Document:

Exhibit 10.3

                                                                 1585 Broadway
                                                            New York, NY 10036

[Morgan Stanley]
[Logo Omitted]

                                                                 June 30, 2005

                       Re: 2005 Fiscal Year Compensation
                           -----------------------------

Dear David:

            In light of your key role with Morgan Stanley (the "Company") and
in order to mitigate the uncertainties that you may be experiencing regarding
your future with the Company, the Company wishes to offer you the following
arrangement regarding your compensation for the Company's 2005 fiscal year
(the "Agreement").

            Subject to your continued employment with the Company through
October 15, 2005, the Company hereby agrees that the aggregate of the annual
base salary, annual bonus and long-term incentive compensation (the "Total
Compensation") payable to you by the Company with respect to the Company's
2005 fiscal year shall be at least equal to $10,500,000 (the "Target
Compensation Amount"). Amounts are payable in cash if employment terminates
prior to payment date.

            Notwithstanding the foregoing, in the event that, prior to the
time at which the full amount of your Total Compensation is paid to you with
respect to the Company's 2005 and 2006 fiscal years, your employment with the
Company is terminated by the Company without Cause (as defined below) or you
resign for Good Reason (as defined below), subject to your execution and
non-revocation of the Company's standard form of settlement and release
agreement, you shall be entitled to payment of two times the Target
Compensation Amount in cash (less any amount of such compensation already paid
to you) at such time as the components of Total Compensation would have been
paid to you had you remained employed by the Company through the date on which
such amounts would otherwise have been paid to you.

            In addition, all of the equity awards set forth on Exhibit A
hereto will continue to vest, notwithstanding the original terms of such
grants. The Company will also provide you with continued medical coverage for
12 months after your termination date at the employee rate, after which the
Company will provide you with COBRA benefits.

            For purposes of this Agreement, "Cause" means: (a) your willful
engaging in illegal or fraudulent conduct or gross misconduct which, in each
case, is materially and demonstrably injurious to the Company, or to any
clients or customers of the Company, or either of their respective
reputations, (b) your conviction of a felony or guilty or nolo contendere plea
with respect thereto, or (c) a violation in any material respect of any
policies of the Company applicable to you which is materially and demonstrably
injurious to the Company. For purposes of this Agreement, "Good Reason" means,
without your prior written consent: (i) the relocation of your place of
employment to a location more than 50 miles from your place of employment on
the date hereof, (ii) a material reduction in your duties or authorities from
those in effect on June 24, 2005, or (iii) failure to timely pay or provide to
you any portion of the Target Compensation Amount. Notwithstanding the
foregoing, you will not be considered to have Good Reason to terminate your
employment under this Agreement unless and until you provide the Company with
written notice of the circumstances con-

<PAGE>

[Morgan Stanley]
[Logo Omitted]

stituting the Good Reason and the Company fails to have cured such
circumstances within 30 business days of receipt of such notice.

            You and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between you and Parent or the
Company, your employment by Parent is "at will" and may be terminated by
either you or the Company and Parent at any time and for any reason.

            This Agreement shall be binding upon any successor of the Company
or its businesses (whether direct or indirect, by purchase, merger,
consolidation or otherwise), in the same manner and to the same extent that
the Company would be obligated under this letter if no succession had taken
place. The term "Company," as used in this Agreement, shall mean the Company
as hereinbefore defined and any successor or assignee to the business or
assets which by reason hereof becomes bound by this Agreement.

            This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without reference to its conflict of
law rules. All amounts and benefits hereunder are subject to withholding for
applicable income and payroll taxes or otherwise as required by law.

            We look forward to a very promising future with you at the
Company. In order to be eligible to receive these benefits, it is important
that you sign this Agreement and return it to Karen Jamesley as soon as
practicable.

                                    Very truly yours,

                                    By: /s/ Karen C. Jamesley
                                       ------------------------------

Accepted and Acknowledged:

/s/ David H. Sidwell
------------------------
Name: David H. Sidwell

Dated:  6/30/2005
        ----------

<PAGE>

                                                                     Exhibit A

                            EXECUTIVE COMPENSATION
-------------------------------------------------------------------------------
                               David H. Sidwell

<TABLE>
<CAPTION>

  Award                                                       Award Date    Award Type
  -----                                                       ----------    ----------
  <S>                                                         <C>           <C>
  2003 EICP Award upon hire - Replacement retention award      3/22/2004    Units and Options
  2003 EICP Award upon hire - Long-term retention award        3/22/2004    Units
  2004 EICMC Year-end award                                   12/14/2004    Units

</TABLE>EXHIBIT 10.1

                               SECURITY AGREEMENT
                               ------------------

                            LAURUS MASTER FUND, LTD.

                            INCENTRA SOLUTIONS, INC.

                             PWI TECHNOLOGIES, INC.

                                       and

                        STAR SOLUTIONS OF DELAWARE, INC.

                              Dated: June 30, 2005

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----

<S>      <C>                                                                                                   <C>
1.       General Definitions and Terms; Rules of Construction...................................................4

2.       Loan Facility..........................................................................................5

3.       Repayment of the Loans.................................................................................7

4.       Procedure for Loans....................................................................................8

5.       Interest and Payments..................................................................................8

6.       Security Interest......................................................................................9

7.       Representations, Warranties and Covenants Concerning the Collateral...................................10

8.       Payment of Accounts...................................................................................13

9.       Collection and Maintenance of Collateral..............................................................13

10.      Inspections and Appraisals............................................................................14

11.      Financial Reporting...................................................................................14

12.      Additional Representations and Warranties.............................................................15

13.      Covenants.............................................................................................26

14.      Further Assurances....................................................................................32

15.      Representations, Warranties and Covenants of Laurus...................................................32

16.      Power of Attorney.....................................................................................34

17.      Term of Agreement.....................................................................................35

18.      Termination of Lien...................................................................................35

19.      Events of Default.....................................................................................35

20.      Remedies..............................................................................................38

21.      Waivers...............................................................................................39

22.      Expenses..............................................................................................39

23.      Assignment By Laurus..................................................................................40

24.      No Waiver; Cumulative Remedies........................................................................40

25.      Application of Payments...............................................................................40
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                                              PAGE
                                                                                                              ----

<S>      <C>                                                                                                   <C>
26.      Indemnity.............................................................................................40

27.      Revival...............................................................................................41

28.      Borrowing Agency Provisions...........................................................................41

29.      Notices...............................................................................................42

30.      Governing Law, Jurisdiction and Waiver of Jury Trial..................................................43

31.      Limitation of Liability...............................................................................44

32.      Entire Understanding..................................................................................44

33.      Severability..........................................................................................44

34.      Survival .............................................................................................45

35.      Captions..............................................................................................45

35.      Counterparts; Telecopier Signatures...................................................................45

36.      Construction..........................................................................................45

37.      Publicity.............................................................................................45

38.      Joinder...............................................................................................45

39.      Legends...............................................................................................45
</TABLE>

                                       3
<PAGE>

                               SECURITY AGREEMENT

                  This  Security  Agreement  is made as of June 30,  2005 by and
among  LAURUS  MASTER  FUND,  LTD.,  a Cayman  Islands  corporation  ("LAURUS"),
INCENTRA SOLUTIONS (f/k/a Front Porch Digital,  Inc.) a Nevada corporation ("THE
PARENT"),  and each party listed on EXHIBIT A attached hereto (each an "ELIGIBLE
SUBSIDIARY" and collectively,  the "ELIGIBLE  SUBSIDIARIES") the Parent and each
Eligible Subsidiary, each a "Company" and collectively, the "Companies").

                                   BACKGROUND

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

                  Laurus  has  agreed  to make  such  advances  on the terms and
conditions set forth in this Agreement.

                                    AGREEMENT

                  NOW,  THEREFORE,  in consideration of the mutual covenants and
undertakings and the terms and conditions  contained herein,  the parties hereto
agree as follows:

                  1. GENERAL DEFINITIONS AND TERMS; RULES OF CONSTRUCTION.

                  (a)  GENERAL  DEFINITIONS.  Capitalized  terms  used  in  this
Agreement shall have the meanings assigned to them in ANNEX A.

                  (b)  ACCOUNTING  TERMS.  Any  accounting  terms  used  in this
Agreement which are not specifically defined shall have the meanings customarily
given  them in  accordance  with GAAP and all  financial  computations  shall be
computed,   unless  specifically   provided  herein,  in  accordance  with  GAAP
consistently applied.

                  (c) OTHER TERMS.  All other terms used in this  Agreement  and
defined in the UCC,  shall  have the  meaning  given  therein  unless  otherwise
defined herein.

                  (d) RULES OF CONSTRUCTION. All Schedules, Addenda, Annexes and
Exhibits  hereto or expressly  identified  to this  Agreement  are  incorporated
herein by reference and taken  together  with this  Agreement  constitute  but a
single agreement. The words "herein", "hereof" and "hereunder" or other words of
similar  import refer to this  Agreement  as a whole,  including  the  Exhibits,
Addenda,  Annexes and  Schedules  thereto,  as the same may be from time to time
amended, modified, restated or supplemented,  and not to any particular section,
subsection or clause  contained in this Agreement.  Wherever from the context it
appears  appropriate,  each term stated in either the  singular or plural  shall
include the  singular  and the plural,  and  pronouns  stated in the  masculine,
feminine or neuter  gender  shall  include the  masculine,  the feminine and the
neuter.  The  term  "or" is not  exclusive.  The term  "including"  (or any form
thereof)  shall not

                                       4
<PAGE>

be limiting or exclusive.  All  references  to statutes and related  regulations
shall include any amendments of same and any successor statutes and regulations.
All  references  in this  Agreement or in the  Schedules,  Addenda,  Annexes and
Exhibits  to  this  Agreement  to  sections,  schedules,  disclosure  schedules,
exhibits, and attachments shall refer to the corresponding sections,  schedules,
disclosure  schedules,  exhibits,  and attachments of or to this Agreement.  All
references to any instruments or agreements, including references to any of this
Agreement or the Ancillary Agreements shall include any and all modifications or
amendments  thereto  and any and all  extensions  or renewals  thereof.

                  2. LOAN FACILITY.

                  (a) LOANS.

         Subject  to the  terms  and  conditions  set  forth  herein  and in the
Ancillary Agreements, Laurus may make loans (the "LOANS") to Companies from time
to time during the Term which,  in the aggregate at any time  outstanding,  will
not exceed the lesser of (x) (I) the Capital Availability Amount minus (II) such
reserves as Laurus may  reasonably  in its good faith  judgment  deem proper and
necessary from time to time (the  "RESERVES") and (y) an amount equal to (I) the
Accounts  Availability  minus (II) the Reserves.  The amount derived at any time
from Section  2(a)(y)(I) minus  2(a)(y)(II) shall be referred to as the "FORMULA
AMOUNT." The  Companies  shall,  jointly and  severally,  execute and deliver to
Laurus on the  Closing  Date the  Revolving  Note and a Minimum  Borrowing  Note
evidencing the Loans funded on the Closing Date.  From time to time  thereafter,
the  Companies  shall  jointly  and  severally  execute  and  deliver  to Laurus
immediately prior to the final funding of each additional  $3,000,000 tranche of
Loans  allocated  to any Minimum  Borrowing  Note  issued  after the date hereof
(calculated on a cumulative  basis for each such tranche) an additional  Minimum
Borrowing Note evidencing such tranche, substantially in the form of the Minimum
Borrowing  Note  delivered  by the  Companies  to  Laurus on the  Closing  Date.
Notwithstanding  anything  herein to the contrary,  whenever during the Term the
outstanding balance on the Minimum Borrowing Note shall be less than the Minimum
Borrowing  Amount  (such amount  being  referred to herein as the  "TRANSFERABLE
AMOUNT") to the extent that the outstanding balance on the Revolving Note should
equal or exceed  $1,000,000,  that portion of the balance of the Revolving  Note
that exceeds $1,000,000,  but does not exceed the Transferable  Amount, shall be
segregated from the  outstanding  balance under the Revolving Note and allocated
to and aggregated with the then existing balance of the next unissued serialized
Minimum  Borrowing Note (the  "UNISSUED  SERIALIZED  NOTE");  provided that such
segregated  amount  shall  remain  subject to the terms and  conditions  of such
Revolving  Note until a new serialized  Minimum  Borrowing Note is issued as set
forth below.  The next Unissued  Serialized Note shall remain in book entry form
until the balance  thereunder shall equal the Minimum Borrowing Amount, at which
time a new  serialized  Minimum  Borrowing  Note in the face amount equal to the
Minimum  Borrowing  Amount  will be issued  and  registered  as set forth in the
Registration  Rights Agreement (and the outstanding  balance under the Revolving
Note shall at such time be  correspondingly  reduced in the amount  equal to the
Minimum  Borrowing  Amount as a result of the  issuance  of such new  serialized
Minimum Borrowing Note). The fixed conversion price of each Unissued  Serialized
Note shall be set at the greater of the fixed conversion price applicable to the
note principal being transferred to this Unissued Serialized Note or one hundred
fifteen  percent (115%) of the average closing price of the Common Stock for the
ten (10)  trading  days  immediately  prior to the date of  issuance of such

                                       5
<PAGE>

new Serialized  Minimum  Borrowing Note.  Notwithstanding  the foregoing,  in no
event shall the Company be required to register  more than an  aggregate  of two
(2) Minimum Borrowing Notes without its express prior written consent.

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

                           (ii) The Companies  acknowledge  that the exercise of
Laurus' discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance  percentages used in determining  Accounts
Availability  and each of the Companies  hereby consent to any such increases or
decreases which may limit or restrict advances requested by the Companies.

                           (iii) If any interest, fees, costs or charges payable
to Laurus  hereunder are not paid when due, each of the Companies  shall thereby
be deemed to have requested,  and Laurus is hereby  authorized at its discretion
to make and  charge  to the  Companies'  account,  a Loan as of such  date in an
amount equal to such unpaid interest, fees, costs or charges.

                           (iv) If any  Company  at any time fails to perform or
observe  any of the  covenants  contained  in this  Agreement  or any  Ancillary
Agreement,  Laurus may, but need not, perform or observe such covenant on behalf
and in the name,  place and stead of such  Company  (or, at Laurus'  option,  in
Laurus' name) and may, but need not, take any and all other actions which Laurus
may deem  necessary to cure or correct such  failure  (including  the payment of
taxes, the satisfaction of Liens, the performance of obligations owed to Account
Debtors,   lessors  or  other  obligors,  the  procurement  and  maintenance  of
insurance,  the  execution of  assignments,  security  agreements  and financing
statements,  and the  endorsement  of  instruments).  The  amount of all  monies
expended  and all  costs  and  expenses  (including  attorneys'  fees and  legal
expenses)  incurred  by  Laurus  in  connection  with  or  as a  result  of  the
performance  or  observance  of such  agreements or the taking of such action by
Laurus  shall be  charged to the  Companies'  account as a Loan and added to the
Obligations.  To facilitate Laurus'  performance or observance of such covenants
by each Company,  each Company hereby  irrevocably  appoints Laurus,  or Laurus'
delegate, acting alone, as such Company's attorney in fact (which appointment is
coupled with an interest) with the right (but not the duty) from time to time to
create, prepare, complete,  execute, deliver, endorse or file in the name and on
behalf of such Company any and all instruments, documents, assignments, security
agreements,   financing   statements,   applications  for  insurance  and  other
agreements and writings required to be obtained, executed, delivered or endorsed
by such Company.

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

                                       6
<PAGE>

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

                           (vii)  If any  Eligible  Account  is not  paid by the
Account  Debtor  within one hundred (100) days after the date that such Eligible
Account was  invoiced or if any Account  Debtor  asserts a  deduction,  dispute,
contingency,  set-off,  or counterclaim with respect to any Eligible Account, (a
"DELINQUENT  ACCOUNT"),  the Companies shall jointly and severally (i) reimburse
Laurus for the amount of the Loans made with respect to such Delinquent  Account
plus an adjustment fee in an amount equal to one-fifth of one percent (0.20%) of
the gross face amount of such Eligible Account or (ii) immediately  replace such
Delinquent Account with an otherwise Eligible Account.

                  (b) RECEIVABLES PURCHASE.  Following the occurrence and during
the  continuance  of an Event of Default,  Laurus  may, at its option,  elect to
convert  the  credit  facility  contemplated  hereby to an  accounts  receivable
purchase  facility.  Upon such  election by Laurus  (subsequent  notice of which
Laurus shall provide to Company Agent),  the Companies shall be deemed to hereby
have sold, assigned,  transferred,  conveyed and delivered to Laurus, and Laurus
shall be deemed to have  purchased and received from the  Companies,  all right,
title and interest of the  Companies  in and to all Accounts  which shall at any
time constitute Eligible Accounts (the "RECEIVABLES PURCHASE").  All outstanding
Loans  hereunder  shall be deemed  obligations  under such  accounts  receivable
purchase facility. The conversion to an accounts receivable purchase facility in
accordance  with the terms  hereof  shall not be deemed an exercise by Laurus of
its secured  creditor rights under Article 9 of the UCC.  Immediately  following
Laurus' request,  the Companies shall execute all such further  documentation as
may be  required  by Laurus to more  fully  set  forth the  accounts  receivable
purchase facility herein contemplated,  including,  without limitation,  Laurus'
standard  form of accounts  receivable  purchase  agreement  and account  debtor
notification  letters,  but  any  Company's  failure  to  enter  into  any  such
documentation shall not impair or affect the Receivables  Purchase in any manner
whatsoever.

                  (c) MINIMUM BORROWING AMOUNT.  After a registration  statement
registering the Registrable  Securities has been declared  effective by the SEC,
conversions  of the  Minimum  Borrowing  Amount  into the  Common  Stock  may be
initiated as set forth in the respective  Minimum Borrowing Note. From and after
the date upon which any outstanding  principal of the Minimum  Borrowing  Amount
(as  evidenced by the first  Minimum  Borrowing  Note) is converted  into Common
Stock  (the  "FIRST  CONVERSION  DATE"),   (i)  corresponding   amounts  of  all
outstanding  Loans (not  attributable to the then outstanding  Minimum Borrowing
Amount)  existing on or made after the First  Conversion Date will be aggregated
in  accordance  with  Section  2(a)(i) and (ii) the  Companies  will issue a new
(serialized)  Minimum  Borrowing  Note to  Laurus  in  accordance  with  Section
2(a)(i),  and (iii) the Parent shall prepare and file a subsequent  registration
statement with the SEC to register such subsequent Minimum Borrowing Note as set
forth in the Registration Rights Agreement.

                  3.  REPAYMENT OF THE LOANS.  The  Companies (a) may prepay the
Obligations from time to time in accordance with the terms and provisions of the
Notes (and Section 17 hereof if such  prepayment is due to a termination of this
Agreement); (b) shall repay on the expiration of the Term (i) the then aggregate
outstanding  principal  balance of the Loans  together

                                       7
<PAGE>

with accrued and unpaid  interest,  fees and charges and; (ii) all other amounts
owed Laurus under this Agreement and the Ancillary  Agreements;  and (c) subject
to  Section  2(a)(ii),  shall  repay  on any day on  which  the  then  aggregate
outstanding  principal  balance of the Loans are in excess of the Formula Amount
at such  time,  Loans  in an  amount  equal  to such  excess.  Any  payments  of
principal,  interest,  fees or any other amounts payable  hereunder or under any
Ancillary Agreement shall be made prior to 12:00 noon (New York time) on the due
date thereof in immediately available funds.

                  4.  PROCEDURE FOR LOANS.  Company Agent may by written  notice
request a borrowing of Loans prior to 12:00 noon (New York time) on the Business
Day of its request to incur,  on the next  Business  Day, a Loan.  Together with
each  request  for a Loan (or at such other  intervals  as Laurus may  request),
Company Agent shall deliver to Laurus a Borrowing  Base  Certificate in the form
of EXHIBIT B attached  hereto,  which shall be  certified as true and correct by
the Chief Executive Officer or Chief Financial Officer of Company Agent together
with all supporting documentation relating thereto. All Loans shall be disbursed
from whichever  office or other place Laurus may designate from time to time and
shall be charged to the  Companies'  account on Laurus'  books.  The proceeds of
each  Loan  made by  Laurus  shall be made  available  to  Company  Agent on the
Business Day  following  the Business  Day so requested in  accordance  with the
terms of this Section 4 by way of credit to the applicable  Company's  operating
account maintained with such bank as Company Agent designated to Laurus. Any and
all Obligations due and owing hereunder may be charged to the Companies' account
and shall constitute Loans.

                  5. INTEREST AND PAYMENTS.

                  (a) INTEREST.

                           (i) Except as  modified by Section  5(a)(iii)  below,
the  Companies  shall jointly and severally pay interest at the Contract Rate on
the  unpaid  principal  balance  of each  Loan  until  such time as such Loan is
collected in full in good funds in dollars of the United States of America.

                           (ii)  Interest and payments  shall be computed on the
basis of actual days elapsed in a year of 360 days.  At Laurus'  option,  Laurus
may charge the Companies'  account for said interest.

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

                           (iv) In no event shall the aggregate interest payable
hereunder  exceed  the  maximum  rate  permitted  under  any  applicable  law or
regulation,  as in effect from time to time (the "MAXIMUM  LEGAL RATE"),  and if
any provision of this Agreement or any Ancillary  Agreement is in  contravention
of any such law or  regulation,  interest  payable under this

                                       8
<PAGE>

Agreement  and each  Ancillary  Agreement  shall be computed on the basis of the
Maximum  Legal Rate (so that such  interest  will not exceed the  Maximum  Legal
Rate).

                           (v) The  Companies  shall  jointly and  severally pay
principal,  interest  and all  other  amounts  payable  hereunder,  or under any
Ancillary Agreement,  without any deduction whatsoever,  including any deduction
for any set-off or counterclaim.

                  (b) PAYMENTS; CERTAIN CLOSING CONDITIONS.

                           (i) CLOSING/ANNUAL  PAYMENTS.  Upon execution of this
Agreement by each Company and Laurus,  the Companies shall jointly and severally
pay to Laurus Capital  Management,  LLC a closing  payment in an amount equal to
three and six-tenths percent (3.60%) of the Capital  Availability  Amount.  Such
payment  shall be  deemed  fully  earned  on the  Closing  Date and shall not be
subject to rebate or proration for any reason.

                           (ii) OVERADVANCE  PAYMENT.  Without affecting Laurus'
rights  hereunder  in the event the Loans  exceed the Formula  Amount (each such
event, an "OVERADVANCE"), all such Overadvances, other than the Overadvance made
on the date hereof , shall bear  additional  interest at a rate equal to one and
one half  percent  (1.5%) per month of the amount of such  Overadvances  for all
times such amounts  shall be in excess of the Formula  Amount.  All amounts that
are incurred  pursuant to this Section 5(b)(iii) shall be due and payable by the
Companies monthly,  in arrears, on the first business day of each calendar month
and upon expiration of the Term.

                           (iii)   FINANCIAL   INFORMATION   DEFAULT.    Without
affecting  Laurus' other rights and remedies,  in the event any Company fails to
deliver the financial  information  required by Section 11 on or before the date
required by this Agreement, the Companies shall jointly and severally pay Laurus
an aggregate fee in the amount of $150.00 per week (or portion thereof) for each
such failure  until such failure is cured to Laurus'  satisfaction  or waived in
writing by Laurus.  All  amounts  that are  incurred  pursuant  to this  Section
5(b)(iv) shall be due and payable by the Companies monthly,  in arrears,  on the
first  business of each calendar  month and upon  expiration  of the Term.

                           (iv)  EXPENSES.   The  Companies  shall  jointly  and
severally reimburse Laurus for its expenses (including reasonable legal fees and
expenses)  incurred in connection  with the  preparation and negotiation of this
Agreement and the Ancillary Agreements, and expenses incurred in connection with
Laurus'  due  diligence  review of each  Company  and its  Subsidiaries  and all
related matters.  Amounts required to be paid under this Section 5(b)(v) will be
paid on the Closing Date and shall be $35,000, less any such expenses paid prior
to Closing, for such expenses referred to in this Section 5(b)(v).

                  6. SECURITY INTEREST.

                  (a) To secure the prompt payment to Laurus of the Obligations,
each Company hereby assigns,  pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of each Company's Books and
Records  relating to the  Collateral  shall,  until  delivered  to or removed by
Laurus,  be kept by such Company in trust for Laurus until

                                       9
<PAGE>

all Obligations have been paid in full. Each confirmatory assignment schedule or
other form of assignment  hereafter  executed by each Company shall be deemed to
include the foregoing grant, whether or not the same appears therein.

                  (b) Each  Company  hereby  (i)  authorizes  Laurus to file any
financing  statements,  continuation  statements or amendments  thereto that (x)
indicate the Collateral (1) as all assets and personal  property of such Company
or words of similar effect, regardless of whether any particular asset comprised
in the  Collateral  falls  within  the  scope  of  Article  9 of the UCC of such
jurisdiction,  or (2) as  being  of an equal  or  lesser  scope or with  greater
detail, and (y) contain any other information required by Part 5 of Article 9 of
the UCC  for the  sufficiency  or  filing  office  acceptance  of any  financing
statement,   continuation   statement  or  amendment   and  (ii)   ratifies  its
authorization  for Laurus to have filed any  initial  financial  statements,  or
amendments thereto if filed prior to the date hereof. Each Company  acknowledges
that it is not  authorized  to file any  financing  statement  or  amendment  or
termination  statement with respect to any financing statement without the prior
written  consent of Laurus and agrees  that it will not do so without  the prior
written  consent  of Laurus,  subject to such  Company's  rights  under  Section
9-509(d)(2) of the UCC.

                  (c) Each  Company  hereby  grants to  Laurus  an  irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement due to
an occurrence and during the  continuance of an Event of Default without payment
of royalty or other compensation to such Company) to use,  transfer,  license or
sublicense  any  Intellectual  Property  now owned,  licensed  to, or  hereafter
acquired by such Company, and wherever the same may be located, and including in
such  license  access  to all media in which  any of the  licensed  items may be
recorded or stored and to all  computer  and  automatic  machinery  software and
programs used for the compilation or printout thereof, and represents,  promises
and  agrees  that  any  such  license  or  sublicense  is not and will not be in
conflict  with  the  contractual  or  commercial  rights  of any  third  Person;
provided,  that such license will terminate on the termination of this Agreement
and the payment in full of all Obligations.

                  7.  REPRESENTATIONS,  WARRANTIES AND COVENANTS  CONCERNING THE
COLLATERAL.   Each   Company   represents,   warrants   (each  of   which   such
representations  and warranties shall be deemed repeated upon the making of each
request for a Loan and made as of the time of each and every Loan hereunder) and
covenants  as  follows:

                  (a) all of the Collateral (i) is owned by it free and clear of
all Liens (including any claims of  infringement)  except those in Laurus' favor
and  Permitted  Liens and (ii) is not subject to any agreement  prohibiting  the
granting of a Lien or requiring  notice of or consent to the granting of a Lien.

                  (b) it shall not encumber,  mortgage,  pledge, assign or grant
any Lien in any  Collateral  or any other assets to anyone other than Laurus and
except for Permitted Liens.

                  (c)  the  Liens  granted  pursuant  to  this  Agreement,  upon
completion of the filings and other actions  listed on SCHEDULE 7(c) (which,  in
the case of all filings and other documents  referred to in said Schedule,  have
been  delivered to Laurus in duly  executed  form)

                                       10
<PAGE>

constitute valid perfected  security interests in all of the Collateral in favor
of Laurus as security for the prompt and complete payment and performance of the
Obligations, enforceable in accordance with the terms hereof against any and all
of its creditors and purchasers and such security interest is prior to all other
Liens in existence on the date hereof.

                  (d) no effective security agreement,  mortgage, deed of trust,
financing  statement,  equivalent  security or Lien  instrument or  continuation
statement covering all or any part of the Collateral is or will be on file or of
record in any public office, except those relating to Permitted Liens.

                  (e) it shall not dispose of any of the  Collateral  whether by
sale, lease or otherwise except for the sale of Inventory in the ordinary course
of  business  and for the  disposition  or transfer  in the  ordinary  course of
business  during any fiscal year of obsolete  and worn-out  Equipment  having an
aggregate  fair market  value of not more than  $100,000  and only to the extent
that (i) the proceeds of any such  disposition  are used to acquire  replacement
Equipment  which is subject to Laurus' first priority  security  interest or are
used to repay Loans or to pay general corporate expenses,  or (ii) following the
occurrence of an Event of Default which continues to exist the proceeds of which
are remitted to Laurus to be held as cash collateral for the Obligations.

                  (f) it shall defend the right, title and interest of Laurus in
and to the Collateral against the claims and demands of all Persons  whomsoever,
and take such  actions,  including  (i) all actions  necessary  to grant  Laurus
"control" of any Investment Property, Deposit Accounts,  Letter-of-Credit Rights
or  electronic  Chattel  Paper  owned by it,  with any  agreements  establishing
control to be in form and substance satisfactory to Laurus, (ii) the prompt (but
in no event  later  than  five  (5)  Business  Days  following  Laurus'  request
therefor)  delivery  to  Laurus  of all  original  Instruments,  Chattel  Paper,
negotiable  Documents  and  certificated  Stock  owned  by  it  (in  each  case,
accompanied by stock powers,  allonges or other instruments of transfer executed
in blank),  (iii)  notification  of Laurus'  interest in  Collateral  at Laurus'
request,  and (iv) the institution of litigation  against third parties as shall
be prudent in order to protect and preserve its and/or  Laurus'  respective  and
several interests in the Collateral.

                  (g) it  shall  promptly,  and in any  event  within  five  (5)
Business Days after the same is acquired by it, notify Laurus of any  commercial
tort claim (as defined in the UCC) acquired by it and unless otherwise consented
by Laurus, it shall enter into a supplement to this Agreement granting to Laurus
a Lien in such commercial tort claim.

                  (h) it shall  place  notations  upon its Books and Records and
any of its financial statements to disclose Laurus' Lien in the Collateral.

                  (i)  if  it  retains   possession  of  any  Chattel  Paper  or
Instrument  with Laurus'  consent,  upon Laurus'  request such Chattel Paper and
Instruments  shall be  marked  with the  following  legend:  "This  writing  and
obligations  evidenced or secured hereby are subject to the security interest of
Laurus Master Fund,  Ltd."  Notwithstanding  the foregoing,  upon the reasonable
request of Laurus,  such  Chattel  Paper and  Instruments  shall be delivered to
Laurus.

                                       11
<PAGE>

                  (j) it shall  perform  in a  reasonable  time all other  steps
requested  by Laurus to create and maintain in Laurus'  favor a valid  perfected
first Lien in all  Collateral  subject  only to  Permitted  Liens.

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

                  (l) all Eligible  Accounts (i)  represent  complete  bona fide
transactions which require no further act under any circumstances on its part to
make such Accounts payable by the Account  Debtors,  (ii) are not subject to any
present, future contingent offsets or counterclaims,  and (iii) do not represent
bill and hold sales,  consignment  sales,  guaranteed  sales,  sale or return or
other similar  understandings  or  obligations of any Affiliate or Subsidiary of
such Company.  It has not made, nor will it make, any agreement with any Account
Debtor for any extension of time for the payment of any Account,  any compromise
or settlement for less than the full amount thereof,  any release of any Account
Debtor from liability therefor,  or any deduction therefrom except a discount or
allowance  for prompt or early payment  allowed by it in the ordinary  course of
its business consistent with historical practice and as previously  disclosed to
Laurus in writing.

                  (m) it shall keep and maintain its Equipment in good operating
condition,  except for  ordinary  wear and tear,  and shall  make all  necessary
repairs  and  replacements  thereof so that the value and  operating  efficiency
shall at all times be  maintained  and  preserved.  It shall not permit any such
items to  become a  Fixture  to real  estate  or  accessions  to other  personal
property.

                  (n) it shall  maintain  and keep all of its Books and  Records
concerning  the Collateral at its executive  offices listed in SCHEDULE  12(aa).

                  (o) it shall maintain and keep the tangible  Collateral at the
addresses listed in SCHEDULE 12(bb), provided, that it may change such locations
or open a new location,  provided  that it provides  Laurus at least thirty (30)
days prior written notice of such changes or new location and (ii) prior to such
change or opening of a new location where Collateral having a value of more than
$100,000  will be located,  it executes and  delivers to Laurus such  agreements
deemed reasonably necessary or prudent by Laurus, including landlord agreements,
mortgagee  agreements  and  warehouse  agreements,  each in form  and  substance
satisfactory  to Laurus,  to adequately  protect and maintain  Laurus'  security
interest in such Collateral.

                  (p)  SCHEDULE  7(p)  lists  all  banks  and  other   financial
institutions  at which it maintains  deposits  and/or other  accounts,  and such
Schedule  correctly  identifies the name,

                                       12
<PAGE>

address  and  telephone  number of each such  depository,  the name in which the
account is held, a description  of the purpose of the account,  and the complete
account number. It shall not establish any depository or other bank account with
any financial  institution  (other than the accounts set forth on SCHEDULE 7(p))
without Laurus' prior written consent.

                  8. PAYMENT OF ACCOUNTS.

                  (a) Each  Company will  irrevocably  direct all of its present
and  future  Account  Debtors  and  other  Persons  obligated  to make  payments
constituting  Collateral  to  make  such  payments  directly  to  the  lockboxes
maintained by such Company (the "LOCKBOXES") with Wells Fargo Bank or such other
financial  institution  accepted by Laurus in writing as may be selected by such
Company (the  "LOCKBOX  BANK")  pursuant to the terms of the certain  agreements
among one or more Companies,  Laurus and/or the Lockbox Bank dated as of July 5,
2005.  On or prior to the Closing  Date,  each Company shall and shall cause the
Lockbox Bank to enter into all such documentation  acceptable to Laurus pursuant
to which,  among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox
on a  daily  basis  and  deposit  all  checks  received  therein  to an  account
designated  by Laurus in writing  and (b) comply only with the  instructions  or
other  directions  of  Laurus  concerning  the  Lockbox.  All of each  Company's
invoices, account statements and other written or oral communications directing,
instructing,  demanding or  requesting  payment of any Account of any Company or
any other amount  constituting  Collateral shall  conspicuously  direct that all
payments  be made to the  Lockbox or such other  address as Laurus may direct in
writing.  If,  notwithstanding the instructions to Account Debtors,  any Company
receives any  payments,  such Company shall  immediately  remit such payments to
Laurus  in  their  original  form  with  all  necessary  endorsements.  Until so
remitted,  such  Company  shall hold all such  payments  in trust for and as the
property of Laurus and shall not  commingle  such payments with any of its other
funds or property.

                  (b) At Laurus' election,  following the occurrence of an Event
of Default which is continuing, Laurus may notify each Company's Account Debtors
of Laurus' security  interest in the Accounts,  collect them directly and charge
the  collection  costs  and  expenses  thereof  to  Company's  and the  Eligible
Subsidiaries joint and several account.

                  9. COLLECTION AND MAINTENANCE OF COLLATERAL.

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

                  (b)  Proceeds  of  Accounts  received by Laurus will be deemed
received on the  Business  Day after  Laurus'  receipt of such  proceeds in good
funds in  dollars of the United  States of America to an account  designated  by
Laurus.  Any amount  received by Laurus  after 12:00 noon (New York time) on any
Business Day shall be deemed received on the next Business Day.

                  (c)  As  Laurus  receives  the  proceeds  of  Accounts  of any
Company, it shall (i) apply such proceeds,  as required,  to amounts outstanding
under the Notes,  and (ii) remit all

                                       13
<PAGE>

such  remaining  proceeds (net of interest,  fees and other amounts then due and
owing to Laurus  hereunder) to Company Agent (for the benefit of the  applicable
Companies)  upon request (but no more often than twice a week).  Notwithstanding
the foregoing,  following the occurrence and during the  continuance of an Event
of  Default,  Laurus,  at  its  option,  may  (a)  apply  such  proceeds  to the
Obligations  in such order as Laurus shall elect,  (b) hold all such proceeds as
cash  collateral for the  Obligations and each Company hereby grants to Laurus a
security  interest  in  such  cash  collateral   amounts  as  security  for  the
Obligations and/or (c) do any combination of the foregoing.

                  10.  INSPECTIONS  AND  APPRAISALS.  At all times during normal
business hours,  Laurus,  and/or any agent of Laurus shall have the right to (a)
have access to, visit, inspect,  review, evaluate and make physical verification
and appraisals of each Company's  properties  and the  Collateral,  (b) inspect,
audit and copy (or take  originals if  necessary)  and make  extracts  from each
Company's  Books and  Records,  including  management  letters  prepared  by the
Accountants, and (c) discuss with each Company's directors,  principal officers,
and  independent  accountants,  each Company's  business,  assets,  liabilities,
financial condition,  results of operations and business prospects. Each Company
will deliver to Laurus any  instrument  necessary  for Laurus to obtain  records
from any service bureau maintaining  records for such Company. If any internally
prepared  financial  information,  including that required under this Section is
unsatisfactory in any manner to Laurus,  Laurus may request that the Accountants
review the same.

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

                  (a) As soon as available,  and in any event within ninety (90)
days after the end of each fiscal year of the Parent, or within the maximum time
period for filing with the SEC  allowable  by law  (whichever  is greater)  each
Company's  audited financial  statements with a report of independent  certified
public accountants of recognized  standing selected by the Parent and acceptable
to Laurus  (the  "ACCOUNTANTS"),  which  annual  financial  statements  shall be
without  qualification  and shall include each Company's balance sheet as at the
end of such fiscal year and the related  statements  of each  Company's  income,
retained  earnings and cash flows for the fiscal year then ended,  prepared,  if
Laurus so requests,  on a consolidating  and  consolidated  basis to include all
Subsidiaries  and  Affiliates  of each  Company,  all in  reasonable  detail and
prepared  in  accordance  with GAAP,  together  with (i) if and when  available,
copies  of any  management  letters  prepared  by the  Accountants;  and  (ii) a
certificate  of  the  Parent's  President,  Chief  Executive  Officer  or  Chief
Financial  Officer stating that such financial  statements have been prepared in
accordance  with GAAP and  whether  or not such  officer  has  knowledge  of the
occurrence of any Default or Event of Default  hereunder  and, if so, stating in
reasonable  detail the facts with respect thereto;

                  (b) As soon as  available  and in any event  within forty five
(45) days after the end of each  quarter,  or within the maximum time period for
filing   with   the  SEC   allowable   by  law   (whichever   is   greater)   an
unaudited/internal balance sheet and statements of income, retained earnings and
cash  flows of each  Company as at the end of and for such  quarter  and for the
year  to  date  period  then  ended,  prepared,  if  Laurus  so  requests,  on a
consolidating and consolidated

                                       14
<PAGE>

basis to include all Subsidiaries and Affiliates of each Company,  in reasonable
detail and stating in comparative  form the figures for the  corresponding  date
and periods in the previous year, all prepared in accordance with GAAP,  subject
to  year-end  adjustments  and  accompanied  by a  certificate  of the  Parent's
President,  Chief Executive Officer or Chief Financial Officer, stating (i) that
such financial statements have been prepared in accordance with GAAP, subject to
year-end audit  adjustments,  and (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default  hereunder not  theretofore
reported and remedied and, if so,  stating in  reasonable  detail the facts with
respect  thereto;

                  (c)  Within  thirty  (30) days after the end of each month (or
more  frequently  if Laurus,  in the exercise of its  reasonable  discretion  so
requests), agings of each Company's Accounts, unaudited trial balances and their
accounts payable and a calculation of each Company's Accounts, Eligible Accounts
and each Company's monthly unaudited financial  statements,  provided,  however,
that if Laurus shall  request the foregoing  information  more often than as set
forth in the immediately  preceding clause,  each Company shall have thirty (30)
days from each such  request to comply with  Laurus'  demand;  and

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

                  12. ADDITIONAL  REPRESENTATIONS  AND WARRANTIES.  Each Company
hereby  represents  and warrants to Laurus as follows:

                  (a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. It and each
of its Subsidiaries is a corporation,  partnership or limited liability company,
as the case may be, duly organized,  validly existing and in good standing under
the laws of its  jurisdiction of  organization.  It and each of its Subsidiaries
has the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (i) execute and deliver this Agreement and
the Ancillary Agreements, (ii) to issue the Notes and the shares of Common Stock
issuable upon  conversion of the Notes (the "NOTE  SHARES"),  (iii) to issue the
Warrants and the shares of Common Stock issuable upon conversion of the Warrants
(the "WARRANT  SHARES"),  and to (iv) carry out the provisions of this Agreement
and  the  Ancillary  Agreements  and to  carry  on  its  business  as  presently
conducted.  It and each of its  Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation,  partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or  location  of its  activities  and of its  properties  (both owned and
leased) makes such qualification  necessary,  except for those  jurisdictions in
which failure to do so has not had, or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

                  (b)   SUBSIDIARIES.   Each   of  its   direct   and   indirect
Subsidiaries,  the  direct  owner of each  such  Subsidiary  and its  percentage
ownership thereof,  is set forth on SCHEDULE 12(b).

                                       15
<PAGE>

                  (c) CAPITALIZATION; VOTING RIGHTS.

                           (i) The authorized capital stock of the Parent, as of
the date hereof consists of 205,000,000  shares, of which 200,000,000 are shares
of Common  Stock,  par value  $.001 per  share,  12,887,226  shares of which are
issued and  outstanding,  1,433,639 shares of which are held in the treasury and
5,000,000 are shares of preferred stock, of which 2,500,000 have been designated
as Series A, par value $.001 per share of which 2,466,971  shares are issued and
outstanding.  The remaining  2,500,000  shares of preferred  stock have not been
designated.  The  authorized,  issued  and  outstanding  capital  stock  of each
Subsidiary of each Company is set forth on SCHEDULE 12(c).

                           (ii) Except as  disclosed  on SCHEDULE  12(c),  other
than:  (i) the shares  reserved  for issuance  under the  Parent's  stock option
plans;  and (ii) shares which may be issued  pursuant to this  Agreement and the
Ancillary  Agreements,  there  are  no  outstanding  options,  warrants,  rights
(including  conversion or preemptive rights and rights of first refusal),  proxy
or stockholder  agreements,  or  arrangements  or agreements of any kind for the
purchase  or  acquisition  from the Parent of any of its  securities.  Except as
disclosed on SCHEDULE  12(C),  neither the offer or issuance of any of the Notes
or the  Warrants,  or the  issuance  of any of the Note  Shares  or the  Warrant
Shares, nor the consummation of any transaction  contemplated hereby will result
in a change in the price or number of any securities of the Parent  outstanding,
under  anti-dilution or other similar  provisions  contained in or affecting any
such securities.

                           (iii)  All  issued  and  outstanding  shares  of  the
Parent's Common Stock:  (i) have been duly authorized and validly issued and are
fully  paid and  nonassessable;  and (ii)  were  issued in  compliance  with all
applicable state and federal laws concerning the issuance of securities.

                           (iv)  The   rights,   preferences,   privileges   and
restrictions  of the  shares of the Common  Stock are as stated in the  Parent's
Certificate of Incorporation  (the  "CHARTER").  The Note Shares and the Warrant
Shares  have  been  duly and  validly  reserved  for  issuance.  When  issued in
compliance with the provisions of this Agreement and the Parent's  Charter,  the
Securities will be validly  issued,  fully paid and  nonassessable,  and will be
free of any liens or encumbrances; PROVIDED, HOWEVER, that the Securities may be
subject to restrictions  on transfer under state and/or federal  securities laws
as set forth herein or as otherwise required by such laws at the time a transfer
is proposed.

                  (d)  AUTHORIZATION;   BINDING   OBLIGATIONS.   All  corporate,
partnership or limited liability company,  as the case may be, action on its and
its  Subsidiaries'  part  (including  their  respective  officers and directors)
necessary for the authorization of this Agreement and the Ancillary  Agreements,
the performance of all of its and its  Subsidiaries'  obligations  hereunder and
under the  Ancillary  Agreements  on the Closing  Date and,  the  authorization,
issuance  and  delivery  of the Notes and the  Warrant has been taken or will be
taken prior to the Closing Date.  This  Agreement and the Ancillary  Agreements,
when executed and delivered and to the extent it is a party thereto, will be its
and its Subsidiaries'  valid and binding  obligations  enforceable  against each
such Person in accordance with their terms, except:

                                       16
<PAGE>

                           (i) as limited by applicable bankruptcy,  insolvency,
reorganization,  moratorium  or  other  laws of  general  application  affecting
enforcement of creditors' rights; and

                           (ii) general  principles  of equity that restrict the
availability of equitable or legal remedies.

The issuance of the Notes and the  subsequent  conversion of the Notes into Note
Shares  are not and will not be subject  to any  preemptive  rights or rights of
first refusal that have not been properly  waived or complied with. The issuance
of the Warrants and the  subsequent  exercise of the Warrants for Warrant Shares
are not and will not be  subject  to any  preemptive  rights  or rights of first
refusal that have not been properly waived or complied with.

                  (e)  LIABILITIES.  Neither it nor any of its  Subsidiaries has
any liabilities,  except current liabilities  incurred in the ordinary course of
business and liabilities  disclosed in any Exchange Act Filings.

                  (f) AGREEMENTS;  ACTION. Except as set forth on SCHEDULE 12(f)
or as  disclosed  in any  Exchange  Act  Filings:

                           (i)   There   are  no   agreements,   understandings,
instruments,  contracts,  proposed  transactions,  judgments,  orders,  writs or
decrees to which it or any of its Subsidiaries is a party or to its knowledge by
which it is bound which may involve:  (i) obligations  (contingent or otherwise)
of, or payments to, it or any of its  Subsidiaries  in excess of $100,000 (other
than obligations of, or payments to, it or any of its Subsidiaries  arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the  transfer or license of any patent,  copyright,  trade  secret or other
proprietary  right to or from it (other than licenses  arising from the purchase
of "off the shelf" or other standard products);  or (iii) provisions restricting
the development,  manufacture or distribution of its or any of its Subsidiaries'
products or services;  or (iv)  indemnification by it or any of its Subsidiaries
with respect to  infringements  of proprietary  rights.

                           (ii) Since  December  31,  2004 (the  "BALANCE  SHEET
DATE")  neither it nor any of its  Subsidiaries  has:  (i)  declared or paid any
dividends,  or authorized or made any  distribution  upon or with respect to any
class or series of its capital  stock;  (ii) other than the  Company's  debts to
Wells Fargo Bank and Alfred Curmi,  incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course  obligations)  individually
in  excess  of  $100,000  or,  in the case of  indebtedness  and/or  liabilities
individually less than $100,000,  in excess of $100,000 in the aggregate;  (iii)
made any loans or advances to any Person not in excess,  individually  or in the
aggregate,  of $100,000,  other than ordinary  advances for travel expenses;  or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its Inventory in the ordinary course of business.

                           (iii) For the purposes of subsections (i) and (ii) of
this Section 12(f), all indebtedness,  liabilities, agreements,  understandings,
instruments,  contracts  and  proposed  transactions  involving  the same Person
(including  Persons  it or any of its  applicable  Subsidiaries

                                       17
<PAGE>

has reason to believe are affiliated  therewith or with any Subsidiary  thereof)
shall be aggregated  for the purpose of meeting the  individual  minimum  dollar
amounts of such subsections.

                           (iv) the Parent  maintains  disclosure  controls  and
procedures  ("DISCLOSURE CONTROLS") designed to ensure that information required
to be disclosed by the Parent in the reports that it files or submits  under the
Exchange Act is recorded,  processed,  summarized, and reported, within the time
periods specified in the rules and forms of the SEC.

                           (v) The Parent  makes and keeps books,  records,  and
accounts,  that,  in  reasonable  detail,  accurately  and  fairly  reflect  the
transactions and dispositions of its assets. It maintains  internal control over
financial reporting  ("FINANCIAL  REPORTING CONTROLS") designed by, or under the
supervision of, its principal executive and principal  financial  officers,  and
effected by its board of directors,  management, and other personnel, to provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
GAAP, including that:

                                    (1)  transactions are executed in accordance
with management's general or specific authorization;

                                    (2)   unauthorized   acquisition,   use,  or
disposition  of the  Parent's  assets  that could have a material  effect on the
financial statements are prevented or timely detected;

                                    (3)  transactions  are recorded as necessary
to permit preparation of financial  statements in accordance with GAAP, and that
its  receipts  and   expenditures   are  being  made  only  in  accordance  with
authorizations of the Parent's management and board of directors;

                                    (4)  transactions  are recorded as necessary
to maintain accountability for assets; and

                                    (5) the recorded  accountability  for assets
is compared with the existing  assets at reasonable  intervals,  and appropriate
action is taken with respect to any differences.

                           (vi) There is no  weakness  in any of its  Disclosure
Controls or Financial Reporting Controls that is required to be disclosed in any
of the Exchange Act Filings, except as so disclosed.

                  (g)  OBLIGATIONS  TO RELATED  PARTIES.  Except as set forth on
SCHEDULE 12(g),  neither it nor any of its  Subsidiaries  has any obligations to
their respective officers, directors,  stockholders or employees other than:

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

                                       18
<PAGE>

                           (ii)  reimbursement for reasonable  expenses incurred
on its or its Subsidiaries' behalf;

                           (iii)  for  other  standard  employee  benefits  made
generally  available  to  all  employees   (including  stock  option  agreements
outstanding  under any stock option plan  approved by its and its  Subsidiaries'
Board of Directors, as applicable); and

                           (iv)  obligations  listed  in  its  and  each  of its
Subsidiary's  financial  statements or disclosed in any of the Parent's Exchange
Act Filings.

Except as described above or set forth on SCHEDULE 12(g),  none of its officers,
directors or, to the best of its knowledge,  key employees or stockholders,  any
of its Subsidiaries or any members of their immediate families,  are indebted to
it or any of its  Subsidiaries,  individually or in the aggregate,  in excess of
$100,000  or have any direct or indirect  ownership  interest in any Person with
which it or any of its Subsidiaries is affiliated or with which it or any of its
Subsidiaries has a business  relationship,  or any Person which competes with it
or any of its  Subsidiaries,  other than passive  investments in publicly traded
companies  (representing  less than one percent (1%) of such company)  which may
compete with it or any of its  Subsidiaries.  Except as described above, none of
its  officers,  directors  or  stockholders,  or any  member of their  immediate
families,  is, directly or indirectly,  interested in any material contract with
it or any of its  Subsidiaries  and no  agreements,  understandings  or proposed
transactions are contemplated between it or any of its Subsidiaries and any such
Person.  Except  as set  forth  on  SCHEDULE  12(g),  neither  it nor any of its
Subsidiaries  is a guarantor  or  indemnitor  of any  indebtedness  of any other
Person.

                  (h) CHANGES. Since the Balance Sheet Date, except as disclosed
in any Exchange Act Filing or in any Schedule to this Agreement or to any of the
Ancillary  Agreements,  there has not been:

                           (i)  any  change  in its or any of its  Subsidiaries'
business, assets, liabilities,  condition (financial or otherwise),  properties,
operations or prospects,  which,  individually or in the aggregate,  has had, or
could reasonably be expected to have, a Material Adverse Effect;

                           (ii) any  resignation or termination of any of its or
its Subsidiaries' officers, key employees or groups of employees;

                           (iii) any  material  change,  except in the  ordinary
course of business, in its or any of its Subsidiaries' contingent obligations by
way of guaranty, endorsement, indemnity, warranty or otherwise;

                           (iv) any damage,  destruction or loss, whether or not
covered by  insurance,  which has had, or could  reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;

                           (v) any waiver by it or any of its  Subsidiaries of a
valuable right or of a material debt owed to it;

                                       19
<PAGE>

                           (vi) any direct or indirect material loans made by it
or  any  of its  Subsidiaries  to  any  of  its  or  any  of  its  Subsidiaries'
stockholders,  employees, officers or directors, other than advances made in the
ordinary course of business;

                           (vii)  any  material   change  in  any   compensation
arrangement or agreement with any employee, officer, director or stockholder;

                           (viii) any  declaration or payment of any dividend or
other distribution of its or any of its Subsidiaries' assets;

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

                           (x)  any  debt,  obligation  or  liability  incurred,
assumed  or  guaranteed  by it or any  of its  Subsidiaries,  except  those  for
immaterial amounts and for current  liabilities  incurred in the ordinary course
of business;

                           (xi)  any  sale,   assignment   or  transfer  of  any
Intellectual Property or other intangible assets;

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

                           (xiii) any other event or condition of any  character
that, either  individually or in the aggregate,  has had, or could reasonably be
expected to have,  individually or in the aggregate,  a Material Adverse Effect;
or

                           (xiv) any  arrangement  or commitment by it or any of
its  Subsidiaries  to do any of the acts  described  in  subsection  (i) through
(xiii) of this Section 12(h).

                  (i) TITLE TO PROPERTIES AND ASSETS;  LIENS, ETC. Except as set
forth on SCHEDULE 12(i), it and each of its Subsidiaries has good and marketable
title to their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens.

All facilities, Equipment, Fixtures, vehicles and other properties owned, leased
or used by it or any of its  Subsidiaries  are in good  operating  condition and
repair and are  reasonably  fit and usable for the  purposes  for which they are
being  used.  Except  as  set  forth  on  SCHEDULE  12(I),  it and  each  of its
Subsidiaries  is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.

                  (j) INTELLECTUAL PROPERTY.

                           (i) It and each of its Subsidiaries owns or possesses
sufficient  legal  rights  to all  Intellectual  Property  necessary  for  their
respective  businesses  as now  conducted  and,

                                       20
<PAGE>

to its  knowledge  as  presently  proposed  to be  conducted,  without any known
infringement of the rights of others. There are no outstanding options, licenses
or  agreements  of  any  kind  relating  to  its  or  any  of  its  Subsidiary's
Intellectual  Property, nor is it or any of its Subsidiaries bound by or a party
to  any  options,  licenses  or  agreements  of any  kind  with  respect  to the
Intellectual Property of any other Person other than such licenses or agreements
arising from the purchase of "off the shelf" or standard products.

                           (ii)  Neither  it nor  any of  its  Subsidiaries  has
received any  communications  alleging  that it or any of its  Subsidiaries  has
violated any of the  Intellectual  Property or other  proprietary  rights of any
other Person, nor is it or any of its Subsidiaries aware of any basis therefor.

                           (iii) Neither it nor any of its Subsidiaries believes
it is or  will  be  necessary  to  utilize  any  inventions,  trade  secrets  or
proprietary  information of any of its employees made prior to their  employment
by it or any of its  Subsidiaries,  except  for  inventions,  trade  secrets  or
proprietary  information that have been rightfully  assigned to it or any of its
Subsidiaries.

                  (k) COMPLIANCE WITH OTHER  INSTRUMENTS.  Neither it nor any of
its  Subsidiaries  is in  violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or  instrument  to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause  (y),  has  had,  or  could  reasonably  be  expected  to  have,   either
individually  or in the aggregate,  a Material  Adverse  Effect.  The execution,
delivery and performance of and compliance with this Agreement and the Ancillary
Agreements  to which it is a party,  and the issuance of the Notes and the other
Securities  each  pursuant  hereto and  thereto,  will not,  with or without the
passage of time or giving of notice,  result in any such material violation,  or
be in conflict with or constitute a default under any such term or provision, or
result in the  creation  of any Lien upon any of its or any of its  Subsidiary's
properties or assets or the suspension,  revocation,  impairment,  forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to it or
any of its  Subsidiaries,  their businesses or operations or any of their assets
or properties.

                  (l) LITIGATION.  Except as set forth on SCHEDULE 12(l),  there
is no action,  suit,  proceeding or investigation  pending or, to its knowledge,
currently  threatened  against it or any of its Subsidiaries that prevents it or
any of its  Subsidiaries  from  entering  into this  Agreement or the  Ancillary
Agreements,  or  from  consummating  the  transactions  contemplated  hereby  or
thereby,  or which has had, or could  reasonably  be  expected  to have,  either
individually or in the aggregate,  a Material Adverse Effect, or could result in
any change in its or any of its Subsidiaries'  current equity ownership,  nor is
it aware that there is any basis to assert any of the foregoing.  Neither it nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ,  injunction,  judgment  or  decree of any  court or  government  agency or
instrumentality.  There is no action, suit, proceeding or investigation by it or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends to initiate.

                                       21
<PAGE>

                  (m) TAX RETURNS AND PAYMENTS.  It and each of its Subsidiaries
has timely filed all tax returns (federal, state and local) required to be filed
by it. All taxes shown to be due and payable on such  returns,  any  assessments
imposed,  and all other taxes due and payable by it and each of its Subsidiaries
on or before the Closing Date,  have been paid or will be paid prior to the time
they become  delinquent.  Except as set forth on SCHEDULE 12(m),  neither it nor
any of its Subsidiaries has been advised:

                           (i) that any of its returns, federal, state or other,
have been or are being audited as of the date hereof; or

                           (ii) of any  adjustment,  deficiency,  assessment  or
court decision in respect of its federal, state or other taxes.

Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not  adequately  provided  for.

                  (n) EMPLOYEES.  Except as set forth on SCHEDULE 12(n), neither
it nor any of its Subsidiaries has any collective bargaining agreements with any
of its employees. There is no labor union organizing activity pending or, to its
knowledge,  threatened with respect to it or any of its Subsidiaries.  Except as
disclosed in the Exchange Act Filings or on SCHEDULE  12(n),  neither it nor any
of its Subsidiaries is a party to or bound by any currently  effective  material
employment contract,  deferred compensation  arrangement,  bonus plan, incentive
plan, profit sharing plan,  retirement agreement or other employee  compensation
plan or agreement.  To its  knowledge,  none of its or any of its  Subsidiaries'
employees,  nor  any  consultant  with  whom it or any of its  Subsidiaries  has
contracted, is in violation of any term of any employment contract,  proprietary
information  agreement or any other agreement  relating to the right of any such
individual to be employed by, or to contract with, it or any of its Subsidiaries
because  of the  nature  of the  business  to be  conducted  by it or any of its
Subsidiaries;  and to its  knowledge  the  continued  employment  by it and  its
Subsidiaries  of their present  employees,  and the  performance  of its and its
Subsidiaries contracts with its independent contractors,  will not result in any
such violation.  Neither it nor any of its Subsidiaries is aware that any of its
or any of its Subsidiaries' employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any  judgment,  decree or order of any court or  administrative  agency  that
would interfere with their duties to it or any of its  Subsidiaries.  Neither it
nor any of its  Subsidiaries  has  received  any notice  alleging  that any such
violation  has  occurred.  Except  for  employees  who have a current  effective
employment  agreement with it or any of its Subsidiaries,  none of its or any of
its Subsidiaries'  employees has been granted the right to continued  employment
by it or any of its  Subsidiaries  or to  any  material  compensation  following
termination  of  employment  with it or any of its  Subsidiaries.  Except as set
forth on SCHEDULE  12(n),  neither it nor any of its  Subsidiaries is aware that
any officer, key employee or group of employees intends to terminate his, her or
their employment with it or any of its Subsidiaries,  as applicable, nor does it
or any of its Subsidiaries  have a present intention to terminate the employment
of any officer, key employee or group of employees.

                  (o) REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set forth
on SCHEDULE  12(o) and except as disclosed  in Exchange Act Filings,  neither it
nor any of its

                                       22
<PAGE>

Subsidiaries is presently  under any  obligation,  and neither it nor any of its
Subsidiaries  has  granted  any  rights,  to  register  any of its or any of its
Subsidiaries' presently outstanding securities or any of its securities that may
hereafter  be  issued.  Except as set  forth on  SCHEDULE  12(o)  and  except as
disclosed in Exchange Act Filings,  to its knowledge,  none of its or any of its
Subsidiaries' stockholders has entered into any agreement with respect to its or
any of its Subsidiaries' voting of equity securities.

                  (p) COMPLIANCE WITH LAWS;  PERMITS.  Neither it nor any of its
Subsidiaries  is in  violation  of the  Sarbanes-Oxley  Act of  2002  or any SEC
related  regulation  or rule or any  rule of the  Principal  Market  promulgated
thereunder  or  any  other  applicable  statute,  rule,  regulation,   order  or
restriction  of any domestic or foreign  government  or any  instrumentality  or
agency thereof in respect of the conduct of its business or the ownership of its
properties  which has had,  or could  reasonably  be  expected  to have,  either
individually or in the aggregate,  a Material  Adverse  Effect.  No governmental
orders,  permissions,  consents,  approvals or authorizations are required to be
obtained  and no  registrations  or  declarations  are  required  to be filed in
connection  with the execution  and delivery of this  Agreement or any Ancillary
Agreement  and the issuance of any of the  Securities,  except such as have been
duly and validly  obtained or filed, or with respect to any filings that must be
made after the Closing Date, as will be filed in a timely manner. It and each of
its Subsidiaries has all material franchises,  permits, licenses and any similar
authority  necessary  for the conduct of its business as now being  conducted by
it, the lack of which could, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

                  (q) ENVIRONMENTAL  AND SAFETY LAWS.  Neither it nor any of its
Subsidiaries  is in  violation  of any  applicable  statute,  law or  regulation
relating  to the  environment  or  occupational  health and  safety,  and to its
knowledge,  no material  expenditures are or will be required in order to comply
with any such  existing  statute,  law or  regulation.  Except  as set  forth on
SCHEDULE 12(q), no Hazardous  Materials (as defined below) are used or have been
used,  stored,  or  disposed  of by it or  any of its  Subsidiaries  or,  to its
knowledge,  by any other Person on any property  owned,  leased or used by it or
any of its Subsidiaries.  For the purposes of the preceding sentence, "HAZARDOUS
MATERIALS" shall mean:

                           (i) materials  which are listed or otherwise  defined
as  "hazardous"  or "toxic" under any applicable  local,  state,  federal and/or
foreign  laws and  regulations  that  govern  the  existence  and/or  remedy  of
contamination on property, the protection of the environment from contamination,
the  control  of  hazardous  wastes,  or other  activities  involving  hazardous
substances, including building materials; and

                           (ii) any petroleum products or nuclear materials.

                  (r)   VALID   OFFERING.   Assuming   the   accuracy   of   the
representations and warranties of Laurus contained in this Agreement,  the offer
and issuance of the Securities will be exempt from the registration requirements
of the Securities Act of 1933, as amended (the "SECURITIES  ACT"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration,  permit or qualification  requirements of all applicable
state securities laws.

                                       23
<PAGE>

                  (s)  FULL  DISCLOSURE.  It and  each of its  Subsidiaries  has
provided  Laurus with all  information  requested by Laurus in  connection  with
Laurus'  decision to enter into this Agreement,  including all information  each
Company  and its  Subsidiaries  believe  is  reasonably  necessary  to make such
investment  decision.  Neither this Agreement,  the Ancillary Agreements nor the
exhibits and schedules hereto and thereto nor any other document delivered by it
or any of its  Subsidiaries  to Laurus or its  attorneys or agents in connection
herewith or therewith or with the transactions  contemplated  hereby or thereby,
contain  any untrue  statement  of a material  fact nor omit to state a material
fact necessary in order to make the statements  contained herein or therein,  in
light of the circumstances in which they are made, not misleading. Any financial
projections  and  other  estimates  provided  to  Laurus  by it or  any  of  its
Subsidiaries were based on its and its Subsidiaries'  experience in the industry
and on  assumptions  of fact and opinion as to future  events which it or any of
its Subsidiaries,  at the date of the issuance of such projections or estimates,
believed to be reasonable.

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

                  (u) SEC REPORTS AND FINANCIAL STATEMENTS.  Except as set forth
on  SCHEDULE  12(u),  it and  each  of its  Subsidiaries  has  filed  all  proxy
statements,  reports  and other  documents  required to be filed by it under the
Exchange Act. The Parent has made available to Laurus:  (i) its Annual Report on
Form 10-KSB for its fiscal years ended December 31, 2004; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal  quarters  ended June 30, 2004,  September
30, 2004 and March 31,  2005 and the Form 8-K  filings  which it has made during
its fiscal year 2004 to date  (collectively,  the "SEC REPORTS").  Except as set
forth on SCHEDULE  12(u),  each SEC Report  was,  at the time of its filing,  in
substantial  compliance with the requirements of its respective form and none of
the SEC Reports,  nor the financial  statements (and the notes thereto) included
in the SEC Reports,  as of their respective  filing dates,  contained any untrue
statement of a material  fact or omitted to state a material fact required to be
stated  therein or necessary  to make the  statements  therein,  in light of the
circumstances  under  which  they were  made,  not  misleading.  Such  financial
statements  have been prepared in  accordance  with GAAP applied on a consistent
basis during the periods involved  (except (i) as may be otherwise  indicated in
such financial  statements or the notes thereto or (ii) in the case of unaudited
interim  statements,  to the extent  they may not  include  footnotes  or may be
condensed) and fairly present in all material respects the financial  condition,
the results of operations and cash flows of the Parent and its Subsidiaries,  on
a  consolidated  basis,  as of, and for, the periods  presented in each such SEC
Report.

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

                                       24
<PAGE>

                  (w)  NO  INTEGRATED  OFFERING.  Neither  it,  nor  any  of its
Subsidiaries  nor any of its  Affiliates,  nor any Person acting on its or their
behalf,  has directly or indirectly  made any offers or sales of any security or
solicited any offers to buy any security  under  circumstances  that would cause
the  offering of the  Securities  pursuant to this  Agreement  or any  Ancillary
Agreement  to be  integrated  with prior  offerings  by it for  purposes  of the
Securities  Act which would prevent it from issuing the  Securities  pursuant to
Rule  506  under  the  Securities   Act,  or  any  applicable   exchange-related
stockholder  approval  provisions,  nor  will  it or any of  its  Affiliates  or
Subsidiaries  take any  action or steps  that would  cause the  offering  of the
Securities to be integrated with other offerings.

                  (x) STOP TRANSFER. The Securities are restricted securities as
of the date of this Agreement. Neither it nor any of its Subsidiaries will issue
any stop transfer  order or other order impeding the sale and delivery of any of
the  Securities at such time as the Securities are registered for public sale or
an exemption  from  registration  is available,  except as required by state and
federal  securities laws.

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

                  (z)  PATRIOT  ACT.  It  certifies  that,  to the  best  of its
knowledge, neither it nor any of its Subsidiaries has been designated, nor is or
shall be owned or controlled, by a "suspected terrorist" as defined in Executive
Order  13224.  It hereby  acknowledges  that  Laurus  seeks to  comply  with all
applicable  laws  concerning  money  laundering  and  related   activities.   In
furtherance of those efforts, it hereby represents, warrants and covenants that:
(i) none of the cash or property that it or any of its Subsidiaries  will pay or
will  contribute to Laurus has been or shall be derived from, or related to, any
activity  that  is  deemed  criminal  under  United  States  law;  and  (ii)  no
contribution  or payment  by it or any of its  Subsidiaries  to  Laurus,  to the
extent  that they are within its or any such  Subsidiary's  control  shall cause
Laurus to be in  violation  of the United  States Bank  Secrecy  Act, the United
States  International  Money Laundering Control Act of 1986 or the United States
International  Money Laundering  Abatement and  Anti-Terrorist  Financing Act of
2001.  It  shall  promptly  notify  Laurus  if  any  of  these  representations,
warranties and covenants  ceases to be true and accurate  regarding it or any of
its  Subsidiaries.  It shall  provide  Laurus  with any  additional  information
regarding  it and  each  Subsidiary  thereof  that  Laurus  deems  necessary  or
convenient  to ensure  compliance  with all  applicable  laws  concerning  money
laundering and similar activities. It understands and agrees that if at any time
it is  discovered  that any of the  foregoing  representations,  warranties  and
covenants  are  incorrect,  or  if  otherwise  required  by  applicable  law  or
regulation  related  to money  laundering  or  similar  activities,  Laurus  may
undertake  appropriate  actions  to ensure  compliance  with  applicable  law or
regulation,  including  but not  limited to  segregation  and/or  redemption  of
Laurus'  investment  in it. It  further  understands  that  Laurus  may  release
confidential  information about it and its Subsidiaries and, if applicable,  any
underlying  beneficial  owners,  to proper  authorities  if Laurus,  in its sole
discretion,  determines  that it is in the best  interests of Laurus in light of
relevant  rules and  regulations  under the laws set  forth in  subsection  (ii)
above.

                                       25
<PAGE>

                  (aa)  COMPANY   NAME;   LOCATIONS  OF  OFFICES,   RECORDS  AND
COLLATERAL.  SCHEDULE  12(aa)  sets forth each  Company's  name as it appears in
official  filings in the state of its  organization,  the type of entity of each
Company, the organizational identification number issued by each Company's state
of  organization  or a  statement  that no such  number  has been  issued,  each
Company's  state of  organization,  and the  location  of each  Company's  chief
executive office, corporate offices,  warehouses,  other locations of Collateral
and locations  where records with respect to Collateral  are kept  (including in
each  case the  county  of such  locations)  and,  except  as set  forth in such
SCHEDULE  12(aa),  such locations  have not changed during the preceding  twelve
months. As of the Closing Date, during the prior five years, except as set forth
in SCHEDULE  12(aa),  no Company has been known as or conducted  business in any
other  name  (including  trade  names).  Each  Company  has  only  one  state of
organization.

                  (bb) ERISA. Based upon the Employee Retirement Income Security
Act of  1974  ("ERISA"),  and  the  regulations  and  published  interpretations
thereunder:  (i)  neither  it nor any of its  Subsidiaries  has  engaged  in any
Prohibited  Transactions (as defined in Section 406 of ERISA and Section 4975 of
the Code);  (ii) it and each of its Subsidiaries has met all applicable  minimum
funding  requirements  under Section 302 of ERISA in respect of its plans; (iii)
neither  it nor  any of its  Subsidiaries  has any  knowledge  of any  event  or
occurrence  which  would  cause the  Pension  Benefit  Guaranty  Corporation  to
institute  proceedings under Title IV of ERISA to terminate any employee benefit
plan(s);  (iv)  neither  it nor  any  of  its  Subsidiaries  has  any  fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than its or such Subsidiary's employees; and (v) neither it nor
any of its  Subsidiaries  has  withdrawn,  completely  or  partially,  from  any
multi-employer  pension plan so as to incur  liability  under the  Multiemployer
Pension Plan Amendments Act of 1980.

                  13.  COVENANTS.  Each Company,  as  applicable,  covenants and
agrees with Laurus as follows:

                  (a)  STOP-ORDERS.  It shall advise  Laurus,  promptly after it
receives notice of issuance by the SEC, any state  securities  commission or any
other  regulatory  authority  of any stop  order or of any order  preventing  or
suspending any offering of any securities of the Parent, or of the suspension of
the  qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.

                  (b)  LISTING.   It  shall  promptly   secure  the  listing  or
quotation, as applicable, of the shares of Common Stock issuable upon conversion
of the Notes and  exercise of the  Warrants on the  Principal  Market upon which
shares of Common Stock are listed or quoted, as applicable, (subject to official
notice of issuance) and shall maintain such listing or quotation, as applicable,
so long as any other  shares of Common  Stock  shall be so listed or quoted,  as
applicable.  The Parent shall maintain the listing or quotation,  as applicable,
of its Common  Stock on the  Principal  Market,  and will comply in all material
respects with the Parent's  reporting,  filing and other  obligations  under the
bylaws or rules of the National  Association of Securities  Dealers ("NASD") and
such exchanges, as applicable.

                  (c) MARKET  REGULATIONS.  It shall  notify  the SEC,  NASD and
applicable  state  authorities,  in accordance with their  requirements,  of the
transactions  contemplated by this

                                       26
<PAGE>

Agreement,  and shall take all other necessary  action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the  Securities to Laurus and promptly  provide copies thereof
to Laurus.

                  (d) REPORTING REQUIREMENTS.  It shall timely file with the SEC
all reports  required to be filed  pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.

                  (e) USE OF FUNDS.  It shall use the  proceeds  of the Loans to
repay  Wells  Fargo Bank in full in an amount not to exceed  $4,425,000  and for
general working capital  purposes only.

                  (f) ACCESS TO  FACILITIES.  It shall,  and shall cause each of
its  Subsidiaries  to, permit any  representatives  designated by Laurus (or any
successor of Laurus),  upon reasonable  notice and during normal business hours,
at  Company's  expense and  accompanied  by a  representative  of Company  Agent
(provided  that no such prior  notice  shall be required to be given and no such
representative  shall be  required  to  accompany  Laurus  in the  event  Laurus
believes  such access is  necessary  to preserve  or protect the  Collateral  or
following the occurrence and during the continuance of an Event of Default), to:

                           (i)  visit  and  inspect  any  of  its  or  any  such
Subsidiary's properties;

                           (ii) examine its or any such  Subsidiary's  corporate
and  financial  records  (unless such  examination  is not permitted by federal,
state  or  local  law or by  contract)  and  make  copies  thereof  or  extracts
therefrom; and

                           (iii) discuss its or any such  Subsidiary's  affairs,
finances and accounts with its or any such Subsidiary's directors,  officers and
Accountants.

Notwithstanding  the  foregoing,  neither it nor any of its  Subsidiaries  shall
provide any  material,  non-public  information  to Laurus unless Laurus signs a
confidentiality  agreement and otherwise  complies with Regulation FD, under the
federal securities laws.

                  (g) TAXES. It shall,  and shall cause each of its Subsidiaries
to, promptly pay and discharge, or cause to be paid and discharged, when due and
payable,  all  lawful  taxes,  assessments  and  governmental  charges or levies
imposed upon it and its Subsidiaries' income, profits,  property or business, as
the case may be; provided,  however,  that any such tax,  assessment,  charge or
levy need not be paid currently if (i) the validity  thereof shall currently and
diligently be contested in good faith by appropriate proceedings, (ii) such tax,
assessment,  charge or levy shall have no effect on the Lien  priority of Laurus
in the Collateral, and (iii) if it and/or such Subsidiary, as applicable,  shall
have set aside on its and/or such  Subsidiary's  books  adequate  reserves  with
respect thereto in accordance with GAAP; and provided,  further,  that it shall,
and shall cause each of its  Subsidiaries  to, pay all such taxes,  assessments,
charges or levies  forthwith upon the  commencement  of proceedings to foreclose
any lien which may have attached as security therefor.

                                       27
<PAGE>

                  (h)  INSURANCE.  It shall  bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. It and each of its
Subsidiaries  shall keep its assets which are of an insurable  character insured
by  financially  sound and  reputable  insurers  against loss or damage by fire,
explosion and other risks  customarily  insured  against by companies in similar
business  similarly  situated  as it  and  its  Subsidiaries;  and  it  and  its
Subsidiaries  shall maintain,  with  financially  sound and reputable  insurers,
insurance  against other hazards and risks and liability to persons and property
to the  extent  and in the  manner  which  it  and/or  such  Subsidiary  thereof
reasonably  believes is customary  for companies in similar  business  similarly
situated as it and its  Subsidiaries and to the extent available on commercially
reasonable  terms.  It and each of its  Subsidiaries  will jointly and severally
bear the full risk of loss from any loss of any nature  whatsoever  with respect
to the assets  pledged to Laurus as security for its  obligations  hereunder and
under the Ancillary Agreements.  At its own cost and expense in amounts and with
carriers reasonably  acceptable to Laurus, it and each of its Subsidiaries shall
(i) keep all their  insurable  properties  and  properties in which they have an
interest insured against the hazards of fire, flood,  sprinkler  leakage,  those
hazards covered by extended coverage  insurance and such other hazards,  and for
such  amounts,  as is customary in the case of companies  engaged in  businesses
similar to it or the respective  Subsidiary's  including  business  interruption
insurance;  (ii)  maintain a bond in such amounts as is customary in the case of
companies  engaged in businesses  similar to it and its  Subsidiaries'  insuring
against larceny,  embezzlement or other criminal  misappropriation  of insured's
officers and  employees who may either singly or jointly with others at any time
have access to its or any of its Subsidiaries assets or funds either directly or
through  governmental  authority to draw upon such funds or to direct  generally
the  disposition  of such assets;  (iii) maintain  public and product  liability
insurance against claims for personal injury,  death or property damage suffered
by others; (iv) maintain all such worker's  compensation or similar insurance as
may be required under the laws of any state or  jurisdiction  in which it or any
of its  Subsidiaries  is engaged in  business;  and (v) furnish  Laurus with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty  (30)  days  before  any  expiration  date,  (y)  excepting  its  and its
Subsidiaries' workers' compensation policy, endorsements to such policies naming
Laurus as  "co-insured"  or "additional  insured" and  appropriate  loss payable
endorsements  in form and  substance  satisfactory  to Laurus,  naming Laurus as
lenders loss payee,  and (z) evidence that as to Laurus the  insurance  coverage
shall not be impaired or invalidated by any act or neglect of any Company or any
of its  Subsidiaries  and the insurer will  provide  Laurus with at least thirty
(30) days notice prior to cancellation. It shall instruct the insurance carriers
that in the event of any loss  thereunder,  the carriers  shall make payment for
such loss to Laurus and not to any Company or any of its Subsidiaries and Laurus
jointly.  If any insurance  losses are paid by check,  draft or other instrument
payable to any Company and/or any of its Subsidiaries and Laurus jointly, Laurus
may endorse, as applicable,  such Company's and/or any of its Subsidiaries' name
thereon and do such other things as Laurus may deem advisable to reduce the same
to cash. Laurus is hereby authorized to adjust and compromise  claims.  All loss
recoveries  received  by Laurus  upon any such  insurance  may be applied to the
Obligations,  in such order as Laurus in its sole discretion  shall determine or
shall  otherwise be delivered to Company Agent for the benefit of the applicable
Company and/or its Subsidiaries.  Any surplus shall be paid by Laurus to Company
Agent for the benefit of the  applicable  Company  and/or its  Subsidiaries,  or
applied as may be otherwise  required by law.

                                       28
<PAGE>

Any  deficiency  thereon  shall be paid, as  applicable,  by Companies and their
Subsidiaries to Laurus, on demand.

                  (i) INTELLECTUAL  PROPERTY.  It shall, and shall cause each of
its Subsidiaries to, maintain in full force and effect its corporate  existence,
rights and  franchises  and all licenses  and other  rights to use  Intellectual
Property owned or possessed by it and  reasonably  deemed to be necessary to the
conduct of its business.

                  (j)  PROPERTIES.  It  shall,  and  shall  cause  each  of  its
Subsidiaries  to,  keep  its  properties  in  good  repair,  working  order  and
condition,  reasonable  wear and tear  excepted,  and from time to time make all
needful and proper repairs, renewals,  replacements,  additions and improvements
thereto; and it shall, and shall cause each of its Subsidiaries to, at all times
comply with each  provision  of all leases to which it is a party or under which
it  occupies  property  if the  breach of such  provision  could  reasonably  be
expected to have a Material Adverse Effect.

                  (k) CONFIDENTIALITY. It shall not, and shall not permit any of
its Subsidiaries to, disclose,  and will not include in any public announcement,
the name of  Laurus,  unless  expressly  agreed to by Laurus or unless and until
such  disclosure is required by law or applicable  regulation,  and then only to
the extent of such requirement.  Notwithstanding the foregoing, each Company and
its  Subsidiaries  may disclose Laurus' identity and the terms of this Agreement
to its current and prospective debt and equity financing sources.

                  (l) REQUIRED APPROVALS. It shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of Laurus, (i) create,
incur,  assume or suffer to exist any  indebtedness  (exclusive  of trade  debt)
whether secured or unsecured, in excess of $100,000 in the aggregate, other than
each  Company's  indebtedness  to Laurus and as set forth on  SCHEDULE  13(l)(i)
attached  hereto  and made a part  hereof;  (ii)  cancel any debt owing to it in
excess of $100,000 in the aggregate  during any 12 month  period;  (iii) assume,
guarantee,  endorse or  otherwise  become  directly  or  contingently  liable in
connection with any  obligations of any other Person,  except the endorsement of
negotiable  instruments by it or its  Subsidiaries  for deposit or collection or
similar  transactions  in the  ordinary  course of  business;  (iv)  directly or
indirectly declare, pay or make any dividend or distribution on any class of its
Stock or apply any of its funds, property or assets to the purchase,  redemption
or other retirement of any of its or its Subsidiaries'  Stock outstanding on the
date hereof, or issue any preferred stock; (v) purchase or hold beneficially any
Stock or other  securities  or evidences of  indebtedness  of, make or permit to
exist any loans or advances to, or make any  investment  or acquire any interest
whatsoever  in, any other Person,  including any  partnership  or joint venture,
except (x) travel advances,  (y) loans to its and its Subsidiaries' officers and
employees not  exceeding at any one time an aggregate of $10,000,  and (z) loans
to its existing  Subsidiaries  so long as such  Subsidiaries  are  designated as
either a  co-borrower  hereunder or has entered into such  guaranty and security
documentation  required by Laurus,  including,  without limitation,  to grant to
Laurus a first priority perfected security interest in substantially all of such
Subsidiary's  assets to secure the  Obligations;  (vi) create or permit to exist
any  Subsidiary,  other than any  Subsidiary in existence on the date hereof and
listed in SCHEDULE 12(b) unless such new Subsidiary is a wholly-owned Subsidiary
and is designated by Laurus as either a co-borrower  or guarantor  hereunder and
such  Subsidiary  shall have  entered  into all such  documentation  required by
Laurus, including, without limitation, to

                                       29
<PAGE>

grant to Laurus a first priority  perfected  security  interest in substantially
all of such  Subsidiary's  assets to secure the  Obligations;  (vii) directly or
indirectly,  prepay any  indebtedness  (other than to Laurus and in the ordinary
course of business),  or  repurchase,  redeem,  retire or otherwise  acquire any
indebtedness  (other  than to Laurus  and in the  ordinary  course of  business)
except to make  scheduled  payments of principal  and interest  thereof;  (viii)
enter into any merger,  consolidation or other  reorganization  with or into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to  consolidate  with or merge with it,  unless (1) such
Company is the surviving entity of such merger or consolidation, (2) no Event of
Default shall exist  immediately prior to and after giving effect to such merger
or  consolidation,  (3) such Company  shall have  provided  Laurus copies of all
documentation  relating to such  merger or  consolidation  and (4) such  Company
shall have provided  Laurus with at least thirty (30) days' prior written notice
of such  merger or  consolidation;  (ix)  materially  change  the  nature of the
business in which it is presently  engaged;  (x) become  subject to  (including,
without limitation,  by way of amendment to or modification of) any agreement or
instrument  which by its terms would (under any  circumstances)  restrict its or
any of its  Subsidiaries'  right to perform the  provisions of this Agreement or
any of the Ancillary Agreements; (xi) change its fiscal year or make any changes
in accounting  treatment and reporting practices without prior written notice to
Laurus except as required by GAAP or in the tax reporting treatment or except as
required by law; (xii) enter into any transaction with any employee, director or
Affiliate,  except in the  ordinary  course on  arms-length  terms;  (xiii) bill
Accounts under any name except the present name of such Company;  or (xiv) sell,
lease,  transfer or otherwise dispose of any of its properties or assets, or any
of the  properties  or assets of its  Subsidiaries,  except  for (1) the sale of
Inventory in the ordinary course of business and (2) the disposition or transfer
in the  ordinary  course of  business  during any fiscal  year of  obsolete  and
worn-out  Equipment  and only to the extent  that (x) the  proceeds  of any such
disposition  are used to  acquire  replacement  Equipment  which is  subject  to
Laurus' first  priority  security  interest or are used to repay Loans or to pay
general  corporate  expenses,  or (y)  following  the  occurrence of an Event of
Default which  continues to exist,  the proceeds of which are remitted to Laurus
to be held as cash collateral for the Obligations.

                  (m)  REISSUANCE  OF  SECURITIES.   The  Parent  shall  reissue
certificates  representing  the  Securities  without  the  legends  set forth in
Section 39 below at such time as:

                           (i) the  holder  thereof is  permitted  to dispose of
such Securities pursuant to Rule 144(k) under the Securities Act; or

                           (ii) upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act.

The Parent  agrees to  cooperate  with  Laurus in  connection  with all  resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions  necessary to
allow  such  resales  provided  the Parent and its  counsel  receive  reasonably
requested representations from Laurus and broker, if any.

                  (n) OPINION.  On the Closing  Date, it shall deliver to Laurus
an opinion acceptable to Laurus from each Company's legal counsel.  Each Company
will provide,  at the

                                       30
<PAGE>

Companies' joint and several expense, such other legal opinions in the future as
are reasonably necessary for the conversion of the Notes and the exercise of the
Warrants.

                  (o) LEGAL NAME, ETC. It shall not,  without  providing  Laurus
with 30 days  prior  written  notice,  change  (i) its name as it appears in the
official filings in the state of its organization, (ii) the type of legal entity
it is, (iii) its organization identification number, if any, issued by its state
of organization,  (iv) its state of organization or (v) amend its certificate of
incorporation, by-laws or other organizational document.

                  (p)  COMPLIANCE  WITH LAWS.  The  operation of each of its and
each of its Subsidiaries'  business is and shall continue to be in compliance in
all material respects with all applicable  federal,  state and local laws, rules
and ordinances, including to all laws, rules, regulations and orders relating to
taxes,  payment  and  withholding  of  payroll  taxes,   employer  and  employee
contributions  and similar items,  securities,  employee  retirement and welfare
benefits, employee health and safety and environmental matters.

                  (q) NOTICES.  It and each of its  Subsidiaries  shall promptly
inform  Laurus in  writing  of:  (i) the  commencement  of all  proceedings  and
investigations  by or  before  and/or  the  receipt  of any  notices  from,  any
governmental  or  nongovernmental  body and all actions and  proceedings  in any
court or before any arbitrator  against or in any way concerning any event which
could  reasonably  be expected to have  singly or in the  aggregate,  a Material
Adverse Effect;  (ii) any change which has had, or could  reasonably be expected
to have, a Material Adverse Effect;  (iii) any Event of Default or Default;  and
(iv) any default or any event which with the passage of time or giving of notice
or both would  constitute a default under any agreement for the payment of money
to which it or any of its  Subsidiaries  is a party or by which it or any of its
Subsidiaries or any of its or any such Subsidiary's  properties may be bound the
breach of which would have a Material Adverse Effect.

                  (r) MARGIN  STOCK.  It shall not permit any of the proceeds of
the Loans made  hereunder to be used  directly or  indirectly  to  "purchase" or
"carry"  "margin  stock" or to repay  indebtedness  incurred  to  "purchase"  or
"carry"  "margin  stock"  within the  respective  meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time  hereafter in effect.

                  (s) OFFERING  RESTRICTIONS.  Except as previously disclosed in
the SEC  Reports  or in the  Exchange  Act  Filings,  or stock or stock  options
granted to its  employees or directors,  neither it nor any of its  Subsidiaries
shall, prior to the full repayment or conversion of the Notes (together with all
accrued and unpaid interest and fees related thereto), (x) enter into any equity
line of credit  agreement or similar  agreement or (y) issue,  or enter into any
agreement to issue, any securities with a  variable/floating  conversion  and/or
pricing  feature  which  are  or  could  be  (by  conversion  or   registration)
free-trading securities (i.e. common stock subject to a registration statement).

                  (t) AUTHORIZATION AND RESERVATION OF SHARES.  The Parent shall
at all times  have  authorized  and  reserved a  sufficient  number of shares of
Common  Stock to provide  for the  conversion  of the Notes and  exercise of the
Warrants.

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<PAGE>

                  (u) FINANCING RIGHT OF FIRST REFUSAL.

                           (i) It  hereby  grants  to  Laurus  a right  of first
refusal to provide any  Additional  Financing (as defined below) to be issued by
any Company and/or any of its Subsidiaries (the "ADDITIONAL FINANCING PARTIES"),
subject to the following terms and  conditions.  From and after the date hereof,
prior  to the  incurrence  of any  additional  indebtedness  and/or  the sale or
issuance  of any  equity  interests  of the  Additional  Financing  Parties  (an
"ADDITIONAL  FINANCING"),  Company Agent shall notify Laurus of such  Additional
Financing. In connection therewith,  Company Agent shall submit a fully executed
term  sheet (a  "PROPOSED  TERM  SHEET")  to Laurus  setting  forth  the  terms,
conditions and pricing of any such  Additional  Financing  (such financing to be
negotiated  on "arm's  length"  terms and the terms  thereof to be negotiated in
good faith)  proposed to be entered into by the  Additional  Financing  Parties.
Laurus shall have the right, but not the obligation, to deliver to Company Agent
its own proposed  term sheet (the "LAURUS TERM SHEET")  setting  forth the terms
and  conditions  upon which Laurus  would be willing to provide such  Additional
Financing  to the  Additional  Financing  Parties.  The Laurus  Term Sheet shall
contain terms no less favorable to the Additional  Financing  Parties than those
outlined  in Proposed  Term Sheet.  Laurus  shall  deliver to Company  Agent the
Laurus Term Sheet within ten Business Days of receipt of each such Proposed Term
Sheet.  If the  provisions of the Laurus Term Sheet are at least as favorable to
the Additional  Financing  Parties as the provisions of the Proposed Term Sheet,
the Additional  Financing Parties shall enter into and consummate the Additional
Financing transaction outlined in the Laurus Term Sheet.

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

                  14.  FURTHER  ASSURANCES.  At any time and from  time to time,
upon the written  request of Laurus and at the sole expense of  Companies,  each
Company  shall  promptly  and duly  execute and deliver any and all such further
instruments and documents and take such further action as Laurus may request (a)
to obtain the full benefits of this Agreement and the Ancillary Agreements,  (b)
to protect,  preserve and maintain  Laurus'  rights in the  Collateral and under
this  Agreement  or any  Ancillary  Agreement,  and/or  (c) to enable  Laurus to
exercise  all or any of the rights and powers  herein  granted or any  Ancillary
Agreement.

                  15.  REPRESENTATIONS,  WARRANTIES  AND  COVENANTS  OF  LAURUS.
Laurus hereby represents, warrants and covenants to each Company as follows:

                  (a) REQUISITE  POWER AND  AUTHORITY.  Laurus has all necessary
power and  authority  under all  applicable  provisions  of law to  execute  and
deliver  this  Agreement  and the  Ancillary  Agreements  and to carry out their
provisions.  All  corporate  action on  Laurus'  part  required  for the  lawful
execution and delivery of this Agreement and the Ancillary  Agreements have been
or will be effectively taken prior to the Closing Date. Upon their execution and
delivery, this Agreement and the Ancillary Agreements shall be valid and binding
obligations of Laurus, enforceable in accordance with their terms, except (a) as
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other laws of general  application

                                       32
<PAGE>

affecting  enforcement  of  creditors'  rights,  and (b) as  limited  by general
principles  of equity that  restrict the  availability  of  equitable  and legal
remedies.

                  (b) INVESTMENT  REPRESENTATIONS.  Laurus  understands that the
Securities  are  being  offered  pursuant  to  an  exemption  from  registration
contained  in the  Securities  Act  based in part upon  Laurus'  representations
contained in this Agreement,  including,  without limitation,  that Laurus is an
"accredited  investor"  within the meaning of Regulation D under the  Securities
Act.  Laurus  has  received  or has had full  access to all the  information  it
considers  necessary or appropriate to make an informed investment decision with
respect to the Notes to be issued to it under this  Agreement and the Securities
acquired by it upon the conversion of the Notes.

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

                  (d)  INVESTMENT  FOR OWN  ACCOUNT.  The  Securities  are being
issued to Laurus for its own account for  investment  only, and not as a nominee
or agent and not with a view  towards  or for  resale in  connection  with their
distribution.

                  (e) LAURUS CAN PROTECT ITS INTEREST. Laurus represents that by
reason of its, or of its management's, business and financial experience, Laurus
has the  capacity  to  evaluate  the merits and risks of its  investment  in the
Notes,  and the Securities  and to protect its own interests in connection  with
the transactions  contemplated in this Agreement,  and the Ancillary Agreements.
Further,  Laurus is aware of no publication of any  advertisement  in connection
with the transactions contemplated in the Agreement or the Ancillary Agreements.

                  (f)  ACCREDITED  INVESTOR.  Laurus  represents  that  it is an
accredited investor within the meaning of Regulation D under the Securities Act.

                  (g)  SHORTING.  Neither  Laurus nor any of its  Affiliates  or
investment  partners has, will, or will cause any Person,  to directly engage in
"short sales" of the Parent's Common Stock as long as any Minimum Borrowing Note
shall be outstanding.

                  (h) PATRIOT ACT. Laurus certifies that, to the best of Laurus'
knowledge,  Laurus has not been designated, and is not owned or controlled, by a
"suspected  terrorist"  as defined in  Executive  Order  13224.  Laurus seeks to
comply  with  all  applicable  laws  concerning  money  laundering  and  related
activities. In furtherance of those efforts, Laurus hereby represents,  warrants
and  covenants  that:  (i) none of the cash or property  that Laurus will use to
make the Loans has been or shall be derived  from,  or related to, any  activity
that is deemed  criminal  under United States law; and (ii) no  disbursement  by
Laurus to any Company to the extent within Laurus'  control,  shall cause Laurus
to be in  violation of the United  States Bank  Secrecy  Act, the United  States
International  Money  Laundering  Control  Act  of  1986  or the  United  States
International  Money Laundering  Abatement and  Anti-Terrorist  Financing Act of

                                       33
<PAGE>

2001.   Laurus  shall  promptly  notify  the  Company  Agent  if  any  of  these
representations  ceases to be true and accurate regarding Laurus.  Laurus agrees
to provide the  Company any  additional  information  regarding  Laurus that the
Company deems  necessary or convenient to ensure  compliance with all applicable
laws concerning money laundering and similar activities.  Laurus understands and
agrees  that  if at  any  time  it is  discovered  that  any  of  the  foregoing
representations  are  incorrect,  or if otherwise  required by applicable law or
regulation related to money laundering similar activities,  Laurus may undertake
appropriate  actions to ensure  compliance  with  applicable  law or regulation,
including but not limited to segregation and/or redemption of Laurus' investment
in  the  Parent.   Laurus  further  understands  that  the  Parent  may  release
information about Laurus and, if applicable,  any underlying  beneficial owners,
to proper authorities if the Parent, in its sole discretion,  determines that it
is in the  best  interests  of  the  Parent  in  light  of  relevant  rules  and
regulations under the laws set forth in subsection (ii) above.

                  (i) LIMITATION ON ACQUISITION OF COMMON STOCK. Notwithstanding
anything to the contrary contained in this Agreement,  any Ancillary  Agreement,
or any  document,  instrument or agreement  entered into in connection  with any
other  transaction  entered into by and between  Laurus and any Company  (and/or
Subsidiaries  or Affiliates  of any Company),  Laurus shall not acquire stock in
the Parent (including,  without limitation,  pursuant to a contract to purchase,
by  exercising  an option or  warrant,  by  converting  any  other  security  or
instrument,  by acquiring or  exercising  any other right to acquire,  shares of
stock or other  security  convertible  into  shares of stock in the  Parent,  or
otherwise, and such options,  warrants,  conversion or other rights shall not be
exercisable)  to the extent  such stock  acquisition  would  cause any  interest
(including any original issue discount)  payable by any Company to Laurus not to
qualify as portfolio  interest,  within the meaning of Section  881(c)(2) of the
Internal  Revenue  Code of 1986,  as amended  (the  "CODE") by reason of Section
881(c)(3) of the Code,  taking into  account the  constructive  ownership  rules
under Section 871(h)(3)(C) of the Code (the "STOCK ACQUISITION LIMITATION"). The
Stock Acquisition  Limitation shall  automatically  become null and void without
any notice to any Company  upon the earlier to occur of either (a) the  Parent's
delivery  to Laurus of a Notice of  Redemption  (as defined in the Notes) or (b)
the existence of an Event of Default at a time when the average closing price of
the Common Stock as reported by Bloomberg,  L.P. on the Principal Market for the
immediately  preceding five trading days is greater than or equal to 150% of the
Fixed Conversion Price (as defined in the Notes).

                  16. POWER OF ATTORNEY. Each Company hereby appoints Laurus, or
any other Person whom Laurus may  designate  as such  Company's  attorney,  with
power to: (i) endorse such  Company's  name on any checks,  notes,  acceptances,
money  orders,  drafts or other forms of payment or security  that may come into
Laurus'  possession;  (ii) sign such  Company's  name on any  invoice or bill of
lading relating to any Accounts,  drafts against Account Debtors,  schedules and
assignments of Accounts,  notices of assignment,  financing statements and other
public records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any Account by
mail, telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement,  any Ancillary  Agreement and all related
documents;  and (v) on or after the occurrence and during the continuation of an
Event of Default,  notify the post office  authorities to change the address for
delivery  of such  Company's  mail to an address  designated  by Laurus,  and to
receive,  open and dispose of all mail  addressed to such Company.  Each Company
hereby ratifies and approves all

                                       34
<PAGE>

acts of the attorney.  Neither  Laurus,  nor the attorney will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law, except
for gross negligence or willful  misconduct.  This power,  being coupled with an
interest, is irrevocable so long as Laurus has a security interest and until the
Obligations have been fully satisfied.

                  17. TERM OF  AGREEMENT.  Laurus'  agreement  to make Loans and
extend financial  accommodations  under and in accordance with the terms of this
Agreement or any  Ancillary  Agreement  shall  continue in full force and effect
until the expiration of the Term. At Laurus'  election  following the occurrence
of an Event of Default, Laurus may terminate this Agreement.  The termination of
the Agreement shall not affect any of Laurus' rights  hereunder or any Ancillary
Agreement  and the  provisions  hereof and  thereof  shall  continue to be fully
operative until all transactions  entered into,  rights or interests created and
the  Obligations  have been  irrevocably  disposed of,  concluded or liquidated.
Notwithstanding  the foregoing,  Laurus shall release its security  interests at
any time after  thirty (30) days notice  upon  irrevocable  payment to it of all
Obligations  if each  Company  shall have (i)  provided  Laurus with an executed
release of any and all claims  which such  Company may have or  thereafter  have
under this  Agreement  and all Ancillary  Agreements  and (ii) paid to Laurus an
early payment fee in an amount equal to (1) three percent  (3.0%) of the Capital
Availability Amount if such payment occurs prior to the first anniversary of the
Closing Date, (2) two percent (2.0%) of the Capital  Availability Amount if such
payment  occurs on or after the first  anniversary of the Closing Date and prior
to the second  anniversary of the Closing Date and (3) one percent (1.0%) of the
Capital  Availability  Amount if such termination  occurs  thereafter during the
Term;  such fee being  intended to compensate  Laurus for its costs and expenses
incurred in initially  approving  this Agreement or extending  same.  Such early
payment fee shall be due and payable  jointly and  severally by the Companies to
Laurus upon  termination by  acceleration of this Agreement by Laurus due to the
occurrence and continuance of an Event of Default.

                  18.  TERMINATION  OF LIEN.  The Liens and  rights  granted  to
Laurus hereunder and any Ancillary Agreements and the financing statements filed
in  connection  herewith or therewith  shall  continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that any Company's
account may from time to time be temporarily in a zero or credit position, until
all of the Obligations  have been  indefeasibly  paid or performed in full after
the  termination  of  this  Agreement.  Laurus  shall  not be  required  to send
termination  statements to any Company,  or to file them with any filing office,
unless and until this  Agreement  and the Ancillary  Agreements  shall have been
terminated in accordance with their terms and all Obligations  indefeasibly paid
in full in immediately available funds.

                  19. EVENTS OF DEFAULT.  The occurrence of any of the following
shall  constitute  an "EVENT OF DEFAULT":

                  (a)  failure to make  payment of any of the  Obligations  when
required  hereunder,  and, in any such case,  such failure shall  continue for a
period of three (3) days following the date upon which any such payment was due;

                  (b) failure by any Company or any of its  Subsidiaries  to pay
any taxes  when due  unless  such  taxes are being  contested  in good  faith by
appropriate  proceedings  and with

                                       35
<PAGE>

respect to which adequate  reserves have been provided on such Company's  and/or
such  Subsidiary's  books;

                  (c) failure to perform under, and/or committing any breach of,
in any material respect,  this Agreement or any covenant contained herein, which
failure or breach  shall  continue  without  remedy for a period of fifteen (15)
days after the occurrence thereof;

                  (d) any  representation,  warranty  or  statement  made by any
Company or any of its Subsidiaries  hereunder,  in any Ancillary Agreement,  any
certificate, statement or document delivered pursuant to the terms hereof, or in
connection with the transactions  contemplated by this Agreement should prove to
be false or misleading  in any material  respect on the date as of which made or
deemed made;

                  (e) the  occurrence  of any default  (or similar  term) in the
observance or  performance of any other  agreement or condition  relating to any
indebtedness or contingent  obligation of any Company or any of its Subsidiaries
(including,  without  limitation,  the  indebtedness  evidenced  by the Purchase
Agreement and the Related  Agreements)  beyond the period of grace (if any), the
effect of which  default  is to cause,  or permit  the holder or holders of such
indebtedness or beneficiary or  beneficiaries  of such contingent  obligation to
cause,  such  indebtedness  to become due prior to its stated  maturity  or such
contingent obligation to become payable;

                  (f)  attachments  or  levies  in  excess  of  $100,000  in the
aggregate are made upon any Company's  assets or a judgment is rendered  against
any Company's  property  involving a liability of more than $100,000 which shall
not have been vacated, discharged, stayed or bonded within thirty (30) days from
the entry thereof;

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

                  (h)  any  Lien  created   hereunder  or  under  any  Ancillary
Agreement  for any  reason  ceases  to be or is not a valid and  perfected  Lien
having a first priority interest;

                  (i) any  Company  or any of its  Subsidiaries  shall (i) apply
for,  consent  to or  suffer  to exist  the  appointment  of,  or the  taking of
possession by, a receiver,  custodian, trustee or liquidator of itself or of all
or a substantial  part of its property,  (ii) make a general  assignment for the
benefit  of  creditors,  (iii)  commence  a  voluntary  case  under the  federal
bankruptcy laws (as now or hereafter in effect),  (iv) be adjudicated a bankrupt
or  insolvent,  (v) file a petition  seeking to take  advantage of any other law
providing for the relief of debtors,  (vi) acquiesce to without challenge within
ten (10) days of the filing thereof,  or failure to have dismissed within thirty
(30) days,  any petition  filed  against it in any  involuntary  case under such
bankruptcy  laws,  or (vii) take any action for the purpose of effecting  any of
the foregoing;

                  (j) any  Company  or any of its  Subsidiaries  shall  admit in
writing its inability,  or be generally  unable, to pay its debts as they become
due or cease operations of its present business;

                                       36
<PAGE>

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

                  (l) (i) any  "Person" or "group" (as such terms are defined in
Sections  13(d) and 14(d) of the Exchange Act, as in effect on the date hereof),
other than the Holder, is or becomes the "beneficial owner" (as defined in Rules
13(d)-3 and 13(d)-5 under the Exchange Act),  directly or indirectly,  of 35% or
more on a fully diluted basis of the then outstanding  voting equity interest of
any Company (other than a "Person" or "group" that beneficially owns 35% or more
of such  outstanding  voting equity  interests of the respective  Company on the
date  hereof),  (ii) the Board of Directors of the Parent shall cease to consist
of a majority  of the Board of  Directors  of the Parent on the date  hereof (or
directors  appointed  by  a  majority  of  the  board  of  directors  in  effect
immediately  prior  to such  appointment)  or  (iii)  the  Parent  or any of its
Subsidiaries  merges or consolidates  with, unless the Parent of such Subsidiary
is the surviving entity, or sells all or substantially all of its assets to, any
other person or entity;

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

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

                  (o) any Company or any of its  Subsidiaries  shall  breach any
term or provision  of any  Ancillary  Agreement  to which it is a party,  in any
material  respect which breach is not cured within any applicable  cure or grace
period provided in respect thereof (if any);

                  (p)  any  Company  or  any  of its  Subsidiaries  attempts  to
terminate,  challenges the validity of, or its liability under this Agreement or
any Ancillary  Agreement,  or any  proceeding  shall be brought to challenge the
validity,  binding effect of any Ancillary  Agreement or any Ancillary Agreement
ceases to be a valid, binding and enforceable  obligation of such Company or any
of its Subsidiaries (to the extent such Persons are a party thereto);

                  (q) an SEC  stop  trade  order  or  Principal  Market  trading
suspension of the Common Stock shall be in effect for five (5) consecutive  days
or five (5) days during a period of ten (10) consecutive days,  excluding in all
cases a  suspension  of all trading on a  Principal  Market,  provided  that the
Parent shall not have been able to cure such trading  suspension  within  thirty
(30) days of the notice  thereof or list the Common  Stock on another  Principal
Market within sixty (60) days of such notice; or

                  (r) The  Parent's  failure to deliver  Common  Stock to Laurus
pursuant to and in the form  required by the Notes and this  Agreement,  if such
failure to deliver  Common Stock shall not be cured within two (2) Business Days
or any  Company  is  required  to issue a

                                       37
<PAGE>

replacement  Note  to  Laurus  and  such  Company  shall  fail to  deliver  such
replacement  Note within seven (7) Business  Days.

                  20. REMEDIES. Following the occurrence of an Event of Default,
Laurus  shall  have the right to demand  repayment  in full of all  Obligations,
whether  or not  otherwise  due.  Until  all  Obligations  have  been  fully and
indefeasibly satisfied,  Laurus shall retain its Lien in all Collateral.  Laurus
shall  have,  in  addition  to all  other  rights  provided  herein  and in each
Ancillary  Agreement,  the rights and remedies of a secured party under the UCC,
and under other  applicable  law, all other legal and equitable  rights to which
Laurus may be entitled,  including the right to take immediate possession of the
Collateral,  to require each Company to assemble the  Collateral,  at Companies'
joint  and  several  expense,  and to make it  available  to  Laurus  at a place
designated by Laurus which is reasonably convenient to both parties and to enter
any of the premises of any Company or wherever the Collateral  shall be located,
with or without  force or process of law, and to keep and store the same on said
premises  until sold (and if said premises be the property of any Company,  such
Company agrees not to charge Laurus for storage thereof), and the right to apply
for the appointment of a receiver for such Company's property.  Further,  Laurus
may, at any time or times after the occurrence of an Event of Default,  sell and
deliver all Collateral held by or for Laurus at public or private sale for cash,
upon  credit or  otherwise,  at such  prices and upon such  terms as Laurus,  in
Laurus' sole  discretion,  deems advisable or Laurus may otherwise  recover upon
the  Collateral in any  commercially  reasonable  manner as Laurus,  in its sole
discretion,  deems advisable.  The requirement of reasonable notice shall be met
if such notice is mailed  postage  prepaid to Company  Agent at Company  Agent's
address as shown in Laurus'  records,  at least ten (10) days before the time of
the event of which  notice is being  given.  Laurus may be the  purchaser at any
sale,  if it is  public.  In  connection  with  the  exercise  of the  foregoing
remedies, Laurus is granted permission to use all of each Company's Intellectual
Property.  The proceeds of sale shall be applied first to all costs and expenses
of sale, including attorneys' fees, and second to the payment (in whatever order
Laurus  elects)  of  all  Obligations.   After  the  indefeasible   payment  and
satisfaction in full of all of the Obligations,  and after the payment by Laurus
of any  other  amount  required  by any  provision  of  law,  including  Section
9-608(a)(1) of the UCC (but only after Laurus has received what Laurus considers
reasonable proof of a subordinate  party's security  interest),  the surplus, if
any,  shall  be paid  to  Company  Agent  (for  the  benefit  of the  applicable
Companies) or its  representatives  or to whosoever may be lawfully  entitled to
receive  the same,  or as a court of  competent  jurisdiction  may  direct.  The
Companies  shall  remain  jointly  and  severally   liable  to  Laurus  for  any
deficiency.  In addition, the Companies shall jointly and severally pay Laurus a
liquidation  fee  ("LIQUIDATION  FEE") in the amount of five percent (5%) of the
actual  amount  collected  in respect of each  Account  outstanding  at any time
during a Liquidation Period". For purposes hereof,  "LIQUIDATION PERIOD" means a
period:  (i)  beginning  on the  earliest  date of (x) an event  referred  to in
Section 19(i) or 19(j), or (y) the cessation of any Company's business; and (ii)
ending on the date on which Laurus has actually received all Obligations due and
owing it under this Agreement and the Ancillary Agreements.  The Liquidation Fee
shall be paid on the date on which  Laurus  collects the  applicable  Account by
deduction from the proceeds  thereof.  Each Company and Laurus  acknowledge that
the actual  damages that would be incurred by Laurus after the  occurrence of an
Event of Default would be difficult to quantify and that such Company and Laurus
have agreed that the fees and  obligations set forth in this Section and in this

                                       38
<PAGE>

Agreement would constitute fair and appropriate  liquidated damages in the event
of any such termination.

                  21. WAIVERS.  To the full extent  permitted by applicable law,
each Company hereby waives (a)  presentment,  demand and protest,  and notice of
presentment,  dishonor,  intent to accelerate,  acceleration,  protest, default,
nonpayment,  maturity, release, compromise,  settlement, extension or renewal of
any or all of this  Agreement and the  Ancillary  Agreements or any other notes,
commercial paper, Accounts, contracts, Documents, Instruments, Chattel Paper and
guaranties  at any time held by Laurus on which such  Company  may in any way be
liable,  and hereby ratifies and confirms whatever Laurus may do in this regard;
(b) all rights to notice and a hearing  prior to Laurus'  taking  possession  or
control of, or to Laurus'  replevy,  attachment or levy upon,  any Collateral or
any bond or  security  that might be  required  by any court  prior to  allowing
Laurus to exercise any of its  remedies;  and (c) the benefit of all  valuation,
appraisal and exemption laws. Each Company acknowledges that it has been advised
by counsel of its choices and  decisions  with  respect to this  Agreement,  the
Ancillary  Agreements and the  transactions  evidenced  hereby and thereby.

                  22.  EXPENSES.  The Companies  shall jointly and severally pay
all of Laurus'  out-of-pocket costs and expenses,  including reasonable fees and
disbursements of in-house or outside counsel and appraisers,  in connection with
the  preparation,  execution  and delivery of this  Agreement  and the Ancillary
Agreements,  and in connection  with the  prosecution  or defense of any action,
contest,  dispute,  suit or proceeding  concerning any matter in any way arising
out of, related to or connected with this Agreement or any Ancillary  Agreement.
The Companies  shall also jointly and  severally  pay all of Laurus'  reasonable
fees,   charges,   out-of-pocket   costs  and  expenses,   including   fees  and
disbursements of counsel and appraisers, in connection with (a) the preparation,
execution and delivery of any waiver,  any amendment thereto or consent proposed
or executed in connection with the  transactions  contemplated by this Agreement
or  the  Ancillary   Agreements,   (b)  Laurus'  obtaining  performance  of  the
Obligations under this Agreement and any Ancillary  Agreements,  including,  but
not  limited  to, the  enforcement  or defense  of Laurus'  security  interests,
assignments of rights and Liens hereunder as valid perfected security interests,
(c) any  attempt to  inspect,  verify,  protect,  collect,  sell,  liquidate  or
otherwise dispose of any Collateral,  (d) any appraisals or re-appraisals of any
property  (real or  personal)  pledged  to Laurus by any  Company  or any of its
Subsidiaries  as  Collateral  for,  or any other  Person as  security  for,  the
Obligations  hereunder and (e) any  consultations  in connection with any of the
foregoing.  The Companies shall also jointly and severally pay Laurus' customary
bank  charges for all bank  services  (including  wire  transfers)  performed or
caused to be performed by Laurus for any Company or any of its  Subsidiaries  at
any Company's or such  Subsidiary's  request or in connection with any Company's
loan account with Laurus.  All such costs and expenses together with all filing,
recording and search fees, taxes and interest payable by the Companies to Laurus
shall be payable on demand and shall be secured by the Collateral. If any tax by
any  Governmental  Authority  is or  may be  imposed  on or as a  result  of any
transaction  between any Company and/or any Subsidiary thereof, on the one hand,
and Laurus on the other hand,  which Laurus is or may be required to withhold or
pay, the Companies  hereby  jointly and severally  indemnifies  and holds Laurus
harmless in respect of such taxes,  and the  Companies  will repay to Laurus the
amount of any such taxes which shall be charged to the Companies'  account;  and
until the Companies  shall  furnish  Laurus with  indemnity  therefor (or supply
Laurus  with

                                       39
<PAGE>

evidence  satisfactory to it that due provision for the payment thereof has been
made),  Laurus may hold without  interest any balance standing to each Company's
credit  and  Laurus  shall  retain  its  Liens  in any and all  Collateral.

                  23. ASSIGNMENT BY LAURUS.  Laurus may assign any or all of the
Obligations  together with any or all of the security therefor to any Person and
any such assignee shall succeed to all of Laurus'  rights with respect  thereto;
provided  that Laurus shall not be permitted to effect any such  assignment to a
competitor  of any  Company  unless  an Event of  Default  has  occurred  and is
continuing.   Upon  such   assignment,   Laurus  shall  be  released   from  all
responsibility  for  the  Collateral  to the  extent  same  is  assigned  to any
transferee.  Laurus may from time to time sell or otherwise grant participations
in any of the  Obligations  and the  holder  of any  such  participation  shall,
subject  to the  terms of any  agreement  between  Laurus  and such  holder,  be
entitled to the same  benefits as Laurus with  respect to any  security  for the
Obligations in which such holder is a participant. Each Company agrees that each
such  holder may  exercise  any and all rights of  banker's  lien,  set-off  and
counterclaim  with respect to its  participation  in the Obligations as fully as
though such Company were directly  indebted to such holder in the amount of such
participation.

                  24.  NO  WAIVER;  CUMULATIVE  REMEDIES.  Failure  by Laurus to
exercise  any  right,  remedy or option  under  this  Agreement,  any  Ancillary
Agreement or any supplement  hereto or thereto or any other agreement between or
among any Company and Laurus or delay by Laurus in exercising the same, will not
operate  as a waiver;  no waiver by  Laurus  will be  effective  unless it is in
writing  and then only to the extent  specifically  stated.  Laurus'  rights and
remedies  under this Agreement and the Ancillary  Agreements  will be cumulative
and not exclusive of any other right or remedy which Laurus may have.

                  25. APPLICATION OF PAYMENTS.  Each Company  irrevocably waives
the right to direct the application of any and all payments at any time or times
hereafter  received by Laurus from or on such Company's  behalf and each Company
hereby irrevocably agrees that Laurus shall have the continuing  exclusive right
to  apply  and  reapply  any and all  payments  received  at any  time or  times
hereafter  against the  Obligations  hereunder in such manner as Laurus may deem
advisable  notwithstanding  any entry by Laurus  upon any of  Laurus'  books and
records.

                  26.  INDEMNITY.  Each  Company  hereby  agrees to jointly  and
severally indemnify and hold Laurus, and its respective  affiliates,  employees,
attorneys and agents (each, an "INDEMNIFIED PERSON"),  harmless from and against
any and all suits, actions,  proceedings,  claims, damages, losses,  liabilities
and expenses of any kind or nature  whatsoever  (including  attorneys'  fees and
disbursements  and other  costs of  investigation  or defense,  including  those
incurred  upon any  appeal)  which may be  instituted  or  asserted  against  or
incurred  by any such  Indemnified  Person as the result of credit  having  been
extended,  suspended or terminated  under this Agreement or any of the Ancillary
Agreements or with respect to the execution, delivery, enforcement,  performance
and  administration  of, or in any other way arising out of or relating to, this
Agreement,  the  Ancillary  Agreements  or any other  documents or  transactions
contemplated  by or referred to herein or therein and any actions or failures to
act with  respect to any of the  foregoing,  except to the extent  that any such
indemnified liability is finally determined by a court of competent jurisdiction
to have  resulted  solely from such  Indemnified  Person's  gross

                                       40
<PAGE>

negligence or willful misconduct.  NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR
LIABLE TO ANY  COMPANY OR TO ANY OTHER  PARTY OR TO ANY  SUCCESSOR,  ASSIGNEE OR
THIRD  PARTY  BENEFICIARY  OR ANY OTHER  PERSON  ASSERTING  CLAIMS  DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT,  PUNITIVE,  EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT  HAVING BEEN  EXTENDED,  SUSPENDED OR
TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY
OTHER  TRANSACTION  CONTEMPLATED  HEREUNDER  OR  THEREUNDER.

                  27.  REVIVAL.  The Companies  further agree that to the extent
any Company makes a payment or payments to Laurus,  which payment or payments or
any part thereof are  subsequently  invalidated,  declared to be  fraudulent  or
preferential,  set aside and/or required to be repaid to a trustee,  receiver or
any other party under any bankruptcy  act,  state or federal law,  common law or
equitable  cause,  then,  to the  extent  of  such  payment  or  repayment,  the
obligation  or part  thereof  intended  to be  satisfied  shall be  revived  and
continued in full force and effect as if said payment had not been made.

                  28. BORROWING AGENCY PROVISIONS.

                  (a) Each Company hereby  irrevocably  designates Company Agent
to be its  attorney and agent and in such  capacity to borrow,  sign and endorse
notes, and execute and deliver all instruments,  documents, writings and further
assurances now or hereafter required hereunder,  on behalf of such Company,  and
hereby  authorizes  Laurus to pay over or credit all loan proceeds  hereunder in
accordance with the request of Company Agent.

                  (b) The  handling  of this credit  facility as a  co-borrowing
facility  with a borrowing  agent in the manner set forth in this  Agreement  is
solely as an accommodation  to the Companies and at their request.  Laurus shall
not incur any liability to any Company as a result thereof.  To induce Laurus to
do so and in consideration  thereof,  each Company hereby indemnifies Laurus and
holds  Laurus  harmless  from and  against  any and all  liabilities,  expenses,
losses,  damages and claims of damage or injury  asserted  against Laurus by any
Person  arising  from or  incurred by reason of the  handling  of the  financing
arrangements  of the  Companies  as provided  herein,  reliance by Laurus on any
request or  instruction  from Company  Agent or any other action taken by Laurus
with respect to this Paragraph 28.

                  (c) All  Obligations  shall  be  joint  and  several,  and the
Companies   shall  make  payment  upon  the  maturity  of  the   Obligations  by
acceleration or otherwise,  and such obligation and liability on the part of the
Companies  shall  in  no  way  be  affected  by  any  extensions,  renewals  and
forbearance  granted  by Laurus to any  Company,  failure  of Laurus to give any
Company notice of borrowing or any other notice, any failure of Laurus to pursue
to  preserve  its  rights  against  any  Company,  the  release by Laurus of any
Collateral  now or thereafter  acquired from any Company,  and such agreement by
any Company to pay upon any notice issued pursuant thereto is unconditional  and
unaffected by prior recourse by Laurus to any Company or any Collateral for such
Company's Obligations or the lack thereof.

                                       41
<PAGE>

                  (d)  Each  Company  expressly  waives  any and all  rights  of
subrogation,  reimbursement,  indemnity, exoneration,  contribution or any other
claim which such  Company may now or  hereafter  have against the other or other
Person directly or contingently  liable for the Obligations,  or against or with
respect to any other's property  (including,  without  limitation,  any property
which  is  Collateral  for the  Obligations),  arising  from  the  existence  or
performance of this Agreement, until all Obligations have been indefeasibly paid
in full and this  Agreement has been  irrevocably  terminated.

                  (e) Each  Company  represents  and warrants to Laurus that (i)
Companies have one or more common shareholders, directors and officers, (ii) the
businesses  and corporate  activities  of Companies are closely  related to, and
substantially benefit, the business and corporate activities of Companies, (iii)
the  financial  and other  operations  of Companies  are performed on a combined
basis as if Companies constituted a consolidated corporate group, (iv) Companies
will receive a substantial  economic  benefit from entering into this  Agreement
and will receive a substantial  economic  benefit from the  application  of each
Loan hereunder, in each case, whether or not such amount is used directly by any
Company and (v) all  requests for Loans  hereunder by the Company  Agent are for
the exclusive and indivisible  benefit of the Companies as though,  for purposes
of this Agreement, the Companies constituted a single entity.

                  29. NOTICES.  Any notice or request  hereunder may be given to
any Company, Company Agent or Laurus at the respective addresses set forth below
or as may  hereafter be specified in a notice  designated as a change of address
under this Section. Any notice or request hereunder shall be given by registered
or certified mail, return receipt  requested,  hand delivery,  overnight mail or
telecopy  (confirmed  by mail).  Notices and  requests  shall be, in the case of
those by hand delivery,  deemed to have been given when delivered to any officer
of the party to whom it is addressed,  in the case of those by mail or overnight
mail,  deemed to have been  given  three (3)  Business  Days after the date when
deposited in the mail or with the overnight mail carrier,  and, in the case of a
telecopy, when confirmed.

Notices shall be provided as follows:

                  If to Laurus:              Laurus Master Fund, Ltd.
                                             c/o Laurus Capital Management, LLC
                                             825 Third Avenue, 14th Fl.
                                             New York, New York 10022
                                             Attention:  John E. Tucker, Esq.
                                             Telephone:  (212) 541-4434
                                             Telecopier: (212) 541-5800

                                       42
<PAGE>

                  If to any Company,
                  or Company Agent:          Incentra Solutions, Inc.
                                             1140 Pearl Street
                                             Boulder, Colorado  80302
                                             Attention: CFO
                                             Facsimile: (303) 449-9584

                  With a copy to:            Law Offices of Karl Reed Guest
                                             94 Underhill Road
                                             Orinda, CA 94563
                                             Attention: Reed Guest, Esq.
                                             Telephone: (925) 254-0677
                                             Facsimile: (925) 254-9226

or such other address as may be  designated  in writing  hereafter in accordance
with this Section 29 by such Person.

                  30. GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL.

                  (a)  THIS  AGREEMENT  AND THE  ANCILLARY  AGREEMENTS  SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF THE STATE
OF NEW YORK  APPLICABLE TO CONTRACTS  MADE AND PERFORMED IN SUCH STATE,  WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

                  (b) EACH COMPANY HEREBY  CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS  LOCATED IN THE COUNTY OF NEW YORK,  STATE OF NEW YORK SHALL HAVE
EXCLUSIVE  JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY,  ON THE ONE HAND,  AND LAURUS,  ON THE OTHER HAND,  PERTAINING  TO THIS
AGREEMENT OR ANY OF THE ANCILLARY  AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS  AGREEMENT OR ANY OF THE ANCILLARY  AGREEMENTS;  PROVIDED,  THAT
LAURUS AND EACH COMPANY  ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE
TO BE HEARD BY A COURT LOCATED  OUTSIDE OF THE COUNTY OF NEW YORK,  STATE OF NEW
YORK; AND FURTHER  PROVIDED,  THAT NOTHING IN THIS AGREEMENT  SHALL BE DEEMED OR
OPERATE TO PRECLUDE  LAURUS FROM  BRINGING  SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,  TO REALIZE ON THE COLLATERAL
OR ANY OTHER  SECURITY  FOR THE  OBLIGATIONS,  OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF LAURUS.  EACH COMPANY  EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH  JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH COMPANY  HEREBY WAIVES ANY OBJECTION  WHICH IT MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION,  IMPROPER VENUE OR FORUM NON CONVENIENS.  EACH COMPANY
HEREBY  WAIVES  PERSONAL

                                       43
<PAGE>

SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED  MAIL  ADDRESSED TO COMPANY AGENT AT THE ADDRESS
SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED  COMPLETED UPON
THE EARLIER OF COMPANY  AGENT'S ACTUAL  RECEIPT  THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

                  (c) THE PARTIES  DESIRE  THAT THEIR  DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,  TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL  SYSTEM AND OF  ARBITRATION,  THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,  SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE,  WHETHER  ARISING IN CONTRACT,  TORT, OR OTHERWISE  BETWEEN
LAURUS, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL
TO THE RELATIONSHIP  ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT,
ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

                  31.  LIMITATION OF LIABILITY.  Each Company  acknowledges  and
understands  that in order to  assure  repayment  of the  Obligations  hereunder
Laurus may be required to exercise  any and all of Laurus'  rights and  remedies
hereunder and agrees that,  except as limited by applicable law,  neither Laurus
nor any of Laurus'  agents shall be liable for acts taken or  omissions  made in
connection herewith or therewith except for actual bad faith.

                  32. ENTIRE UNDERSTANDING; MAXIMUM INTEREST. This Agreement and
the Ancillary Agreements contain the entire understanding among each Company and
Laurus  as  to  the  subject   matter  hereof  and  thereof  and  any  promises,
representations,  warranties or guarantees  not herein  contained  shall have no
force  and  effect  unless in  writing,  signed by each  Company's  and  Laurus'
respective officers.  Neither this Agreement, the Ancillary Agreements,  nor any
portion  or  provisions  thereof  may be  changed,  modified,  amended,  waived,
supplemented,  discharged,  cancelled or  terminated  orally or by any course of
dealing,  or in any manner other than by an agreement in writing,  signed by the
party  to be  charged.  Nothing  contained  in  this  Agreement,  any  Ancillary
Agreement  or in any  document  referred to herein or  delivered  in  connection
herewith  shall be deemed to  establish  or  require  the  payment  of a rate of
interest or other charges in excess of the maximum rate  permitted by applicable
law. In the event that the rate of interest or dividends  required to be paid or
other  charges  hereunder  exceed the maximum  rate  permitted  by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Companies to Laurus and thus refunded to the Companies.

                  33.  SEVERABILITY.  Wherever  possible each  provision of this
Agreement or the Ancillary  Agreements shall be interpreted in such manner as to
be  effective  and valid under  applicable  law,  but if any  provision  of this
Agreement or the  Ancillary  Agreements  shall be prohibited by or invalid under
applicable  law  such  provision  shall be  ineffective  to the  extent  of such
prohibition or invalidity,  without invalidating the remainder of such provision
or the remaining provisions thereof.

                                       44
<PAGE>

                  34. SURVIVAL. The representations,  warranties,  covenants and
agreements  made herein shall survive any  investigation  made by Laurus and the
closing of the transactions  contemplated hereby to the extent provided therein.
All  statements  as to factual  matters  contained in any  certificate  or other
instrument  delivered  by or on  behalf  of the  Companies  pursuant  hereto  in
connection  with the  transactions  contemplated  herebly  shall be deemed to be
representations  and warranties by the Companies hereunder solely as of the date
of such  certificate  or  instrument.  All  indemnities  set forth  herein shall
survive the  execution,  delivery  and  termination  of this  Agreement  and the
Ancillary Agreements and the making and repaying of the Obligations.

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

                  36. COUNTERPARTS; TELECOPIER SIGNATURES. This Agreement may be
executed in one or more counterparts, each of which shall constitute an original
and all of which taken together shall constitute one and the same agreement. Any
signature delivered by a party via telecopier transmission shall be deemed to be
any original signature hereto.

                  37. CONSTRUCTION.  The parties acknowledge that each party and
its  counsel  have  reviewed  this   Agreement  and  that  the  normal  rule  of
construction to the effect that any  ambiguities are to be resolved  against the
drafting party shall not be employed in the  interpretation of this Agreement or
any amendments, schedules or exhibits thereto.

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

                  39. JOINDER.  It is understood and agreed that any Person that
desires to become a Company  hereunder,  or is required to execute a counterpart
of this Agreement  after the date hereof  pursuant to the  requirements  of this
Agreement or any Ancillary  Agreement,  shall become a Company  hereunder by (a)
executing a Joinder Agreement in form and substance  satisfactory to Laurus, (b)
delivering  supplements  to such exhibits and annexes to this  Agreement and the
Ancillary  Agreements  as Laurus  shall  reasonably  request  and (c) taking all
actions as specified in this  Agreement as would have been taken by such Company
had it been an original party to this Agreement, in each case with all documents
required  above to be  delivered  to Laurus and with all  documents  and actions
required above to be taken to the reasonable satisfaction of Laurus.

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

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

                  "THIS  NOTE AND THE  COMMON  STOCK  ISSUABLE
                  UPON  CONVERSION  OF THIS NOTE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933,
                  AS

                                       45
<PAGE>

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

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

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

                  (c)  The  Warrants  shall  bear  substantially  the  following
legend:

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

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

                                       46
<PAGE>

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

                                         INCENTRA SOLUTIONS, INC.

                                         By: /s/ Matthew Richman
                                             -----------------------------------
                                         Name: Matthew Richman
                                               ---------------------------------
                                         Title: Sr. Vice President & Treasurer
                                                --------------------------------

                                         PWI TECHNOLOGIES, INC.

                                         By: /s/ Matthew Richman
                                             -----------------------------------
                                         Name: Matthew Richman
                                               ---------------------------------
                                         Title: Secretary & Treasurer
                                                --------------------------------

                                         STAR SOLUTIONS OF DELAWARE, INC.

                                         By: /s/ Matthew Richman
                                             -----------------------------------
                                         Name: Matthew Richman
                                               ---------------------------------
                                         Title: Secretary & Treasurer
                                                --------------------------------

                                         LAURUS MASTER FUND, LTD.

                                         By: /s/ David Grin
                                             -----------------------------------
                                         Name: David Grin
                                               ---------------------------------
                                         Title: Managing Partner
                                                --------------------------------

                                       47
<PAGE>

                              ANNEX A - DEFINITIONS

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

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

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

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

                  "AFFILIATE"  means, with respect to any Person,  (a) any other
Person (other than a Subsidiary)  which,  directly or indirectly,  is in control
of, is  controlled  by, or is under  common  control with such Person or (b) any
other  Person  who is a  director  or officer  (i) of such  Person,  (ii) of any
Subsidiary of such Person or (iii) of any Person  described in clause (a) above.
For the  purposes of this  definition,  control of a Person shall mean the power
(direct or indirect)  to direct or cause the  direction  of the  management  and
policies of such Person whether by contract or otherwise.

                  "ANCILLARY  AGREEMENTS"  means the Notes,  the  Warrants,  the
Registration Rights Agreements, each Security Document and all other agreements,
instruments,  documents,  mortgages,  pledges,  powers  of  attorney,  consents,
assignments,  contracts,  notices,  security  agreements,  trust  agreements and
guarantees  whether  heretofore,  concurrently,  or hereafter  executed by or on
behalf of any Company,  any of its Subsidiaries or any other Person or delivered
to Laurus,  relating to this Agreement or to the  transactions  contemplated  by
this Agreement or otherwise  relating to the  relationship  between or among any
Company and Laurus, as each of the same may be amended,  supplemented,  restated
or otherwise modified from time to time.

                  "AVAILABLE  MINIMUM BORROWING" has the meaning given such term
in Section 2(a).

<PAGE>

                  "BALANCE  SHEET  DATE"  has the  meaning  given  such  term in
Section 12(f)(ii).

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

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

                  "CAPITAL  AVAILABILITY  AMOUNT"  means  Nine  Million  Dollars
($9,000,000).

                  "CHARTER"   has  the  meaning   given  such  term  in  Section
12(c)(iv).

                  "CHATTEL  PAPER"  means all  "chattel  paper," as such term is
defined in the UCC,  including  electronic chattel paper, now owned or hereafter
acquired by any Person.

                  "CLOSING DATE" means the date on which any Company shall first
receive  proceeds of the initial  Loans or the date  hereof,  if no Loan is made
under the facility on the date hereof.

                  "CODE" has the meaning given such term in Section 15(i).

                  "COLLATERAL"  means all of each Company's property and assets,
whether  real or  personal,  tangible  or  intangible,  and whether now owned or
hereafter  acquired,  or in which it now has or at any  time in the  future  may
acquire any right, title or interests including all of the following property in
which it now has or at any time in the future may  acquire  any right,  title or
interest:

                  (a) all Inventory;

                  (b) all Equipment;

                  (c) all Fixtures;

                  (d) all General Intangibles;

                  (e) all Accounts;

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

                  (g) all Investment Property;

                  (h) all Stock;

                  (i) all Chattel Paper;

                                       2
<PAGE>

                  (j) all Letter-of-Credit Rights;

                  (k) all Instruments;

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

                  (m) all Books and Records;

                  (n) all Intellectual Property;

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

                  (p) (i) all money, cash and cash equivalents and (ii) all cash
held as cash collateral to the extent not otherwise constituting Collateral, all
other cash or  property  at any time on  deposit  with or held by Laurus for the
account of any Company (whether for safekeeping,  custody, pledge,  transmission
or otherwise); and

                  (q) all products and Proceeds of all or any of the  foregoing,
tort claims and all claims and other rights to payment  including  (i) insurance
claims  against  third parties for loss of,  damage to, or  destruction  of, the
foregoing  Collateral  and (ii)  payments  due or to become  due  under  leases,
rentals and hires of any or all of the foregoing and Proceeds  payable under, or
unearned premiums with respect to policies of insurance in whatever form.

                  "COMMON  STOCK"  means the  shares of stock  representing  the
Parent's common equity interests.

                  "COMPANY AGENT" means the Parent.

                  "CONTRACT  RATE"  has  the  meaning  given  such  term  in the
respective Note.

                  "DEFAULT"  means any act or event  which,  with the  giving of
notice or passage of time or both, would constitute an Event of Default.

                  "DEPOSIT  ACCOUNTS" means all "deposit  accounts" as such term
is  defined  in the  UCC,  now or  hereafter  held in the  name  of any  Person,
including, without limitation, the Lockboxes.

                  "DISCLOSURE  CONTROLS"  has the  meaning  given  such  term in
Section 12(f)(iv).

                  "DOCUMENTS" means all "documents",  as such term is defined in
the UCC,  now owned or  hereafter  acquired  by any  Person,  wherever  located,
including all bills of lading, dock warrants, dock receipts, warehouse receipts,
and other documents of title, whether negotiable or non-negotiable.

                  "ELIGIBLE  ACCOUNTS"  means  each  Account  of  each  Eligible
Subsidiary  which  conforms  to the  following  criteria:  (a)  shipment  of the
merchandise  or the  rendition  of services has been  completed;  (b) no return,
rejection or repossession  of the  merchandise has occurred;

                                       3
<PAGE>

(c)  merchandise  or  services  shall not have been  rejected or disputed by the
Account  Debtor and there shall not have been  asserted  any offset,  defense or
counterclaim;  (d) continues to be in full conformity  with the  representations
and warranties made by such Company to Laurus with respect  thereto;  (e) Laurus
is, and  continues  to be,  satisfied  with the credit  standing  of the Account
Debtor in  relation  to the  amount of credit  extended;  (f) there are no facts
existing or  threatened  which are likely to result in any adverse  change in an
Account Debtor's financial condition;  (g) is documented by an invoice in a form
approved by Laurus and shall not be unpaid more than one hundred (100) days from
invoice date; (h) not more than  twenty-five  percent (25%) of the unpaid amount
of invoices due from such Account  Debtor  remains  unpaid more than one hundred
(100) days from  invoice  date;  (i) is not  evidenced  by  chattel  paper or an
instrument of any kind with respect to or in payment of the Account  unless such
instrument is duly endorsed to and in possession of Laurus or represents a check
in  payment  of an  Account;  (j) the  Account  Debtor is  located in the United
States; PROVIDED, HOWEVER, Laurus may, from time to time, in the exercise of its
sole  discretion  and  based  upon  satisfaction  of  certain  conditions  to be
determined at such time by Laurus,  deem certain  Accounts as Eligible  Accounts
notwithstanding  that such Account is due from an Account Debtor located outside
of the United  States;  (k) Laurus has a first  priority  perfected Lien in such
Account and such Account is not subject to any Lien other than Permitted  Liens;
(l) does not arise out of  transactions  with any employee,  officer,  director,
stockholder  or Affiliate of any Company;  (m) is payable to such  Company;  (n)
does not arise out of a bill and hold sale prior to shipment  and does not arise
out of a sale to any Person to which such Company is indebted; (o) is net of any
returns,  discounts,  claims, credits and allowances;  (p) if the Account arises
out of contracts  between such Company,  on the one hand, and the United States,
on the other hand, any state, or any department,  agency or  instrumentality  of
any of them,  such  Company has so  notified  Laurus,  in writing,  prior to the
creation of such Account,  and there has been compliance  with any  governmental
notice  or  approval   requirements,   including  compliance  with  the  Federal
Assignment  of Claims  Act;  (q) is a good and  valid  account  representing  an
undisputed bona fide indebtedness  incurred by the Account Debtor therein named,
for a fixed sum as set forth in the invoice  relating thereto with respect to an
unconditional  sale and  delivery  upon the  stated  terms of goods sold by such
Company or work,  labor and/or services  rendered by such Company;  (r) does not
arise out of progress  billings prior to completion of the order;  (s) the total
unpaid  Accounts from such Account  Debtor does not exceed  twenty-five  percent
(25%) of all Eligible Accounts;  (t) such Company's right to payment is absolute
and not contingent  upon the fulfillment of any condition  whatsoever;  (u) such
Company is able to bring suit and  enforce  its  remedies  against  the  Account
Debtor through judicial process; (v) does not represent interest payments,  late
or finance charges owing to such Company,  and (w) is otherwise  satisfactory to
Laurus as  determined by Laurus in the exercise of its sole  discretion.  In the
event any Company requests that Laurus include within Eligible  Accounts certain
Accounts of one or more of such Company's  acquisition targets,  Laurus shall at
the time of such request  consider such inclusion,  but any such inclusion shall
be at the sole  option  of  Laurus  and  shall at all  times be  subject  to the
execution and delivery to Laurus of all such documentation  (including,  without
limitation,  guaranty and security  documentation)  as Laurus may require in its
sole discretion.

                  "ELIGIBLE  SUBSIDIARY" means each Subsidiary of the Parent set
forth on  EXHIBIT A hereto,  as the same may be  updated  from time to time with
Laurus' written consent.

                                       4
<PAGE>

                  "EQUIPMENT"  means all  "equipment" as such term is defined in
the UCC,  now owned or  hereafter  acquired  by any  Person,  wherever  located,
including any and all  machinery,  apparatus,  equipment,  fittings,  furniture,
Fixtures,  motor  vehicles  and other  tangible  personal  property  (other than
Inventory) of every kind and  description  that may be now or hereafter  used in
such  Person's  operations  or that are owned by such  Person  or in which  such
Person may have an interest,  and all parts,  accessories and accessions thereto
and substitute ons and replacements therefor.

                  "ERISA" has the meaning given such term in Section 12(bb).

                  "EVENT OF DEFAULT"  means the  occurrence of any of the events
set forth in Section 19.

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

                  "EXCHANGE  ACT FILINGS"  means the Parent's  filings under the
Exchange Act made prior to the date of this Agreement.

                  "FINANCIAL REPORTING CONTROLS" has the meaning given such term
in Section 12(f)(v).

                  "FIXTURES" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by any Person.

                  "FORMULA  AMOUNT" has the  meaning  given such term in Section
2(a)(i).

                  "GAAP"  means  generally   accepted   accounting   principles,
practices  and  procedures  in effect from time to time in the United  States of
America.

                  "GENERAL  INTANGIBLES" means all "general intangibles" as such
term is  defined  in the UCC,  now owned or  hereafter  acquired  by any  Person
including  all right,  title and interest  that such Person may now or hereafter
have  in or  under  any  contract,  all  Payment  Intangibles,  customer  lists,
Licenses,  Intellectual Property, interests in partnerships,  joint ventures and
other business associations,  permits,  proprietary or confidential information,
inventions  (whether or not  patented  or  patentable),  technical  information,
procedures,  designs,  knowledge,  know-how,  Software, data bases, data, skill,
expertise,  experience,   processes,  models,  drawings,  materials,  Books  and
Records,  Goodwill  (including  the Goodwill  associated  with any  Intellectual
Property),  all  rights  and claims in or under  insurance  policies  (including
insurance for fire,  damage,  loss,  and  casualty,  whether  covering  personal
property,  real property,  tangible rights or intangible  rights, all liability,
life,  key-person,   and  business  interruption  insurance,  and  all  unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to  receive  tax  refunds  and other  payments,  rights to  received  dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.

                  "GOODS" means all "goods", as such term is defined in the UCC,
now owned or  hereafter  acquired by any  Person,  wherever  located,  including
embedded  software  to the  extent

                                       5
<PAGE>

included in "goods" as defined in the UCC,  manufactured homes,  standing timber
that is cut and removed for sale and unborn young of animals.

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

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

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

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

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

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

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

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

                  "LIEN"  means  any  mortgage,  security  deed,  deed of trust,
pledge, hypothecation, assignment, security interest, lien (whether statutory or
otherwise),  charge,  claim or  encumbrance,  or  preference,  priority or other
security  agreement or preferential  arrangement  held or asserted in respect of
any asset of any kind or nature  whatsoever  including any  conditional  sale or
other  title  retention  agreement,  any  lease  having  substantially  the same

                                       6
<PAGE>

economic  effect as any of the  foregoing,  and the filing of, or  agreement  to
give,  any  financing   statement  under  the  UCC  or  comparable  law  of  any
jurisdiction.

                  "LOANS"  has the meaning  given such term in Section  2(a) and
shall include all other  extensions of credit  hereunder and under any Ancillary
Agreement.

                  "LOCKBOXES" has the meaning given such term in Section 8(a).

                  "MATERIAL  ADVERSE EFFECT" means a material  adverse effect on
(a) the business,  assets,  liabilities,  condition  (financial  or  otherwise),
properties,  operations  or prospects of any Company or any of its  Subsidiaries
(taken  individually  and  as  a  whole),  (b)  any  Company's  or  any  of  its
Subsidiary's  ability to pay or perform the  Obligations in accordance  with the
terms hereof or any Ancillary  Agreement,  (c) the value of the Collateral,  the
Liens on the  Collateral  or the priority of any such Lien or (d) the  practical
realization  of the benefits of Laurus' rights and remedies under this Agreement
and the Ancillary Agreements.

                  "MINIMUM   BORROWING   AMOUNT"  means  Three  Million  Dollars
($3,000,000).

                  "MINIMUM   BORROWING   NOTES"  means  that   certain   Secured
Convertible  Minimum  Borrowing  Note dated as of the  Closing  Date made by the
Companies in favor of Laurus  evidencing the Minimum  Borrowing  Amount and each
other Secured  Convertible Minimum Borrowing Note made by the Companies in favor
of Laurus which evidences the Minimum  Borrowing Amount, as each of the same may
be amended, supplemented, restated and/or otherwise modified from time to time.

                  "NASD" has the meaning given such term in Section 13(b).

                  "NEXT  UNISSUED  SERIALIZED  NOTE" has the meaning  given such
term in Section 2(a)(i).

                  "NOTE  SHARES"  has the  meaning  given  such term in  Section
12(a).

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

                  "OBLIGATIONS"   means  all   Loans,   all   advances,   debts,
liabilities, obligations, covenants and duties owing by each Company and each of
its  Subsidiaries  to Laurus (or any  corporation  that  directly or  indirectly
controls or is  controlled  by or is under common  control with Laurus) of every
kind and description  (whether or not evidenced by any note or other  instrument
and   whether  or  not  for  the  payment  of  money  or  the   performance   or
non-performance of any act), direct or indirect,  absolute or contingent, due or
to become due,  contractual  or tortious,  liquidated or  unliquidated,  whether
existing by  operation of law or  otherwise  now  existing or hereafter  arising
including any debt,  liability or obligation  owing from any Company and/or each
of its  Subsidiaries  to others which Laurus may have  obtained by assignment or
otherwise and further including all interest (including interest accruing at the
then  applicable rate provided in this Agreement after the maturity of the Loans
and interest  accruing at the then

                                       7
<PAGE>

applicable  rate provided in this Agreement  after the filing of any petition in
bankruptcy,  or the  commencement  of any  insolvency,  reorganization  or  like
proceeding,  whether or not a claim for post-filing or post-petition interest is
allowed or allowable in such  proceeding),  charges or any other  payments  each
Company and each of its  Subsidiaries  is  required to make by law or  otherwise
arising  under or as a result of this  Agreement,  the  Ancillary  Agreements or
otherwise,  together with all reasonable expenses and reasonable attorneys' fees
chargeable to the Companies' or any of their Subsidiaries'  accounts or incurred
by Laurus in connection therewith.

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

                  "PERMITTED  LIENS" means (a) Liens of carriers,  warehousemen,
artisans,  bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection  with worker's  compensation,  unemployment  insurance or
other forms of  governmental  insurance  or  benefits,  relating  to  employees,
securing sums (i) not overdue or (ii) being  diligently  contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the Companies and their Subsidiaries, as applicable, in conformity with GAAP;
(c) Liens in favor of Laurus;  (d) Liens for taxes (i) not yet due or (ii) being
diligently  contested in good faith by  appropriate  proceedings,  provided that
adequate  reserves  with  respect  thereto  are  maintained  on the books of the
Companies and their  Subsidiaries,  as applicable,  in conformity with GAAP; and
which have no effect on the priority of Liens in favor of Laurus or the value of
the  assets in which  Laurus  has a Lien;  (e)  Purchase  Money  Liens  securing
Purchase Money  Indebtedness  to the extent  permitted in this Agreement and (f)
Liens specified on SCHEDULE 2 hereto.

                  "PERSON"   means   any   individual,    sole   proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization,  association, corporation, limited liability company, institution,
public  benefit  corporation,  entity or  government  (whether  federal,  state,
county, city, municipal or otherwise,  including any instrumentality,  division,
agency, body or department thereof),  and shall include such Person's successors
and assigns.

                  "PRINCIPAL  MARKET"  means the NASD Over The Counter  Bulletin
Board,  NASDAQ SmallCap  Market,  NASDAQ National Market System,  American Stock
Exchange or New York Stock  Exchange  (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock).

                  "PROCEEDS"  means  "proceeds",  as such term is defined in the
UCC and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity,  warranty or guaranty payable to any Company or any other Person from
time to time with  respect to any  Collateral;  (b) any and all payments (in any
form  whatsoever)  made or due and payable to any  Company  from time to time in
connection  with  any  requisition,   confiscation,   condemnation,  seizure  or
forfeiture of any Collateral by any governmental body,  governmental  authority,
bureau or agency (or any person acting under color of  governmental  authority);
(c) any claim of any Company  against  third  parties  (i) for past,  present or
future  infringement of any Intellectual  Property or (ii) for past,  present or
future  infringement  or dilution of any  trademark or trademark  license or for
injury to the goodwill associated with any trademark,  trademark registration or
trademark

                                       8
<PAGE>

licensed under any trademark License;  (d) any recoveries by any Company against
third  parties  with  respect  to  any  litigation  or  dispute  concerning  any
Collateral,  including  claims  arising  out of the  loss or  nonconformity  of,
interference  with the use of,  defects  in, or  infringement  of rights  in, or
damage to,  Collateral;  (e) all amounts collected on, or distributed on account
of,  other  Collateral,   including  dividends,   interest,   distributions  and
Instruments  with respect to Investment  Property and pledged Stock; and (f) any
and all other  amounts,  rights to payment or other  property  acquired upon the
sale, lease, license, exchange or other disposition of Collateral and all rights
arising out of Collateral.

                  "PURCHASE  AGREEMENT" means that certain  Securities  Purchase
Agreement  dated as of May 13, 2004  between the Parent and Laurus,  as amended,
modified or supplemented from time to time.

                  "PURCHASE  MONEY  INDEBTEDNESS"  means  (a)  any  indebtedness
incurred for the payment of all or any part of the  purchase  price of any fixed
asset,  including  indebtedness  under capitalized  leases, (b) any indebtedness
incurred for the sole purpose of financing or refinancing all or any part of the
purchase  price  of any  fixed  asset,  and  (c)  any  renewals,  extensions  or
refinancings  thereof (but not any  increases in the principal  amounts  thereof
outstanding at that time).

                  "PURCHASE  MONEY  LIEN"  means any Lien upon any fixed  assets
that secures the Purchase Money  Indebtedness  related  thereto but only if such
Lien shall at all times be confined  solely to the asset the  purchase  price of
which was financed or refinanced  through the  incurrence of the Purchase  Money
Indebtedness  secured  by such  Lien and only if such  Lien  secures  only  such
Purchase Money Indebtedness.

                  "REGISTRATION  RIGHTS  AGREEMENTS"  means that certain Minimum
Borrowing Note Registration Rights Agreement dated as of the Closing Date by and
between the Parent and Laurus and each other  registration  rights  agreement by
and between the Parent and Laurus, as each of the same may be amended,  modified
and supplemented from time to time.

                  "RELATED  AGREEMENTS" means the Related  Agreements as defined
in the Securities Purchase Agreement, as amended,  modified or supplemented from
time to time.

                  "REVOLVING  NOTE" means that certain  Secured  Revolving  Note
dated as of the  Closing  Date made by the  Companies  in favor of Laurus in the
original principal amount of Six Million Dollars  ($6,000,000),  as the same may
be amended, supplemented, restated and/or otherwise modified from time to time.

                  "SEC" means the Securities and Exchange Commission.

                  "SEC  REPORTS"  has the  meaning  given  such term in  Section
12(u).

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

                  "SECURITIES  ACT" has the  meaning  given such term in Section
12(r).

                                       9
<PAGE>

                  "SECURITY DOCUMENTS" means all security agreements, mortgages,
cash collateral deposit letters, pledges and other agreements which are executed
by any Company or any of its Subsidiaries in favor of Laurus.

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

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

                  "SUBSIDIARY"  means, with respect to any Person, (i) any other
Person whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership  interests  having such power only by
reason of the happening of a  contingency)  to elect a majority of the directors
or other governing body of such other Person, are owned, directly or indirectly,
by such Person or (ii) any other Person in which such Person  owns,  directly or
indirectly, more than 50% of the equity interests at such time.

                  "SUPPORTING OBLIGATIONS" means all "supporting obligations" as
such term is defined in the UCC.

                  "TERM" means the Closing Date through the close of business on
the day immediately preceding the third anniversary of the Closing Date, subject
to  acceleration  at the  option of Laurus  upon the  occurrence  of an Event of
Default hereunder or other termination hereunder.

                  "TRANSFERABLE  AMOUNT"  has the  meaning  given  such  term in
Section 2(a)(i).

                  "UCC" means the Uniform  Commercial Code as the same may, from
time to time be in effect in the State of New York; provided,  that in the event
that, by reason of mandatory  provisions  of law, any or all of the  attachment,
perfection  or priority  of, or remedies  with  respect to,  Laurus' Lien on any
Collateral  is  governed  by the  Uniform  Commercial  Code  as in  effect  in a
jurisdiction  other than the State of New York,  the term  "UCC"  shall mean the
Uniform  Commercial Code as in effect in such other jurisdiction for purposes of
the  provisions  of this  Agreement  relating  to such  attachment,  perfection,
priority or remedies and for purposes of definitions related to such provisions;
provided further,  that to the extent that UCC is used to define any term herein
or in any Ancillary  Agreement and such term is defined differently in different
Articles or  Divisions  of the UCC,  the  definition  of such term  contained in
Article or Division 9 shall govern.

                  "WARRANT  SHARES" has the  meaning  given such term in Section
12(a).

                  "WARRANTS"  means that certain Common Stock  Purchase  Warrant
dated as of the  Closing  Date made by the  Parent  in favor of Laurus  and each
other  warrant  made by the Parent in favor  Laurus,  as each of the same may be
amended, restated, modified and/or supplemented from time to time.

                                       10
<PAGE>

                                    EXHIBIT A

                              ELIGIBLE SUBSIDIARIES

1.       PWI Technologies, Inc. (WA)

2.       Star Solutions of Delaware, Inc. (DE)

<PAGE>

                                    EXHIBIT B

                           BORROWING BASE CERTIFICATE

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