OF ACCOUNT, BUSINESS PAPERS, COMPUTER
PROGRAMS AND THE PRODUCTS AND PROCEEDS OF ALL OF THE FOREGOING COLLATERAL SET
FORTH IN CLAUSES (I)-(IV) ABOVE.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, AT THE TIME OF
CLOSING OF THE MIA TRANSACTION, THE TERM "COLLATERAL" SHALL NO LONGER INCLUDE
THE EQUIPMENT NEEDED TO MANUFACTURE/ASSEMBLE THE ONQ AEROSOL GENERATOR, AS
SPECIFICALLY SET FORTH ON SCHEDULE B HERETO, ALL OF WHICH ARE TO BE CONVEYED
PURSUANT TO BORROWER'S AGREEMENT WITH MEDICAL INDUSTRIES AMERICA, INC.
CONSISTENT WITH THE TERM SHEET SIGNED ON AUGUST 15, 2003 (COLLECTIVELY, THE "MIA
ASSETS").
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THE FOREGOING, THE GRANT OF A
SECURITY INTEREST AS PROVIDED HEREIN SHALL NOT EXTEND TO, AND THE TERM
"COLLATERAL" SHALL NOT INCLUDE: TO THE EXTENT SUCH EXCLUSION DOES NOT RESULT IN
A MATERIAL ADVERSE EFFECT (AS DEFINED IN THE LOAN AGREEMENT), ANY IMMATERIAL
CONTRACT, INSTRUMENT OR CHATTEL PAPER IN WHICH THE BORROWER HAS ANY RIGHT, TITLE
OR INTEREST IF AND TO THE EXTENT SUCH CONTRACT, INSTRUMENT OR CHATTEL PAPER
INCLUDES A PROVISION CONTAINING A RESTRICTION ON ASSIGNMENT SUCH THAT THE
CREATION OF A SECURITY INTEREST IN THE RIGHT, TITLE OR INTEREST OF THE BORROWER
THEREIN WOULD BE PROHIBITED AND WOULD, IN AND OF ITSELF, CAUSE OR RESULT IN A
DEFAULT THEREUNDER ENABLING ANOTHER PERSON PARTY TO SUCH CONTRACT, INSTRUMENT OR
CHATTEL PAPER TO ENFORCE ANY REMEDY WITH RESPECT THERETO.
2
(C)
"OBLIGATIONS" MEANS ALL OF THE BORROWER'S
OBLIGATIONS UNDER THIS AGREEMENT AND THE DEBENTURES, IN EACH CASE, WHETHER NOW
OR HEREAFTER EXISTING, VOLUNTARY OR INVOLUNTARY, DIRECT OR INDIRECT, ABSOLUTE OR
CONTINGENT, LIQUIDATED OR UNLIQUIDATED, WHETHER OR NOT JOINTLY OWED WITH OTHERS,
AND WHETHER OR NOT FROM TIME TO TIME DECREASED OR EXTINGUISHED AND LATER
INCREASED, CREATED OR INCURRED, AS SUCH OBLIGATIONS MAY BE AMENDED,
SUPPLEMENTED, CONVERTED, EXTENDED OR MODIFIED FROM TIME TO TIME PURSUANT TO THE
TERMS OF THIS AGREEMENTS OR THE DEBENTURES, AS APPLICABLE.
(D)
"PERMITTED INDEBTEDNESS" MEANS:
(I)
INDEBTEDNESS OF BORROWER IN FAVOR OF THE
SECURED PARTIES ARISING UNDER THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT;
(II)
EXISTING INDEBTEDNESS OF THE BORROWER
OWING TO SF CAPITAL PARTNERS, LTD. ("SF CAPITAL") PURSUANT TO THAT CERTAIN LOAN
AND SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 5, 2003, BETWEEN THE
BORROWER AND SF CAPITAL ("SF CAPITAL LOAN AGREEMENT"), AS EVIDENCED BY THAT
CERTAIN SECURED CONVERTIBLE DEBENTURES, DUE DECEMBER 31, 2003, ISSUED BY THE
BORROWER IN FAVOR OF SF CAPITAL IN THE AGGREGATE PRINCIPAL AMOUNT OF UP TO
$2,000,000, AND THE OTHER TRANSACTION DOCUMENTS (AS DEFINED IN THE SF CAPITAL
LOAN AGREEMENT);
(III)
EXISTING INDEBTEDNESS AS SET FORTH IN THE
BORROWER'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002 (INCLUDING ANY EXTENSIONS OR RENEWALS THEREOF, PROVIDED, THERE IS NO
INCREASE IN THE PRINCIPAL AMOUNT THEREOF OR OTHER SIGNIFICANT CHANGE IN THE
TERMS THEREOF);
(IV)
SUBORDINATED DEBT IN AN AGGREGATE PRINCIPAL
AMOUNT WHICH DOES NOT EXCEED $1,000,000, PROVIDED, THAT IT SHALL BE A
PRECONDITION OF THE LENDERS' CONSENT TO SUCH DEBT THAT THE BORROWER AND THE
LENDER