and the Secured Parties
      arising by reason of the fact that the price at which any Collateral may have
      been sold at such a private sale was less than the price which might have been
      obtained at a public sale, even if the Collateral Agent accepts the first offer
      received and does not offer such Collateral to more than one offeree. If the
      proceeds of any sale or other disposition of the Collateral are insufficient
      to
      pay all the Secured Obligations, Grantor shall be liable for the deficiency
      and
      the fees of any attorneys employed by the Collateral Agent to collect such
      deficiency. Grantor further agrees that a breach of any of the covenants
      contained in this Section will cause irreparable injury to the Collateral
      Agent and the Secured Parties, that each of the Collateral Agent and the Secured
      Parties has no adequate remedy at law in respect of such breach and, as a
      consequence, that each and every covenant contained in this Section shall
      be specifically enforceable against such Grantor, and such Grantor hereby waives
      and agrees not to assert any defenses against an action for specific performance
      of such covenants except for a defense that no default has occurred giving
      rise
      to the Secured Obligations becoming due and payable prior to their stated
      maturities. Nothing in this Section shall in any way alter the rights of
      the Collateral Agent or the Secured Parties hereunder. 

    


    (iii) The
      Collateral Agent may sell the Collateral without giving any warranties as to
      the
      Collateral. The Collateral Agent may specifically disclaim or modify any
      warranties of title or the like. This procedure will not be considered to
      adversely effect the commercial reasonableness of any sale of the
      Collateral.

     

    
 

    
      
        
        

      

      
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    (iv) The
      Collateral Agent shall have no obligation to marshal any of the Collateral.
      

    


    (v) If
      any
      Event of Default shall have occurred and be continuing, the Collateral Agent
      shall have the right to notify, or require Grantor to notify, any obligors
      with
      respect to amounts due or to become due to such Grantor in respect of the
      Collateral, of the existence of the security interest created herein, to direct
      such obligors to make payment of all such amounts directly to the Collateral
      Agent, and, upon such notification and at the expense of such Grantor, to
      enforce collection of any such amounts and to adjust, settle or compromise
      the
      amount or payment thereof, in the same manner and to the same extent as such
      Grantor might have done:

    


    (1) all
      amounts and proceeds (including checks and other instruments) received by
      Grantor in respect of amounts due to such Grantor in respect of the Collateral
      or any portion thereof shall be received in trust for the benefit of the
      Collateral Agent hereunder, shall be segregated from other funds of such Grantor
      and shall be forthwith paid over or delivered to the Collateral Agent in the
      same form as so received (with any necessary endorsement) to be held as cash
      Collateral and applied as provided by the sections of this Agreement relating
      to
      Cash Proceeds; and

    


    (2) Grantor
      shall not adjust, settle or compromise the amount or payment of any such amount
      in excess of One Hundred Thousand Dollars ($100,000) or release wholly or partly
      any obligor with respect thereto or allow any credit or discount thereon, except
      as done in the ordinary course of business. 

    


    (b)   Application
      of Proceeds.
      Except
      as expressly provided elsewhere in this Agreement, all proceeds received by
      the
      Collateral Agent in respect of any sale, any collection from, or other
      realization upon all or any part of the Collateral shall be applied in full
      or
      in part by the Collateral Agent against, the Secured Obligations in the
      following order of priority: first, to the payment of all costs and expenses
      of
      such sale, collection or other realization, including reasonable compensation
      to
      the Collateral Agent and its agents and counsel, and all other expenses,
      liabilities and advances made or incurred by the Collateral Agent in connection
      therewith, and all amounts for which the Collateral Agent is entitled to
      indemnification hereunder (in its capacity as the Collateral Agent) and all
      advances made by the Collateral Agent hereunder for the account of Grantor,
      and
      to the payment of all costs and expenses paid or incurred by the Collateral
      Agent in connection with the exercise of any right or remedy hereunder or under
      any Loan Document, all in accordance with the terms hereof or thereof; second,
      to the extent of any excess of such proceeds, to the payment of all other
      Secured Obligations for the ratable benefit of each Secured Party; and third,
      to
      the extent of any excess of such proceeds, to the payment to or upon the order
      of such Grantor or to whosoever may be lawfully entitled to receive the same
      or
      as a court of competent jurisdiction may direct.

    


    (c)   Sales
      on Credit.
      If
      Collateral Agent sells any of the Collateral upon credit, Grantors will be
      credited only with payments actually made by purchaser and received by
      Collateral Agent and applied to indebtedness of the Investor. In the event
      the
      purchaser fails to pay for the Collateral, Collateral Agent may resell the
      Collateral and Grantors shall be credited with proceeds of the
      sale.


    
      
        
        

      

      
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    (d)   Cash
      and Cash Proceeds.
      If an
      Event of Default shall have occurred and be continuing, (1) the Collateral
      Agent
      shall have the right to apply the balance from any Deposit Account or instruct
      the bank at which any Deposit Account is maintained to pay the balance of any
      Deposit Account to or for the benefit of the Collateral Agent and (2) all Cash
      and Cash Proceeds shall be held by such Grantor in trust for the Collateral
      Agent, segregated from other funds of such Grantor, and shall, forthwith upon
      receipt by such Grantor, be turned over to the Collateral Agent in the exact
      form received by such Grantor (duly indorsed by such Grantor to the Collateral
      Agent, if required) and held by the Collateral Agent. All such funds from any
      Deposit Account, Cash and Cash Proceeds or any other Money held by the
      Collateral Agent may, in the sole discretion of the Collateral Agent, (A) be
      held by the Collateral Agent for the ratable benefit of each Secured
      Party, as collateral security for the Secured Obligations (whether matured
      or
      unmatured) and/or (B) then, or at any time thereafter, be applied by the
      Collateral Agent against the Secured Obligations then due and owing.

    


    (e)   Investment
      Related Property.
      In
      addition to the rights and remedies specified above, the following provisions
      shall also be applicable to Investment Related Property. Grantor recognizes
      that, by reason of certain prohibitions contained in the Securities Act of
      1933,
      as amended (the “Securities
      Act”)
      and
      applicable state securities laws, the Collateral Agent may be compelled, with
      respect to any sale of all or any part of the Investment Related Property
      conducted without prior registration or qualification of such Investment Related
      Property under the Securities Act and/or such state securities laws, to limit
      purchasers to those who will agree to, among other things, acquire the
      Investment Related Property for their own account, for investment and not with
      a
      view to the distribution or resale thereof. Grantor acknowledges that any such
      private sale may be at prices and on terms less favorable than those obtainable
      through a public sale without such restrictions (including a public offering
      made pursuant to a registration statement under the Securities Act) and,
      notwithstanding such circumstances, Grantor agrees that any such private sale
      shall be deemed to have been made in a commercially reasonable manner and that
      the Collateral Agent shall have no obligation to engage in public sales and
      no
      obligation to delay the sale of any Investment Related Property for the period
      of time necessary to permit the issuer thereof to register it for a form of
      public sale requiring registration under the Securities Act or under applicable
      state securities laws, even if such issuer would, or should, agree to so
      register it. If the Collateral Agent determines to exercise its right to sell
      any or all of the Investment Related Property, upon written request, Grantor
      shall and shall cause each issuer of any Pledged Stock to be sold hereunder,
      each partnership and each limited liability company from time to time to furnish
      to the Collateral Agent all such information as the Collateral Agent may request
      in order to determine the number and nature of interest, shares or other
      instruments included in the Investment Related Property which may be sold by
      the
      Collateral Agent in exempt transactions under the Securities Act and the rules
      and regulations of the Securities and Exchange Commission thereunder, as the
      same are from time to time in effect.

    


    (f)   Intellectual
      Property.
      In
      addition to the rights and remedies specified above, the following provisions
      shall also be applicable to Intellectual Property. 

    


    (i) Anything
      contained herein to the contrary notwithstanding, upon the occurrence and during
      the continuation of an Event of Default:

    



    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    


    (1) the
      Collateral Agent shall have the right (but not the obligation) to bring suit
      or
      otherwise commence any
      action or proceeding in the name of Grantor, the Collateral Agent or otherwise,
      in the Collateral Agent’s sole discretion, to enforce any Intellectual Property,
      in which event such Grantor shall, at the request of the Collateral Agent,
      do
      any and all lawful acts and execute any and all documents required by the
      Collateral Agent in aid of such enforcement and such Grantor shall promptly,
      upon demand, reimburse and indemnify the Collateral Agent as provided in the
      Section in this Agreement relating to indemnity and expenses in connection
      with the exercise of its rights under this Section, and, to the extent that
      the
      Collateral Agent shall elect not to bring suit to enforce any Intellectual
      Property as provided in this Section, Grantor agrees to use all reasonable
      measures, whether by action, suit, proceeding or otherwise, to prevent the
      infringement of any of the Intellectual Property by others and for that purpose
      agrees to diligently maintain any action, suit or proceeding against any Person
      so infringing as shall be necessary to prevent such infringement;

    


    (2) upon
      written demand from the Collateral Agent, Grantor shall grant, assign, convey
      or
      otherwise transfer to the Collateral Agent or such Collateral Agent’s designee
      all of such Grantor’s right, title and interest in and to the Intellectual
      Property and shall execute and deliver to the Collateral Agent such documents
      as
      are reasonably necessary or appropriate to carry out the intent and purposes
      of
      this Agreement; 

    


    (3) within
      five (5) Business Days after written notice from the Collateral Agent, Grantor
      shall make available to the Collateral Agent, to the extent within such
      Grantor’s power and authority, such personnel in such Grantor’s employ on the
      date of such Event of Default as the Collateral Agent may reasonably designate,
      by name, title or job responsibility, to permit such Grantor to continue,
      directly or indirectly, to produce, advertise and sell the products and services
      sold or delivered by such Grantor under or in connection with the Trademarks,
      Trademark Licenses, such persons to be available to perform their prior
      functions on the Collateral Agent’s behalf and to be compensated by the
      Collateral Agent at such Grantor’s expense on a per diem, pro-rata basis
      consistent with the salary and benefit structure applicable to each as of the
      date of such Event of Default.

    


    (ii) Solely
      for the purpose of enabling the Collateral Agent to exercise rights and remedies
      under this Section 8(f)(ii)
      and at
      such time as the Collateral Agent shall be lawfully entitled to exercise such
      rights and remedies, Grantor hereby grants to the Collateral Agent, to the
      extent it has the right to do so, an irrevocable, nonexclusive worldwide license
      (exercisable without payment of royalty or other compensation to such Grantor),
      subject, in the case of Trademarks, to sufficient rights to quality control
      and
      inspection in favor of the Trademark Owner to avoid the risk of invalidation
      of
      said Trademarks, to use, operate under, license, or sublicense any Intellectual
      Property now or hereafter owned by or licensed to such Grantor.

    Section
      9.   COLLATERAL
      AGENT 

    



    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    


    The
      Collateral Agent has been appointed to act as Collateral Agent hereunder by
      each
      Secured Party by their acceptance of the benefits hereof. The Collateral Agent
      shall be obligated, and shall have the right hereunder, to make demands, to
      give
      notices, to exercise or refrain from exercising any rights, and to take or
      refrain from taking any action (including, without limitation, the release
      or
      substitution of Collateral), solely in accordance with this Agreement and the
      Securities Purchase Agreement. Without the written consent of the Collateral
      Agent, no amendment, modification, termination, or consent shall be effective
      if
      the effect thereof would release all or substantially all of the Collateral
      except as expressly provided herein. In furtherance of the foregoing provisions
      of this Section, each Secured Party, by its acceptance of the benefits hereof,
      agrees that it shall have no right individually to realize upon any of the
      Collateral hereunder, it being understood and agreed by such Secured Party
      that
      all rights and remedies hereunder may be exercised solely by the Collateral
      Agent for the benefit of each Secured Party in accordance with the terms of
      this
      Section. Collateral Agent may resign at any time by giving thirty (30) days’
prior written notice thereof to each Secured Party and Grantor, and Collateral
      Agent may be removed at any time with or without cause by an instrument or
      concurrent instruments in writing delivered to Grantor and Collateral Agent
      signed by the parties holding more than 50% of the Secured Obligations (the
      “Requisite Parties”). Upon any such notice of resignation or any such removal,
      Requisite Parties shall have the right, upon five (5) Business Days’ notice to
      the Collateral Agent, following receipt of Grantor’s consent
      (which shall not be unreasonably withheld or delayed and which shall not be
      required while an Event of Default exists), to appoint a successor Collateral
      Agent. Upon the acceptance of any appointment as Collateral Agent hereunder
      by a
      successor Collateral Agent, that successor shall become Collateral Agent under
      this Agreement, and such successor Collateral Agent shall thereupon succeed
      to
      and become vested with all the rights, powers, privileges and duties of the
      retiring or removed Collateral Agent under this Agreement, and the retiring
      or
      removed Collateral Agent under this Agreement shall promptly (i) transfer to
      such successor Collateral Agent all sums, Securities and other items of
      Collateral held hereunder, together with all records and other documents
      necessary or appropriate in connection with the performance of the duties of
      the
      successor Collateral Agent under this Agreement, and (ii) execute and deliver
      to
      such successor Collateral Agent such amendments to financing statements, and
      take such other actions, as may be necessary or appropriate in connection with
      the assignment to such successor Collateral Agent of the security interests
      created hereunder, whereupon such retiring or removed Collateral Agent shall
      be
      discharged from its duties and obligations under this Agreement. After any
      retiring or removed Collateral Agent’s resignation or removal hereunder as the
      Collateral Agent, the provisions of this Agreement shall inure to its benefit
      as
      to any actions taken or omitted to be taken by it under this Agreement while
      it
      was the Collateral Agent hereunder.

     

    Section
      10.   CONTINUING
      SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS

    


    This
      Agreement shall create a continuing security interest in the Collateral and
      shall remain in full force and effect until the payment in full of all Secured
      Obligations, the cancellation or termination of the commitments and any other
      contingent obligation included in the Secured Obligations, be binding upon
      Grantor, its successors and assigns, and inure, together with the rights and
      remedies of the Collateral Agent and the Secured Parties hereunder, to the
      benefit of each of the Secured Parties and the Collateral Agent and its
      successors, transferees and assigns. Without limiting the generality of the
      foregoing, but subject to the terms of the Loan Documents, each Secured Party
      may assign or otherwise transfer any Secured Obligations held by it to any
      other
      Person, and such other Person shall thereupon become vested with all the
      benefits in respect thereof granted to each Secured Party herein or otherwise.
      Upon the payment in full of all Secured Obligations, the cancellation or
      termination of the commitments and any other contingent obligation included
      in
      the Secured Obligations, the security interest granted hereby shall terminate
      hereunder and of record and all rights to the Collateral shall revert to
      Grantors. Upon any such termination the Collateral Agent shall, at Grantor’s
      expense, execute and deliver to Grantor such
      documents as Grantor shall reasonably request to evidence such termination.
      


    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    


    


    Section
      11.   STANDARD
      OF CARE; COLLATERAL AGENT MAY PERFORM.  

    


    The
      powers conferred on the Collateral Agent hereunder are solely to protect its
      interest in the Collateral and the interests of the Secured Parties and shall
      not impose any duty upon it to exercise any such powers. Except for the exercise
      of reasonable care in the custody of any Collateral in its possession and the
      accounting for moneys actually received by it hereunder, the Collateral Agent
      shall have no duty as to any Collateral or as to the taking of any necessary
      steps to preserve rights against prior parties or any other rights pertaining
      to
      any Collateral. The Collateral Agent shall be deemed to have exercised
      reasonable care in the custody and preservation of Collateral in its possession
      if such Collateral is accorded treatment substantially equal to that which
      the
      Collateral Agent accords its own property. Neither the Collateral Agent nor
      any
      of its directors, officers, employees or agents shall be liable for failure
      to
      demand, collect or realize upon all or any part of the Collateral or for any
      delay in doing so or shall be under any obligation to sell or otherwise dispose
      of any Collateral upon the request of Grantor or otherwise. If Grantor fails
      to
      perform any agreement contained herein, the Collateral Agent may itself perform,
      or cause performance of, such agreement, and the expenses of the Collateral
      Agent incurred in connection therewith shall be payable by Grantor and pending
      such payment shall be included in the obligations secured hereby. 

     

    Section
      12.   INDEMNITY
      AND EXPENSES.

    


    (a)   Indemnity.
      Grantor
      agrees:

    


    (i) to
      defend
      (subject to Indemnitees’ selection of counsel), indemnify, pay and hold harmless
each
      Indemnitee, from and against any and all claims, losses and liabilities in
      any
      way relating to, growing out of or resulting from this Agreement and the
      transactions contemplated hereby and by the other Loan Documents (including
      without limitation enforcement of this Agreement and the other Loan Documents),
      except to the extent such claims, losses or liabilities result from such
      Indemnitee’s gross negligence or willful misconduct; and

    


    (ii) to
      pay to
      the Collateral Agent promptly following written demand the amount of any and
      all
      reasonable costs and reasonable expenses as set forth in this
      Agreement.

    


    (b)   Expenses.
      Grantor
      agrees to pay promptly all the actual costs and reasonable expenses of creating
      and perfecting Liens in favor of Collateral Agent, for the benefit of each
      Secured Party pursuant hereto, including search, filing and recording fees,
      expenses and taxes, stamp or documentary taxes, search fees,
      title insurance premiums and reasonable fees, expenses and disbursements of
      counsel to Collateral Agent and of counsel providing any opinions that
      Collateral Agent may request in respect of the Collateral or the Liens created
      pursuant to the Collateral Documents; all the actual costs and reasonable fees,
      expenses and disbursements of any auditors, accountants, consultants or
      appraisers; all the actual costs and reasonable expenses (including the
      reasonable fees, expenses and disbursements of any appraisers, consultants,
      advisors and agents employed or retained by Collateral Agent and its counsel)
      in
      connection with the custody or preservation of any of the Collateral; and after
      the occurrence of an Event of Default, all costs and expenses, including
      reasonable attorneys’ fees (including allocated costs of internal counsel) and
      costs of settlement, incurred by Collateral Agent in enforcing any Secured
      Obligations of or in collecting any payments due from Grantor hereunder or
      under
      the other Loan Documents by reason of such Event of Default (including in
      connection with the sale of, collection from, or other realization upon any
      of
      the Collateral) or in connection with any refinancing or restructuring of the
      credit arrangements provided hereunder in the nature of a “work-out” or pursuant
      to any insolvency or bankruptcy cases or proceedings.


    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    


    (c)   Survival.
      The
      obligations of Grantor in this Section 12 shall
      survive the termination of this Agreement and the discharge of such Grantor’s
      other obligations under this Agreement, the Securities Purchase Agreement and
      any other Loan Document.

     

    Section
      13.   MISCELLANEOUS.

    


    (a)   Notices.
      Unless
      otherwise specifically provided herein, any notice or other communication herein
      required or permitted to be given to Grantor or Collateral Agent, shall be
      sent
      to such Person’s address as set forth in the Securities Purchase Agreement or in
      the other relevant Loan Document. Each notice hereunder shall be in writing
      and
      may be personally served, telexed or sent by telefacsimile or United States
      mail
      or courier service and shall be deemed to have been given when delivered in
      person or by courier service and signed for against receipt thereof, upon
      receipt of telefacsimile or telex, or three Business Days after depositing
      it in
      the United States mail with postage prepaid and properly addressed; provided,
      no
      notice to Collateral Agent shall be effective until received by Collateral
      Agent.

    


    (b)   Amendments
      and Waivers.
      

    


    (i) Collateral
      Agent’s Consent.
      Subject
      to Section 9,
      no
      amendment, modification, termination or waiver of any provision of this
      Agreement, or consent to any departure by Grantor therefrom, shall in any event
      be effective without the written concurrence of the Collateral
      Agent.

    


    (ii) No
      Waiver; Remedies Cumulative.
      No
      failure or delay on the part of the Collateral Agent in the exercise of any
      power, right or privilege hereunder or under any other Loan Document shall
      impair such power, right or privilege or be construed to be a waiver of any
      default or acquiescence therein, nor shall any single or partial exercise of
      any
      such power, right or privilege preclude other or further exercise thereof or
      of
      any other power, right or privilege. All rights, powers and remedies existing
      under this Agreement and the other Loan Documents are cumulative, and not
      exclusive of, any rights or remedies otherwise available. Any forbearance or
      failure to exercise, and any delay in exercising, any right, power or remedy
      hereunder shall not impair any such right, power or remedy or be construed
      to be
      a waiver thereof, nor shall it preclude the further exercise of any such right,
      power or remedy.

    


    (c)   Successors
      and Assigns.
      This
      Agreement shall be binding upon the parties hereto and their respective
      successors and assigns including all persons who become bound as debtor to
      this
      Agreement. Grantor shall not, without the prior written consent of the
      Collateral Agent, assign any right, duty or obligation hereunder.

    


    (d)   Independence
      of Covenants.
      All
      covenants hereunder shall be given independent effect so that if a particular
      action or condition is not permitted by any of such covenants, the fact that
      it
      would be permitted by an exception to, or would otherwise be within the
      limitations of, another covenant shall not avoid the occurrence of an Event
      of
      Default if such action is taken or condition exists.

    


    (e)   Survival
      of Representations, Warranties and Agreements.
      All
      representations, warranties and agreements made herein shall survive the
      execution and delivery hereof. Notwithstanding anything herein or implied by
      law
      to the contrary, the agreements of Grantor set forth in Sections
      11
      and
12
      shall
      survive the payment of the Secured Obligations and the termination of this
      Agreement.


    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    


    (f)   Marshalling;
      Payments Set Aside.
      Collateral Agent shall not be under any obligation to marshal any assets in
      favor of Grantor or any other Person or against or in payment of any or all
      of
      the Secured Obligations. 

    


    (g)   Severability.
      In case
      any provision in or obligation hereunder shall be invalid, illegal or
      unenforceable in any jurisdiction, the validity, legality and enforceability
      of
      the remaining provisions or obligations, or of such provision or obligation
      in
      any other jurisdiction, shall not in any way be affected or impaired
      thereby.

    


    (h)   Headings.
      Section headings herein are included herein for convenience of reference
      only and shall not constitute a part hereof for any other purpose or be given
      any substantive effect.

    


    (i)   APPLICABLE
      LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
      SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
      THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

    


    (j)   CONSENT
      TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT
      OF
      OR RELATING HERETO OR ANY OTHER LOAN DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY
      BE
      BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE,
      COUNTY AND CITY OF LOS ANGELES. BY EXECUTING AND DELIVERING THIS AGREEMENT,
      GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY ACCEPTS
      GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH
      COURTS; WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; AGREES THAT SERVICE OF
      ALL
      PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED
      OR
      CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED
      IN
      ACCORDANCE WITH THIS SECTION 13;
      AGREES
      THAT SUCH SERVICE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR
      IN
      ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE
      AND
      BINDING SERVICE IN EVERY RESPECT; AND AGREES COLLATERAL AGENT RETAINS THE RIGHT
      TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS
      AGAINST GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION.


    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    


    (k)   WAIVER
      OF JURY TRIAL.
      EACH OF
      THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
      OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY
      OF
      THE OTHER LOAN DOCUMENTS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
      ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
      THAT
      RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS,
      TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY
      CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT
      TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS
      WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY
      ON
      THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS
      AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND
      THAT
      IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
      WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
      MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
      SPECIFICALLY REFERRING TO THIS SECTION 13(K)
      AND
      EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
      SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO. IN THE
      EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
      TRIAL
      BY THE COURT.

    


    (l)   Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which when
      so
      executed and delivered shall be deemed an original, but all such counterparts
      together shall constitute but one and the same instrument.

    


    (m)   Effectiveness.
      This
      Agreement shall become effective upon the execution of a counterpart hereof
      by
      each of the parties hereto and receipt by Grantor and the Collateral Agent
      of
      written or telephonic notification of such execution and authorization of
      delivery thereof. 

    


    (n)   Entire
      Agreement.
      This
      Agreement and the other Loan Documents embody the entire agreement and
      understanding between Grantor and the Collateral Agent and supersede all prior
      agreements and understandings between such parties relating to the subject
      matter hereof and thereof. Accordingly, the Loan Documents may not be
      contradicted by evidence of prior, contemporaneous or subsequent oral agreements
      of the parties. There are no unwritten oral agreements between the
      parties.

    



    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF,
      Grantor
      and the Collateral Agent have caused this Agreement to be duly executed and
      delivered by their respective officers thereunto duly authorized as of the
      date
      first written above.

    


    “GRANTOR”

    


    VIKING
      SYSTEMS, INC.

    


    


    By:
      ___________________________________

    Name:
      

    Title:
      

    


    “COLLATERAL
      AGENT” and a “SECURED PARTY” 

    


    ST.
      CLOUD CAPITAL PARTNERS, L.P.

    as
      the
      Collateral Agent and a Secured Party

    


    By: SCGP,
      LLC

    Its:
      General Partner

    


    


    By:
      ___________________________________

    Name:
      Cary S. Fitchey

    Title:
      Senior Managing Member

    



    
      
        
          


        

        
        

      

      
        42

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE I

    TO
      SECURITY AGREEMENT

    GENERAL
      INFORMATION

    (a) Full
      Legal Name, Type of Organization, Jurisdiction of Organization, Chief Executive
      Office/Sole Place of Business (or Residence if Grantor is a Natural Person)
      and
      Organizational Identification Number of Grantor:

     

    
      	
              Full
                Legal Name

            	
              Type
                of Organization

            	
              Jurisdiction
                of Organization

            	
              Chief
                Executive Office/Sole Place of Business (or Residence if Grantor
                is a
                Natural Person)

            	
              Organization
                I.D.#

            
	 	 	 	 	 


    

    


    


    (b) Other
      Names (including any Trade-Name or Fictitious Business Name) under which Grantor
      has conducted business for the past five (5) years: 

    


    


    
      	
              Full
                Legal Name

            	
              Trade
                Name or Fictitious Business Name

            
	 	 


    

    


    


    (c) Changes
      in Name, Jurisdiction of Organization, Chief Executive Office or Sole Place
      of
      Business (or Principal Residence if Grantor is a Natural Person) and Corporate
      Structure within past five (5) years:

    


    
      	
              Name
                of Grantor

            	
              Date
                of Change

            	
              Description
                of Change

            
	 	 	 


    

    


    


    (d) Agreements
      pursuant to which Grantor is found as debtor within past five (5)
      years:

     

    
      	
              Name
                of Grantor

            	
              Description
                of Agreement

            
	 	 


    

     

    (e)
      Financing
      Statements:

     

    


    
      	
              Name
                of Grantor

            	
              Filing
                Jurisdiction(s)

            
	 	 


    

    



    
      
        
          


        

        
        

      

      
        S-I-1

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE II

    TO
      SECURITY AGREEMENT

    LOCATION
      OF EQUIPMENT AND INVENTORY

    
      	
              Name
                of Grantor

            	
              Location
                of Equipment and Inventory

            
	 	 


    

    


    


    


    



    
      
        
          


        

        
        

      

      
        S-II-1

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE III

    TO
      SECURITY AGREEMENT

    INVESTMENT
      RELATED PROPERTY

    Pledged
      Stock:

    
      	
              Grantor

            	
              Stock
                Issuer

            	
              Class
                of Stock

            	
              Certificated
                (Y/N)

            	
              Stock
                Certificate No.

            	
              Par
                Value

            	
              No.
                of Pledged Stock

            	
              %
                of Outstanding Stock of the Stock Issuer

            
	 	 	 	 	 	 	 	 


    

    


    


    Pledged
      LLC Interests:

    
      	
              Grantor

            	
              Limited
                Liability Company

            	
              Certificated
                (Y/N)

            	
              Certificate
                No. (if any)

            	
              No.
                of Pledged Units

            	
              %
                of Outstanding LLC Interests of the Limited Liability
                Company

            
	 	 	 	 	 	 


    

    


    


    Pledged
      Partnership Interests:

    
      	
              Grantor

            	
              Partnership

            	
              Type
                of Partnership Interests (e.g., general or
                limited)

            	
              Certificated
                (Y/N)

            	
              Certificate
                No.(if any)

            	
              %
                of Outstanding Partnership Interests of the
                Partnership

            
	 	 	 	 	 	 


    

    


    


    Pledged
      Trust Interests:

    


    
      	
              Grantor

            	
              Trust

            	
              Class
                of Trust Interests

            	
              Certificated
                (Y/N)

            	
              Certificate
                No.(if any)

            	
              %
                of Outstanding Trust Interests of the Trust

            
	 	 	 	 	 	 


    

    


    



    
      
        
        

      

      
        S-III-1

        
          

        

      

      
        
        

      

    


    


    


    Pledged
      Debt:

    
      	
              Grantor

            	
              Issuer

            	
              Original
                Principal Amount

            	
              Outstanding
                Principal Balance

            	
              Issue
                Date

            	
              Maturity
                Date

            
	 	 	 	 	 	 


    

    


    


    Securities
      Account:

    
      	
              Grantor

            	
              Share
                of Securities Intermediary

            	
              Account
                Number

            	
              Account
                Name

            
	 	 	 	 


    

    


    


    Commodities
      Accounts:

    
      	
              Grantor

            	
              Name
                of Commodities Intermediary

            	
              Account
                Number

            	
              Account
                Name

            
	 	 	 	 


    

    


    


    Deposit
      Accounts:

    
      	
              Grantor

            	
              Name
                of Depositary Bank

            	
              Account
                Number

            	
              Account
                Name

            
	 	 	 	 


    

    


    (B)

    


    
      	
              Name
                of Grantor

            	
              Date
                of Acquisition

            	
              Description
                of Acquisition

            
	 	 	 


    

    


     


    
      
        
          


        

        
        

      

      
        S-III-2

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE IV

    TO
      SECURITY AGREEMENT

    MATERIAL
      CONTRACTS

    
      	
              Name
                of Grantor

            	
              Description
                of Material Contract

            
	 	 


    

    


    


    



    
      
        
          


        

        
        

      

      
        S-IV-1

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE V

    TO
      SECURITY AGREEMENT

    LETTERS
      OF CREDIT

    
      	
              Name
                of Grantor

            	
              Description
                of Letters of Credit

            
	 	 


    

    


    


    



    
      
        
          


        

        
        

      

      
        S-V-1

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE VI

    TO
      SECURITY AGREEMENT

    INTELLECTUAL
      PROPERTY

    (A) Copyrights

    (B) Copyright
      Licenses

    (C) Patents

    (D) Patent
      Licenses

    (E) Trademarks

    (F) Trademark
      Licenses

    (G) Trade
      Secret Licenses 

    (H) Intellectual
      Property Matters

     

    



    
      
        
          


        

        
        

      

      
        S-VI-1

        
          

        

      

      
        
        

        
          


        

      

    



    


    SCHEDULE VII

    TO
      SECURITY AGREEMENT

    COMMERCIAL
      TORT CLAIMS

    
      	
              Name
                of Grantor

            	
              Commercial
                Tort Claims

            
	 	 


    

    


    


    



    
      
        
          


        

        
        

      

      
        S-VII-1

        
          

        

      

      
        
        

        
          


        

      

    



    


    EXHIBIT
      A

    


    PLEDGE
      SUPPLEMENT

    


    This
      PLEDGE
      SUPPLEMENT,
      dated
________
      ,
      is
      delivered by [NAME
      OF GRANTOR OR GRANTORS]
      a
[NAME
      OF STATE OF INCORPORATION] [Corporation]
      (the
      “Grantor”) pursuant to the Security Agreement, dated as of ___________ ___, 2005
      (as it may be from time to time amended, restated, modified or supplemented,
      the
“Security Agreement”), among [NAME
      OF COMPANY],
      the
      other Grantors named therein, and St. Cloud Capital Partners, L.P., as the
      Collateral Agent. Capitalized terms used herein not otherwise defined herein
      shall have the meanings ascribed thereto in the Security Agreement.


    


    Grantor
      hereby confirms the grant to the Collateral Agent set forth in the Security
      Agreement of, and does hereby grant to the Collateral Agent, a security interest
      in all of such Grantor’s right, title and interest in and to all Investment
      Related Property and Letter of Credit Rights including, without limitation,
      those specified on the Schedule attached hereto and agrees that such attached
      schedule shall supplement and become a part of Schedule [III][V] to the Security
      Agreement. Grantor represents and warrants that the attached Schedule is a
      true
      and correct list of all [Investment Related Property][Letter of Credit Rights]
      in which it has rights and that it has complied with all provisions of the
      Security Agreement relating thereto and that the Collateral Agent has a valid,
      perfected first priority security interest therein. 

    


    IN
      WITNESS WHEREOF,
      New
      Grantor has caused this Pledge Supplement to be duly executed and delivered
      by
      its duly authorized officer as of _________.

    


    [NAME
      OF GRANTOR]

    


    


    By:
      _____________________________

    Name:

    Title:

    



    
      
        
          


        

        
        

      

      
        EXHIBIT
          A-1

        
          

        

      

      
        
        

        
          


        

      

    



    EXHIBIT
      B

    


    JOINDER
      AGREEMENT

     

    This
      JOINDER AGREEMENT, dated ______,
      is
      delivered by [NAME
      OF NEW GRANTOR]
      a
[NAME
      OF STATE OF INCORPORATION] [corporation]
      (the
“New
      Grantor”) pursuant to the Security Agreement, dated as of _________ __, 2005 (as
      it may be from time to time amended, restated, modified or supplemented, the
      “Security Agreement”), among Viking Systems, Inc., the other Grantors named
      therein, and St. Cloud Capital Partners, L.P., as the Collateral Agent.
      Capitalized terms used herein not otherwise defined herein shall have the
      meanings ascribed thereto in the Security Agreement. 

    


    New
      Grantor hereby confirms the grant to the Collateral Agent set forth in the
      Security Agreement of, and does hereby grant to the Collateral Agent, a security
      interest in all of New Grantor’s right, Title and interest in and to all
      Collateral to secure the Secured Obligations [and
      SPECIFY ANY NEW OBLIGATIONS TO BE SECURED, E.G. NEW
      GUARANTEES],
      in each
      case whether now or hereafter existing or in which New Grantor now has or
      hereafter acquires an interest and wherever the same may be located. From and
      after the date hereof, New Grantor shall be a “Grantor” for all purposes of the
      Security Agreement. New Grantor hereby makes all of the representations and
      warranties set forth in the Security Agreement. New Grantor represents and
      warrants that the attached Supplements to Schedules accurately and completely
      set forth all additional information required pursuant to the Security Agreement
      and hereby agrees that such Supplements to Schedules shall constitute part
      of
      the Schedules to the Security Agreement.

    


    IN
      WITNESS WHEREOF,
      New
      Grantor has caused this Joinder Agreement to be duly executed and delivered
      by
      its duly authorized officer as of ______.

    


    [NAME
      OF NEW GRANTOR]

    


    


    By:
      _____________________________

    Name:

    Title:

    


     

     

    
      
        
        

      

      
        Appendix
          B-2