Document:

Exhibit
      10.3

     

    GVI
      SECURITY SOLUTIONS, INC.

     

    AMENDED
      AND RESTATED SECURITIES PURCHASE AGREEMENT

     

    dated
      as of May 27, 2004

    and
      amended and restated as of October 4, 2006

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    TABLE
      OF CONTENTS

    

      
        	 	 	
                Page

              
	
                1.

              	
                Agreement
                  to Sell and Purchase

              	
                2

              
	 	 	 
	
                2.

              	
                Fees
                  and Warrant

              	
                2

              
	 	 	 
	
                3.

              	
                Closing,
                  Delivery and Payment

              	
                2

              
	 	
                3.1
                  Closing

              	
                2

              
	 	
                3.2
                  Delivery

              	
                3

              
	 	 	 
	
                4.

              	
                Representations
                  and Warranties of the Company

              	
                3

              
	 	
                4.1
                  Organization, Good Standing and Qualification

              	
                3

              
	 	
                4.2
                  Subsidiaries

              	
                3

              
	 	
                4.3
                  Capitalization; Voting Rights

              	
                4

              
	 	
                4.4
                  Authorization; Binding Obligations

              	
                4

              
	 	
                4.5
                  Liabilities

              	
                5

              
	 	
                4.6
                  Agreements; Action

              	
                5

              
	 	
                4.7
                  Obligations to Related Parties

              	
                6

              
	 	
                4.8
                  Changes

              	
                6

              
	 	
                4.9
                  Title to Properties and Assets; Liens, Etc.

              	
                7

              
	 	
                4.10
                  Intellectual Property

              	
                8

              
	 	
                4.11
                  Compliance with Other Instruments

              	
                8

              
	 	
                4.12
                  Litigation

              	
                9

              
	 	
                4.13
                  Tax Returns and Payments

              	
                9

              
	 	
                4.14
                  Employees

              	
                9

              
	 	
                4.15
                  Registration Rights and Voting Rights

              	
                10

              
	 	
                4.16
                  Compliance with Laws; Permits

              	
                10

              
	 	
                4.17
                  Environmental and Safety Laws

              	
                11

              
	 	
                4.18
                  Valid Offering

              	
                11

              
	 	
                4.19
                  Full Disclosure

              	
                11

              
	 	
                4.20
                  Insurance

              	
                
                  11

                

              
	 	
                4.21
                  SEC Reports

              	
                
                  11

                

              
	 	
                4.22
                  No Integrated Offering

              	
                12

              
	 	
                4.23
                  Stop Transfer

              	
                12

              
	 	
                4.24
                  Dilution

              	
                
                  12

                

              
	 	
                4.25
                  Patriot Act

              	
                
                  12

                

              
	 	 	 
	
                5.

              	
                Representations
                  and Warranties of the Purchaser

              	
                13

              
	 	
                5.1
                  No Shorting

              	
                
                  13

                

              
	 	
                5.2
                  Requisite Power and Authority

              	
                14

              
	 	
                5.3
                  Investment Representations

              	
                
                  14

                

              
	 	
                5.4
                  Purchaser Bears Economic Risk

              	
                
                  14

                

              
	 	
                5.5
                  Acquisition for Own Account

              	
                
                  14

                

              
	 	
                5.6
                  Purchaser Can Protect Its Interest

              	
                
                  14

                

              
	 	
                5.7
                  Accredited Investor

              	
                15

              
	 	
                5.8
                  Legends

              	
                15

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	 	 	 
	
                6.

              	
                Covenants
                  of the Company

              	
                15

              
	 	
                6.1
                  Stop-Orders

              	
                
                  15

                

              
	 	
                6.2
                  Listing

              	
                
                  15

                

              
	 	
                6.3
                  Market Regulations

              	
                16

              
	 	
                6.4
                  Reporting Requirements

              	
                
                  16

                

              
	 	
                6.5
                  Use of Funds

              	
                
                  16

                

              
	 	
                6.6
                  Access to Facilities

              	
                
                  16

                

              
	 	
                6.7
                  Taxes

              	
                
                  16

                

              
	 	
                6.8
                  Insurance

              	
                17

              
	 	
                6.9
                  Intellectual Property

              	
                18

              
	 	
                6.10
                  Properties

              	
                
                  18

                

              
	 	
                6.11
                  Confidentiality

              	
                
                  18

                

              
	 	
                6.12
                  Required Approvals

              	
                
                  18

                

              
	 	
                6.13
                  Reissuance of Securities

              	
                19

              
	 	
                6.14
                  Opinion

              	
                19

              
	 	
                6.15
                  Margin Stock

              	
                20

              
	 	 	 
	
                7.

              	
                Covenants
                  of the Purchaser

              	
                
                  20

                

              
	 	
                7.1
                  Confidentiality

              	
                
                  20

                

              
	 	
                7.2
                  No Short Sales

              	
                
                  20

                

              
	 	
                7.3
                  Non-Public Information

              	
                
                  20

                

              
	 	 	 
	
                8.

              	
                Covenants
                  of the Company and Purchaser Regarding Indemnification

              	
                
                  20

                

              
	 	
                8.1
                  Company Indemnification

              	
                
                  20

                

              
	 	
                8.2
                  Purchaser's Indemnification

              	
                
                  20

                

              
	 	
                8.3
                  Procedures

              	
                 

              
	 	 	 
	
                9.

              	
                [Intentionally
                  Omitted]

              	
                21

              
	 	 	 
	
                10.

              	
                Registration
                  Rights.

              	
                
                  21

                

              
	 	
                10.1
                  Registration Rights Granted

              	
                
                  21

                

              
	 	
                10.2
                  Offering Restrictions

              	
                
                  21

                

              
	 	 	 
	
                11.

              	
                Miscellaneous

              	
                
                  21

                

              
	 	
                11.1
                  Governing Law

              	
                
                  21

                

              
	 	
                11.2
                  Survival

              	
                
                  22

                

              
	 	
                11.3
                  Successors

              	
                
                  22

                

              
	 	
                11.4
                  Entire Agreement

              	
                
                  22

                

              
	 	
                11.5
                  Severability

              	
                
                  22

                

              
	 	
                11.6
                  Amendment and Waiver

              	
                
                  22

                

              
	 	
                11.7
                  Delays or Omissions

              	
                
                  22

                

              
	 	
                11.8
                  Notices

              	
                23

              
	 	
                11.9
                  Attorneys' Fees

              	
                23

              
	 	
                11.10
                  Titles and Subtitles

              	
                24

              
	 	
                11.11
                  Facsimile Signatures; Counterparts

              	
                
                  24

                

              
	 	
                11.12
                  Broker's Fees

              	
                
                  24

                

              
	 	
                11.13
                  Construction

              	
                
                  24

                

              

      

    

    

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    

    
      	
              LIST
                OF EXHIBITS

            
	
              Form
                of Term Note

            	 	
              Exhibit
                A

            
	
              Form
                of Warrant

            	 	
              Exhibit
                B

            
	
              Form
                of Opinion

            	 	
              Exhibit
                C

            
	
              Form
                of Escrow Agreement

            	 	
              Exhibit
                D

            

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

    SECURITIES
      PURCHASE AGREEMENT

     

    THIS
      SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into as
      of
      May 27, 2004, and amended and restated as of September __, 2006 (the
“Restatement Date”), by and between GVI SECURITY SOLUTIONS, INC., a Delaware
      corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands
      company (the "Purchaser"). This Securities Purchase Agreement amends and
      restates in its entirety that certain Securities Purchase Agreement made by
      the
      Company in favor of Purchaser on May 27, 2004 (the “Original Purchase
      Agreement”).

     

    RECITALS

     

    WHEREAS,
      the Company sold to the Purchaser a Convertible Term Note in the aggregate
      principal amount of Five Million Dollars ($5,000,000) (as amended, modified
      or
      supplemented from time to time, the "Note");

     

    WHEREAS,
      the Company issued a warrant to the Purchaser to purchase up to 940,000 shares
      of the Company's Common Stock (subject to adjustment as set forth therein)
      in
      connection with Purchaser's purchase of the Note;

     

    WHEREAS,
      Purchaser purchased the Note and the Warrant (as defined in Section 2) on the
      terms and conditions set forth herein;

     

    WHEREAS,
      the Company issued and sold the Note and Warrant to Purchaser on the terms
      and
      conditions set forth herein; and

     

    WHEREAS,
      the Company and Purchaser have agreed to amend and restate the Original Purchase
      Agreement in the form hereof solely in order to incorporate and give effect,
      from and after the Restatement Date, to certain mutually agreed-to terms;
      and

     

    WHEREAS,
      the term “date hereof” and words of similar import used herein, shall unless
      otherwise specified, mean May 27, 2004.

     

    
      
        
        

      

      
        D-1

        
          

        

      

      
        
        

      

    

    

    AGREEMENT

     

    NOW,
      THEREFORE, in consideration of the foregoing recitals and the mutual promises,
      representations, warranties and covenants hereinafter set forth and for other
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:

     

    1. Agreement
      to Sell and Purchase .
      Pursuant to the terms and conditions set forth in this Agreement, on the Closing
      Date (as defined in Section 3), the Company agrees to sell to the Purchaser,
      and
      the Purchaser hereby agrees to purchase from the Company, a Note in the
      aggregate principal amount of Five Million Dollars ($5,000,000) convertible
      into
      shares of the Company's Common Stock in accordance with the terms of the Note
      and this Agreement. The sale to the Purchaser of the Note and Warrant on the
      Closing Date shall be known as the "Offering." A form of the Note is annexed
      hereto as Exhibit A. The Note will mature on the Maturity Date (as defined
      in
      the Note). Collectively, the Note and Warrant and Common Stock issuable in
      payment of the Note, upon conversion of the Note and upon exercise of the
      Warrant are referred to as the "Securities."

     

    2. Fees
      and Warrant .
      On the
      Closing Date:

     

    (a) The
      Company will issue and deliver to the Purchaser a Warrant to purchase up to
      940,000 shares of Common Stock in connection with the Offering (the "Warrant")
      pursuant to Section 1 hereof. The Warrant must be delivered on the Closing
      Date.
      A form of Warrant is annexed hereto as Exhibit B. All the representations,
      covenants, warranties, undertakings, and indemnification, and other rights
      made
      or granted to or for the benefit of the Purchaser by the Company are hereby
      also
      made and granted in respect of the Warrant and shares of the Company's Common
      Stock issuable upon exercise of the Warrant (the "Warrant Shares").

     

    (b) Subject
      to the terms of Section 2(d) below, the Company shall pay to Laurus Capital
      Management, LLC, the manager of the Purchaser, a closing payment in an amount
      equal to three and nine-tenths of one percent (3.90%) of the aggregate principal
      amount of the Note. The foregoing fee is referred to herein as the "Closing
      Payment."

     

    (c) The
      Company shall reimburse the Purchaser for its reasonable legal fees for services
      rendered to the Purchaser in preparation of this Agreement and the Related
      Agreements (as hereinafter defined), and expenses incurred in connection with
      the Purchaser's due diligence review of the Company and its Subsidiaries (as
      defined in Section 4.2) and all related matters. Amounts required to be paid
      under this Section 2(c) (the “Transaction Expenses”) will be paid on the Closing
      Date and shall not exceed $52,500 for fees and for expenses incurred while
      performing due diligence inquiries on the Company and its
      Subsidiaries.

     

    (d) The
      Closing Payment and the Transaction Expenses (net of deposits previously paid
      by
      the Company) shall be paid at closing out of funds held pursuant to a Funds
      Escrow Agreement of even date herewith among the Company, Purchaser, and an
      Escrow Agent (the "Funds Escrow Agreement") and a disbursement letter (the
      "Disbursement Letter").

     

    3. Closing,
      Delivery and Payment.

     

    3.1 Closing .
      Subject
      to the terms and conditions herein, the closing of the transactions contemplated
      hereby (the "Closing"), shall take place on May 27, 2004 (such date is
      hereinafter referred
      to
      as the "Closing Date").

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    3.2 Delivery .
      Pursuant to the Funds Escrow Agreement in the form attached hereto as Exhibit
      D,
      at the Closing on the Closing Date, the Company will deliver to the Purchaser,
      among other things, a Note in the form attached as Exhibit A in the principal
      amount of $5,000,000 and a Warrant in the form attached as Exhibit B in the
      Purchaser's name representing the right to purchase 940,000 Warrant Shares
      and
      the Purchaser will deliver to the Company, among other things, the amounts
      set
      forth in the Disbursement Letter by certified funds or wire
      transfer.

     

    4. Representations
      and Warranties of the Company .
      The
      Company hereby represents and warrants to the Purchaser on the Closing Date
      as
      follows (which representations and warranties are supplemented by the Company's
      filings under the Securities Exchange Act of 1934 (collectively, the "Exchange
      Act Filings")):

     

    4.1 Organization,
      Good Standing and Qualification .
      Each of
      the Company 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. Each
      of
      the Company and each of its Subsidiaries, as applicable, has the corporate
      power
      and authority to own and operate its properties and assets, to execute and
      deliver (i) this Agreement, (ii) the Note and the Warrant to be issued in
      connection with this Agreement, (iii) the Master Security Agreement dated as
      of
      the date hereof between the Company, certain Subsidiaries of the Company and
      the
      Purchaser (as amended, modified or supplemented from time to time, the “Master
      Security Agreement”), (iv) the Registration Rights Agreement relating to the
      Securities dated as of the date hereof between the Company and the Purchaser,
      (v) the Subsidiary Guaranty dated as of the date hereof made by certain
      Subsidiaries of the Company (as amended, modified or supplemented from time
      to
      time, the “Subsidiary Guaranty”), (vi) the Stock Pledge Agreement dated as of
      the date hereof among the Company and the Purchaser (as amended, modified or
      supplemented from time to time, the “Stock Pledge Agreement”), (vii) the Escrow
      Agreement dated as of the date hereof among the Company, the Purchaser and
      the
      escrow agent referred to therein and (viii) all other agreements related to
      this
      Agreement and the Note and referred to herein (the preceding clauses (ii)
      through (viii), collectively, the "Related Agreements"), to issue and sell
      the
      Note, to issue and sell the Warrant and the Warrant Shares, and to carry out
      the
      provisions of this Agreement and the Related Agreements and to carry on its
      business as presently conducted. Each of the Company 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 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, or could
      not
      reasonably be expected to have, individually or in the aggregate, a material
      adverse effect on the business, assets, liabilities, condition (financial or
      otherwise), properties, operations or prospects of the Company and it
      Subsidiaries, taken individually and as a whole (a “Material Adverse
      Effect”).

     

    4.2 Subsidiaries .
      Each
      direct and indirect Subsidiary of the Company, the direct owner of such
      Subsidiary and its percentage ownership thereof, is set forth on Schedule 4.2.
      For the purpose of this Agreement, a “Subsidiary”
of
      any
      person or entity means (i) a corporation or other entity whose shares of stock
      or other ownership interests having ordinary voting power (other than stock
      or
      other ownership interests having such power only by reason of the happening
      of a
      contingency) to elect a majority of the directors of such corporation, or other
      persons or entities performing similar functions for such person or entity,
      are
      owned, directly or indirectly, by such person or entity or (ii) a corporation
      or
      other entity in which such person or entity owns, directly or indirectly, more
      than 50% of the equity interests at such time. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    4.3 Capitalization;
      Voting Rights .

     

    (a) The
      authorized capital stock of the Company, as of the date hereof consists of
      78,000,000 shares, of which 75,000,000 are shares of Common Stock, par value
      $0.001 per share, 29,603,750 shares of which are issued and outstanding, and
      200
      are shares of Series B Convertible Preferred Stock, par value $0.001 per share,
      all of which are issued and outstanding. The authorized capital stock of each
      Subsidiary of the Company is set forth on Schedule 4.3.

     

    (b) Except
      as
      disclosed on Schedule 4.3, other than: (i) the shares reserved for issuance
      under the Company's stock option plans; and (ii) shares which may be granted
      pursuant to this Agreement and the Related 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 Company of
      any
      of its securities. Except as disclosed on Schedule 4.3, neither the offer,
      issuance or sale of any of the Note or the Warrant, or the issuance of any
      of
      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 Company
      outstanding, under anti-dilution or other similar provisions contained in or
      affecting any such securities.

     

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

     

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

     

    4.4 Authorization;
      Binding Obligations .
      All
      corporate, partnership or limited liability company, as the case may be, action
      on the part of the Company and each of its Subsidiaries (including the
      respective officers and directors) necessary for the authorization of this
      Agreement and the Related Agreements, the performance of all obligations of
      the
      Company and its Subsidiaries hereunder and under the other Related Agreements
      at
      the Closing and, the authorization, sale, issuance and delivery of the Note
      and
      Warrant has been taken or will be taken prior to the Closing. This Agreement
      and
      the Related Agreements, when executed and delivered and to the extent it is
      a
      party thereto, will be valid and binding obligations of each of the Company
      and
      each of its Subsidiaries, enforceable against each such person in accordance
      with their terms, except:

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

     

    The
      sale
      of the Note is 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 Warrant and the subsequent exercise of the Warrant 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. 

     

    4.5 Liabilities .
      Neither
      the Company nor any of its Subsidiaries has any contingent liabilities, except
      current liabilities incurred in the ordinary course of business and liabilities
      disclosed in any Exchange Act Filings.

     

    4.6 Agreements;
      Action .
      Except
      as set forth on Schedule 4.6 or as disclosed in any Exchange Act
      Filings:

     

    (a) there
      are
      no agreements, understandings, instruments, contracts, proposed transactions,
      judgments, orders, writs or decrees to which the Company or any of its
      Subsidiaries is a party or by which it is bound which may involve: (i)
      obligations (contingent or otherwise) of, or payments to, the Company in excess
      of $50,000 (other than obligations of, or payments to, the Company 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 the Company (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 the Company's
      products or services; or (iv) indemnification by the Company with respect to
      infringements of proprietary rights.

     

    (b) Since
      December 31, 2003, neither the Company nor any of its Subsidiaries has: (i)
      declared or paid any dividends, or authorized or made any distribution upon
      or
      with respect to any class or series of its capital stock; (ii) incurred any
      indebtedness for money borrowed or any other liabilities (other than ordinary
      course obligations) individually in excess of $50,000 or, in the case of
      indebtedness and/or liabilities individually less than $50,000, in excess of
      $100,000 in the aggregate; (iii) made any loans or advances to any person not
      in
      excess, individually or in the aggregate, of $100,000, other than ordinary
      course 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.

     

    (c) For
      the
      purposes of subsections (a) and (b) above, all indebtedness, liabilities,
      agreements, understandings, instruments, contracts and proposed transactions
      involving the same person or entity (including persons or entities the Company
      has reason to believe are affiliated therewith) shall be aggregated for the
      purpose of meeting the individual minimum dollar amounts of such
      subsections.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    4.7 Obligations
      to Related Parties .
      Except
      as set forth on Schedule 4.6 or Schedule 4.7, there are no obligations of the
      Company or any of its Subsidiaries to officers, directors, stockholders or
      employees of the Company or any of its Subsidiaries other than:

     

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

     

    (b) reimbursement
      for reasonable expenses incurred on behalf of the Company and its
      Subsidiaries;

     

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

     

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

     

    Except
      as
      described above or set forth on Schedule 4.6 or Schedule 4.7, none of the
      officers, directors or, to the best of the Company's knowledge, key employees
      or
      stockholders of the Company or any members of their immediate families, are
      indebted to the Company, individually or in the aggregate, in excess of $50,000
      or have any direct or indirect ownership interest in any firm or corporation
      with which the Company is affiliated or with which the Company has a business
      relationship, or any firm or corporation which competes with the Company, other
      than passive investments in publicly traded companies (representing less than
      one percent (1%) of such company) which may compete with the Company. Except
      as
      described above, no officer, director or stockholder, or any member of their
      immediate families, is, directly or indirectly, interested in any material
      contract with the Company and no agreements, understandings or proposed
      transactions are contemplated between the Company and any such person. Except
      as
      set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of
      any
      indebtedness of any other person, firm or corporation.

     

    4.8 Changes .
      Since
      December 31, 2003, except as disclosed in any Exchange Act Filing or in any
      Schedule to this Agreement or to any of the Related Agreements, there has not
      been:

     

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

     

    (b) any
      resignation or termination of any officer, key employee or group of employees
      of
      the Company or any of its Subsidiaries; 

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (f) any
      direct or indirect loans made by the Company or any of its Subsidiaries to
      any
      stockholder, employee, officer or director of the Company or any of its
      Subsidiaries, other than advances made in the ordinary course of
      business;

     

    (g) any
      material change in any compensation arrangement or agreement with any employee,
      officer, director or stockholder of the Company or any of its Subsidiaries;
      

     

    (h) any
      declaration or payment of any dividend or other distribution of the assets
      of
      the Company or any of its Subsidiaries;

     

    (i) any
      labor
      organization activity related to the Company or any of its
      Subsidiaries;

     

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

     

    (k) any
      sale,
      assignment or transfer of any patents, trademarks, copyrights, trade secrets
      or
      other intangible assets owned by the Company or any of its
      Subsidiaries;

     

    (l) any
      change in any material agreement to which the Company or any of its Subsidiaries
      is a party or by which either the Company 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;

     

    (m) 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

     

    (n) any
      arrangement or commitment by the Company or any of its Subsidiaries to do any
      of
      the acts described in subsection (a) through (m) above.

     

    4.9 Title
      to Properties and Assets; Liens, Etc. 
      Except
      as set forth on Schedule 4.9, each of the Company and each of its Subsidiaries
      has good and marketable title to its properties and assets, and good title
      to
      its leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
      encumbrance or charge, other than:

     

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

     

    
      
        
        

      

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

     

    (c) those
      that have otherwise arisen in the ordinary course of business.

     

    All
      facilities, machinery, equipment, fixtures, vehicles and other properties owned,
      leased or used by the Company and 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 4.9, the Company
      and
      its Subsidiaries are in compliance with all material terms of each lease to
      which it is a party or is otherwise bound.

     

    4.10 Intellectual
      Property .
      Except
      as set forth on Schedule 4.10:

     

    (a) Each
      of
      the Company and each of its Subsidiaries owns or possesses sufficient legal
      rights to all patents, trademarks, service marks, trade names, copyrights,
      trade
      secrets, licenses, information and other proprietary rights and processes
      necessary for its business as now conducted and to the Company’s knowledge, as
      presently proposed to be conducted (the "Intellectual Property"), without any
      known infringement of the rights of others. There are no outstanding options,
      licenses or agreements of any kind relating to the foregoing proprietary rights,
      nor is the Company or any of its Subsidiaries bound by or a party to any
      options, licenses or agreements of any kind with respect to the patents,
      trademarks, service marks, trade names, copyrights, trade secrets, licenses,
      information and other proprietary rights and processes of any other person
      or
      entity other than such licenses or agreements arising from the purchase of
      "off
      the shelf" or standard products.

     

    (b) Neither
      the Company nor any of its Subsidiaries has received any communications alleging
      that the Company or any of its Subsidiaries has violated any of the patents,
      trademarks, service marks, trade names, copyrights or trade secrets or other
      proprietary rights of any other person or entity, nor is the Company or any
      of
      its Subsidiaries aware of any basis therefor.

     

    (c) The
      Company does not believe it is or will be necessary to utilize any inventions,
      trade secrets or proprietary information of any of its employees made prior
      to
      their employment by the Company or any of its Subsidiaries, except for
      inventions, trade secrets or proprietary information that have been rightfully
      assigned to the Company or any of its Subsidiaries.

     

    4.11 Compliance
      with Other Instruments .
      Neither
      the Company nor any of its Subsidiaries is in violation or default of (x) any
      term of its Charter or Bylaws, or (y) of any provision of any indebtedness,
      mortgage, indenture, contract, agreement or instrument to which it is party
      or
      by which it is bound (other than with respect to its indebtedness to Comerica
      Bank, which is to be repaid at Closing) 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 Related Agreements to which it is a
      party, and the issuance and sale of the Note by the Company and the other
      Securities by the Company each pursuant hereto and thereto, will not, with
      or
      without the passage of time or giving of notice, result in any such material
      violation, or be in conflict with or constitute a default under any such term
      or
      provision, or result in the creation of any mortgage, pledge, lien, encumbrance
      or charge upon any of the properties or assets of the Company or any of its
      Subsidiaries or the suspension, revocation, impairment, forfeiture or nonrenewal
      of any permit, license, authorization or approval applicable to the Company,
      its
      business or operations or any of its assets or properties. 

     

    
      
        
        

      

      
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    4.12 Litigation .
      Except
      as set forth on Schedule 4.12 hereto, there is no action, suit, proceeding
      or
      investigation pending or, to the Company's knowledge, currently threatened
      against the Company or any of its Subsidiaries that prevents the Company or
      any
      of its Subsidiaries from entering into this Agreement or the other Related
      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 any change in
      the
      current equity ownership of the Company or any of its Subsidiaries, nor is
      the
      Company aware that there is any basis to assert any of the foregoing. Neither
      the Company nor any of its Subsidiaries is a party or subject to the provisions
      of any order, writ, injunction, judgment or decree of any court or government
      agency or instrumentality. There is no action, suit, proceeding or investigation
      by the Company or any of its Subsidiaries currently pending or which the Company
      or any of its Subsidiaries intends to initiate.

     

    4.13 Tax
      Returns and Payments .
      Each of
      the Company and each of its Subsidiaries has 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 the Company or any of its Subsidiaries on or before the Closing,
      have
      been paid or will be paid prior to the time they become delinquent. Except
      as
      set forth on Schedule 4.13, neither the Company nor any of its Subsidiaries
      has
      been advised:

     

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

     

    (b) of
      any
      deficiency in assessment or proposed judgment to its federal, state or other
      taxes.

     

    The
      Company has no knowledge of any liability of any tax to be imposed upon its
      properties or assets as of the date of this Agreement that is not adequately
      provided for. 

     

    4.14 Employees .
      Except
      as set forth on Schedule 4.14, neither the Company 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 the Company's knowledge,
      threatened with respect to the Company or any of its Subsidiaries. Except as
      disclosed in the Exchange Act Filings or on Schedule 4.14, neither the Company
      nor any of its Subsidiaries is a party to or bound by any currently effective
      employment contract, deferred compensation arrangement, bonus plan, incentive
      plan, profit sharing plan, retirement agreement or other employee compensation
      plan or agreement. To the Company's knowledge, no employee of the Company or
      any
      of its Subsidiaries, nor any consultant with whom the Company 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, the
      Company or any of its Subsidiaries because of the nature of the business to
      be
      conducted by the Company or any of its Subsidiaries; and to the Company's
      knowledge the continued employment by the Company or any of its Subsidiaries
      of
      its present employees, and the performance of the Company's and its
      Subsidiaries’ contracts with its independent contractors, will not result in any
      such violation. Neither the Company nor any of its Subsidiaries is aware that
      any of its 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 the Company or any of its Subsidiaries. Neither
      the Company 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 the Company or any of its Subsidiaries,
      no
      employee of the Company or any of its Subsidiaries has been granted the right
      to
      continued employment by the Company or any of its Subsidiaries or to any
      material compensation following termination of employment with the Company
      or
      any of its Subsidiaries. Except as set forth on Schedule 4.14, the Company
      is
      not aware that any officer, key employee or group of employees intends to
      terminate his, her or their employment with the Company or any of its
      Subsidiaries, nor does the Company or any of its Subsidiaries have a present
      intention to terminate the employment of any officer, key employee or group
      of
      employees.

     

    
      
        
        

      

      
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    4.15 Registration
      Rights and Voting Rights .
      Except
      as set forth on Schedule 4.15 and except as disclosed in Exchange Act Filings,
      neither the Company nor any of its Subsidiaries is presently under any
      obligation, and neither the Company nor any of its Subsidiaries has granted
      any
      rights, to register any of the Company's or its Subsidiaries’ presently
      outstanding securities or any of its securities that may hereafter be issued.
      Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
      Filings, to the Company's knowledge, no stockholder of the Company or any of
      its
      Subsidiaries has entered into any agreement with respect to the voting of equity
      securities of the Company or any of its Subsidiaries.

     

    4.16 Compliance
      with Laws; Permits .
      Neither
      the Company nor any of its Subsidiaries is in violation of any applicable
      statute, rule, regulation, order or restriction of any domestic or foreign
      government or any instrumentality or agency thereof in respect of the conduct
      of
      its business or the ownership of its properties which has had, or could
      reasonably be expected to have, either individually or in the aggregate, a
      Material Adverse Effect. No governmental orders, permissions, consents,
      approvals or authorizations are required to be obtained and no registrations
      or
      declarations are required to be filed in connection with the execution and
      delivery of this Agreement or any other Related Agreement and the issuance
      of
      any of the Securities, except such as has been duly and validly obtained or
      filed, or with respect to any filings that must be made after the Closing,
      as
      will be filed in a timely manner. Each of the Company and 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.

     

    
      
        
        

      

      
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    4.17 Environmental
      and Safety Laws .
      Neither
      the Company 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 4.17, no Hazardous Materials (as defined below)
      are used or have been used, stored, or disposed of by the Company or any of
      its
      Subsidiaries or, to the Company's knowledge, by any other person or entity
      on
      any property owned, leased or used by the Company or any of its Subsidiaries.
      For the purposes of the preceding sentence, "Hazardous Materials" shall
      mean:

     

    (a) 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;
      or

     

    (b) any
      petroleum products or nuclear materials.

     

    4.18 Valid
      Offering .
      Assuming the accuracy of the representations and warranties of the Purchaser
      contained in this Agreement, the offer, sale and issuance of the Securities
      will
      be exempt from the registration requirements of the Securities Act of 1933,
      as
      amended (the "Securities Act"), and will have been registered or qualified
      (or
      are exempt from registration and qualification) under the registration, permit
      or qualification requirements of all applicable state securities laws.

     

    4.19 Full
      Disclosure .
      Each of
      the Company and each of its Subsidiaries has provided the Purchaser with all
      information requested by the Purchaser in connection with its decision to
      purchase the Note and Warrant, including all information the Company and its
      Subsidiaries believe is reasonably necessary to make such investment decision.
      Neither this Agreement, the Related Agreements, the exhibits and schedules
      hereto and thereto nor any other document delivered by the Company or any of
      its
      Subsidiaries to Purchaser 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 the Purchaser by the Company or any of its
      Subsidiaries were based on the Company's and its Subsidiaries’ experience in the
      industry and on assumptions of fact and opinion as to future events which the
      Company or any of its Subsidiaries, at the date of the issuance of such
      projections or estimates, believed to be reasonable. 

     

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

     

    4.21 SEC
      Reports .
      Except
      as set forth on Schedule 4.21, the Company has filed all proxy statements,
      reports and other documents required to be filed by it under the Securities
      Exchange Act 1934, as amended (the “Exchange Act”). The Company has furnished
      the Purchaser with copies of: (i) its Annual Reports on Form 10-KSB for its
      fiscal year ended December 31, 2003; (ii) its Quarterly Report on Form 10-QSB
      for its fiscal quarter ended March 31, 2003; (iii) the Form 8-K filings which
      it
      has made during the fiscal year ending December 3, 2004 to date; and (iv) the
      Definitive Information Statement on Schedule 14C filed with the SEC on March 22,
      2004 (collectively, the "SEC Reports"). Except as set forth on Schedule 4.21,
      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.

     

    
      
        
        

      

      
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    4.22 No
      Integrated Offering .
      Neither
      the Company, nor any of its Subsidiaries or 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
      of
      the Related Agreements to be integrated with prior offerings by the Company
      for
      purposes of the Securities Act which would prevent the Company from selling
      the
      Securities pursuant to Rule 506 under the Securities Act, or any applicable
      exchange-related stockholder approval provisions, nor will the Company 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.

     

    4.23 Stop
      Transfer .
      The
      Securities are restricted securities as of the date of this Agreement. Neither
      the Company 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.

     

    4.24 Dilution.
      The
      Company specifically acknowledges that its obligation to issue the shares of
      Common Stock upon conversion of the Note and exercise of the Warrant is binding
      upon the Company and enforceable regardless of the dilution such issuance may
      have on the ownership interests of other shareholders of the
      Company.

     

    4.25 Patriot
      Act. The
      Company certifies that, to the best of Company’s knowledge, neither the Company
      nor any of its Subsidiaries has been designated, and is not owned or controlled,
      by a “suspected terrorist” as defined in Executive Order 13224. The Company
      hereby acknowledges that the Purchaser seeks to comply with all applicable
      laws
      concerning money laundering and related activities. In furtherance of those
      efforts, the Company hereby represents, warrants and agrees that: (i) none
      of
      the cash or property that the Company or any of its Subsidiaries will pay or
      will contribute to the Purchaser 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 the Company or any of its Subsidiaries to the
      Purchaser, to the extent that they are within the Company’s and/or its
      Subsidiaries’ control shall cause the Purchaser 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. The Company shall promptly
      notify the Purchaser if any of these representations in this Section ceases
      to
      be true and accurate regarding the Company or any of its Subsidiaries. The
      Company agrees to provide the Purchaser any additional information regarding
      the
      Company or any of its Subsidiaries that the Purchaser deems necessary or
      convenient to ensure compliance with all applicable laws concerning money
      laundering and similar activities. The Company understands and agrees that
      if at
      any time it is discovered that any of the foregoing representations in this
      Section are incorrect, or if otherwise required by applicable law or regulation
      related to money laundering similar activities, the Purchaser may undertake
      appropriate actions to ensure compliance with applicable law or regulation,
      including but not limited to segregation and/or redemption of the Purchaser’s
      investment in the Company. The Company further understands that the Purchaser
      may release confidential information about the Company and its Subsidiaries
      and,
      if applicable, any underlying beneficial owners, to proper authorities if the
      Purchaser, in its sole discretion, determines that it is in the best interests
      of the Purchaser in light of relevant rules and regulations under the laws
      set
      forth in subsection (ii) above.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    4.26 
      The
      Company will at all times have authorized and reserved a sufficient number
      of
      shares of Common Stock for the full conversion of the Warrant and the Note
      issued hereunder. 

     

    4.27 The
      Common Stock of the Company is, as of the date hereof, traded on the Pink Sheets
      and satisfies all requirements for the continuation of such trading. The Company
      has not received any notice that its Common Stock will be ineligible to be
      traded on the Pink Sheets or that the Common Stock does not meet all
      requirements for the continuation of such trading. The Company hereby certifies
      that as of the date hereof it meets or exceeds all eligibility requirements
      to
      have its shares listed for trading on the NASD Over the Counter Bulletin Board
      (“OTCBB”) and shall secure the listing of its Common Stock on the OTCBB within
      60 days from the date hereof. The Company hereby certifies that as of the date
      hereof it meets or exceeds all eligibility requirements to have its shares
      listed for trading on the NASD Over the Counter Bulletin Board (“OTCBB”) and
      shall secure the listing of its Common Stock on the OTCBB no later than December
      31, 2004.

     

    5. Representations
      and Warranties of the Purchaser .
      The
      Purchaser hereby represents and warrants to the Company as follows (such
      representations and warranties do not lessen or obviate the representations
      and
      warranties of the Company set forth in this Agreement):

     

    5.1 No
      Shorting .
      Neither
      the Purchaser nor any of its affiliates or investment partners has engaged
      in
      "short sales" of the Company's Common Stock, and neither the Purchaser nor
      any
      of its affiliates will, or cause any person or entity, directly or indirectly,
      to, engage in "short sales" of the Company's Common Stock as long as the Note
      shall be outstanding.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    5.2 Requisite
      Power and Authority .
      The
      Purchaser has all necessary power and authority under all applicable provisions
      of law to execute and deliver this Agreement and the Related Agreements and
      to
      carry out their provisions. All corporate action on Purchaser's part required
      for the lawful execution and delivery of this Agreement and the Related
      Agreements have been or will be effectively taken prior to the Closing. Upon
      their execution and delivery, this Agreement and the Related Agreements will
      be
      valid and binding obligations of Purchaser, enforceable in accordance with
      their
      terms, except:

     

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

     

    (b) as
      limited by general principles of equity that restrict the availability of
      equitable and legal remedies.

     

    5.3 Investment
      Representations .
      Purchaser understands that the Securities are being offered and sold pursuant
      to
      an exemption from registration contained in the Securities Act based in part
      upon Purchaser's representations contained in the Agreement, including, without
      limitation, that the Purchaser is an "accredited investor" within the meaning
      of
      Regulation D under the Securities Act of 1933, as amended (the "Securities
      Act"). The Purchaser confirms that it has received or has had full access to
      all
      the information it considers necessary or appropriate to make an informed
      investment decision with respect to the Note and the Warrant to be purchased
      by
      it under this Agreement and the Warrant Shares acquired by it upon the
      conversion of the Note and the exercise of the Warrant, respectively. The
      Purchaser further confirms that it has had an opportunity to ask questions
      and
      receive answers from the Company regarding the Company's and its Subsidiaries’
business, management and financial affairs and the terms and conditions of
      the
      Offering, the Note, the Warrant and the Securities and to obtain additional
      information (to the extent the Company possessed such information or could
      acquire it without unreasonable effort or expense) necessary to verify any
      information furnished to the Purchaser or to which the Purchaser had
      access.

     

    5.4 Purchaser
      Bears Economic Risk .
      The
      Purchaser has substantial experience in evaluating and investing in private
      placement transactions of securities in companies similar to the Company so
      that
      it is capable of evaluating the merits and risks of its investment in the
      Company and has the capacity to protect its own interests. The Purchaser 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 with respect to such sale.

     

    5.5 Acquisition
      for Own Account .
      The
      Purchaser is acquiring the Note and Warrant and the Warrant Shares for the
      Purchaser's 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.

     

    5.6 Purchaser
      Can Protect Its Interest .
      The
      Purchaser represents that by reason of its, or of its management's, business
      and
      financial experience, the Purchaser has the capacity to evaluate the merits
      and
      risks of its investment in the Note, the Warrant and the Securities and to
      protect its own interests in connection with the transactions contemplated
      in
      this Agreement and the Related Agreements. Further, Purchaser is aware of no
      publication of any advertisement in connection with the transactions
      contemplated in the Agreement or the Related Agreements.

     

    
      
        
        

      

      
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    5.7 Accredited
      Investor .
      Purchaser represents that it is an accredited investor within the meaning of
      Regulation D under the Securities Act.

     

    5.8 Legends .

     

    (a) The
      Warrant Shares, if not issued by DWAC system (as hereinafter defined), 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 LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO GVI
      SECURITY SOLUTIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

     

    (b) The
      Warrant 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 GVI SECURITY SOLUTIONS,
      INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

     

    6. Covenants
      of the Company .
      The
      Company covenants and agrees with the Purchaser as follows:

     

    6.1 Stop-Orders .
      The
      Company will advise the Purchaser, promptly after it receives notice of issuance
      by the Securities and Exchange Commission (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 Company, or
      of
      the suspension of the qualification of the Common Stock of the Company for
      offering or sale in any jurisdiction, or the initiation of any proceeding for
      any such purpose.

     

    6.2 Listing .
      The
      Common Stock of the Company is, as of the date hereof, traded on the Pink Sheets
      and satisfies all requirements for the continuation of such trading. The Company
      has not received any notice that its common stock will be ineligible to be
      traded on the Pink Sheets or that the Common Stock does not meet all
      requirements for the continuation of such trading. The Company hereby certifies
      that as of the date hereof it meets or exceeds all eligibility requirements
      to
      have its shares listed for trading on the NASD Over the Counter Bulletin Board
      (“OTCBB”) and shall secure the listing of its Common Stock on the NASD Over the
      Counter Bulletin Board (“OTCBB”) within 60 days from the date hereof. The
      Company hereby certifies that as of the date hereof it meets or exceeds all
      eligibility requirements to have its shares listed for trading on the NASD
      Over
      the Counter Bulletin Board (“OTCBB”) and shall secure the listing of its Common
      Stock on the OTCBB no later than December 31, 2004.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    6.3 Market
      Regulations .
      To the
      extent applicable, the Company shall notify the SEC, NASD and applicable state
      authorities, in accordance with their requirements, of the transactions
      contemplated by this Agreement, and shall take all other necessary action and
      proceedings as may be required and permitted by applicable law, rule and
      regulation, for the legal and valid issuance of the Securities to the Purchaser
      and promptly provide copies thereof to the Purchaser.

     

    6.4 Reporting
      Requirements .
      The
      Company will timely file with the SEC all reports required to be filed pursuant
      to the Exchange Act and refrain from terminating its status as an issuer
      required by the Exchange Act to file reports thereunder even if the Exchange
      Act
      or the rules or regulations thereunder would permit such termination.

     

    6.5 Use
      of
      Funds .
      The
      Company agrees that it will use the proceeds of the sale of the Note and the
      Warrant for general working capital purposes and as otherwise set forth on
      Schedule 6.5.

     

    6.6 Access
      to Facilities .
      Each of
      the Company and each of its Subsidiaries will permit any representatives
      designated by the Purchaser (or any successor of the Purchaser), upon reasonable
      notice and during normal business hours, at such person's expense and
      accompanied by a representative of the Company, to:

     

    (a) visit
      and
      inspect any of the properties of the Company or any of its
      Subsidiaries;

     

    (b) examine
      the corporate and financial records of the Company or any of its Subsidiaries
      (unless such examination is not permitted by federal, state or local law or
      by
      contract) and make copies thereof or extracts therefrom; and

     

    (c) discuss
      the affairs, finances and accounts of the Company or any of its Subsidiaries
      with the directors, officers and independent accountants of the Company or
      any
      of its Subsidiaries.

     

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

     

    6.7 Taxes .
      Each of
      the Company and each of its Subsidiaries will promptly pay and discharge, or
      cause to be paid and discharged, when due and payable, all lawful taxes,
      assessments and governmental charges or levies imposed upon the income, profits,
      property or business of the Company and its Subsidiaries; provided, however,
      that any such tax, assessment, charge or levy need not be paid if the validity
      thereof shall currently be contested in good faith by appropriate proceedings
      and if the Company and/or such Subsidiary shall have set aside on its books
      adequate reserves with respect thereto, and provided, further, that the Company
      and its Subsidiaries will 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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    6.8 Insurance .
      Each of
      the Company and its Subsidiaries will 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 the Company and its
      Subsidiaries; and the Company and its Subsidiaries will maintain, with
      financially sound and reputable insurers, insurance against other hazards and
      risks and liability to persons and property to the extent and in the manner
      which the Company reasonably believes is customary for companies in similar
      business similarly situated as the Company and its Subsidiaries and to the
      extent available on commercially reasonable terms. The
      Company, 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 the Purchaser as security for its obligations hereunder and under
      the
      Related Agreements. At the Company's and each of its Subsidiaries’ joint and
      several cost and expense in amounts and with carriers reasonably acceptable
      to
      Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
      insurable properties and properties in which it has 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 the Company's 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 the Company's or the respective Subsidiary's 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 the assets or funds
      of
      the Company or
      any of
      its Subsidiaries
      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 the Company or the respective Subsidiary is engaged in business; and
      (v)
      furnish Purchaser 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 the Company's workers' compensation policy, endorsements
      to
      such policies naming Purchaser as "co-insured" or "additional insured" and
      appropriate loss payable endorsements in form and substance satisfactory to
      Purchaser, naming Purchaser as loss payee, and (z) evidence that as to Purchaser
      the insurance coverage shall not be impaired or invalidated by any act or
      neglect of the Company or any Subsidiary and the insurer will provide Purchaser
      with at least thirty (30) days notice prior to cancellation. The Company and
      each Subsidiary shall instruct the insurance carriers that in the event of
      any
      loss thereunder, the carriers shall make payment for such loss to the Company
      and/or the Subsidiary and Purchaser jointly. In the event that as of the date
      of
      receipt of each loss recovery upon any such insurance, the Purchaser has not
      declared an event of default with respect to this Agreement or any of the
      Related Agreements, then the Company and/or such Subsidiary shall be permitted
      to direct the application of such loss recovery proceeds toward investment
      in
      property, plant and equipment that would comprise "Collateral" secured by
      Purchaser's security interest pursuant to its security agreement. In the event
      that Purchaser has properly declared an Event of Default with respect to this
      Agreement or any of the Related Agreements, then all loss recoveries received
      by
      Purchaser upon any such insurance thereafter may be applied to the obligations
      of the Company hereunder and under the Related Agreements, in such order as
      the
      Purchaser may determine. Any surplus (following satisfaction of all Company
      obligations to Purchaser) shall be paid by Purchaser to the Company or applied
      as may be otherwise required by law. Any deficiency thereon shall be paid by
      the
      Company or the Subsidiary, as applicable, to Purchaser, on demand. 

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    6.9 Intellectual
      Property .
      Each of
      the Company and each of its Subsidiaries shall maintain in full force and effect
      its 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.

     

    6.10 Properties .
      Each of
      the Company and each of its Subsidiaries will 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 each of the Company and each of its
      Subsidiaries will 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, either individually or in the aggregate, reasonably be expected
      to have a Material Adverse Effect.

     

    6.11 Confidentiality .
      Other
      than in reports the Company may file with the SEC, the Company agrees that
      it
      will not disclose, and will not include in any public announcement, the name
      of
      the Purchaser, unless expressly agreed to by the Purchaser 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, the Company
      may
      disclose Purchaser's identity and the terms of this Agreement to its current
      and
      prospective debt and equity financing sources.

     

    6.12 Required
      Approvals .
      For so
      long as twenty-five percent (25%) of the principal amount of the Note is
      outstanding, the Company, without the prior written consent of the Purchaser,
      shall not, and shall not permit any of its Subsidiaries to:

     

    (a) directly
      or indirectly declare or pay any dividends, other than dividends paid to the
      Company or any of its wholly-owned Subsidiaries;

     

    (b) liquidate,
      dissolve or effect a material reorganization (it being understood that in no
      event shall the Company dissolve, liquidate or merge with any other person
      or
      entity (unless the Company is the surviving entity);

     

    (c) become
      subject to (including, without limitation, by way of amendment to or
      modification of) any agreement or instrument which by its terms would (under
      any
      circumstances) restrict the Company's or any of its Subsidiaries right to
      perform the provisions of this Agreement, any Related Agreement or any of the
      agreements contemplated hereby or thereby; 

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (d) materially
      alter or change the scope of the business of the Company and its Subsidiaries
      taken as a whole; 

     

    (e) (i)
      create, incur, assume or suffer to exist any indebtedness for borrowed money
      (exclusive of trade debt and debt incurred to finance the purchase of equipment
      (not in excess of five percent (5%) per annum of the fair market value of the
      Company's assets)) whether secured or unsecured, other than (w) the Company's
      indebtedness to Purchaser, (x) debt subordinated to the Company’s indebtedness
      to Purchaser, (y) indebtedness set forth on Schedule
      6.12(e)
      attached
      hereto and made a part hereof and any refinancings or replacements thereof
      on
      terms no less favorable to the Purchaser than the indebtedness being refinanced
      or replaced, and (z) any debt incurred in connection with the purchase of assets
      in the ordinary course of business, or any refinancings or replacements thereof
      on terms no less favorable to the Purchaser than the indebtedness being
      refinanced or replaced; (ii) cancel any debt owing to it in excess of $50,000
      in
      the aggregate during any 12 month period; (iii) assume, guarantee, endorse
      or
      otherwise become directly or contingently liable in connection with any
      obligations of any other Person, except the endorsement of negotiable
      instruments by the Company for deposit or collection or similar transactions
      in
      the ordinary course of business or guarantees of indebtedness otherwise
      permitted to be outstanding pursuant to this clause (e);
      and

     

    (f) create
      or
      acquire any Subsidiary after the date hereof unless (i) such Subsidiary is
      a
      wholly-owned Subsidiary of the Company and (ii) such Subsidiary becomes party
      to
      the Master Security Agreement and the Subsidiary Guaranty (either by executing
      a
      counterpart thereof or an assumption or joinder agreement in respect thereof)
      and, to the extent required by the Purchaser, satisfies each condition of this
      Agreement and the Related Agreements as if such Subsidiary were a Subsidiary
      on
      the Closing Date.

     

    6.13 Reissuance
      of Securities .
      The
      Company agrees to reissue certificates representing the Securities without
      the
      legends set forth in Section 5.7 above at such time as:

     

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

     

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

     

    The
      Company agrees to cooperate with the Purchaser 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 Company and its counsel receive reasonably
      requested representations from the selling Purchaser and broker, if
      any.

     

    6.14 Opinion .
      On the
      Closing Date, the Company will deliver to the Purchaser an opinion acceptable
      to
      the Purchaser from the Company's external legal counsel. The Company will
      provide, at the Company's expense, such other legal opinions in the future
      as
      are deemed reasonably necessary by the Purchaser (and acceptable to the
      Purchaser) in connection with the issuance of Common Stock upon exercise of
      the
      Warrant.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    6.15 Margin
      Stock. The
      Company will not permit any
      of
      the proceeds of the Note or the Warrant 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.

     

    7. Covenants
      of the Purchaser .
      The
      Purchaser covenants and agrees with the Company as follows:

     

    7.1 Confidentiality .
      The
      Purchaser agrees that it will not disclose, and will not include in any public
      announcement, the name of the Company, unless expressly agreed to by the Company
      or unless and until such disclosure is required by law or applicable regulation,
      and then only to the extent of such requirement. 

     

    7.2 No
      Short Sales.
      Neither
      the Purchaser nor any of its affiliates will, or cause any person or entity,
      directly or indirectly, to, engage in "short sales" of the Company's Common
      Stock as long as the Note shall be outstanding.

     

    7.3 Non-Public
      Information.
      The
      Purchaser agrees not to effect any sales in the shares of the Company's Common
      Stock while in possession of material, non-public information regarding the
      Company if such sales would violate applicable securities law.

     

    8. Covenants
      of the Company and Purchaser Regarding Indemnification .

     

    8.1 Company
      Indemnification .
      The
      Company agrees to indemnify, hold harmless, reimburse and defend the Purchaser,
      each of the Purchaser's officers, directors, agents, affiliates, control
      persons, and principal shareholders, against any claim, cost, expense,
      liability, obligation, loss or damage (including reasonable legal fees) of
      any
      nature, incurred by or imposed upon the Purchaser which results, arises out
      of
      or is based upon: (i) any material misrepresentation by the Company or any
      of
      its Subsidiaries or breach in any material respect of any warranty by the
      Company or any of its Subsidiaries in this Agreement, any other Related
      Agreement or in any exhibits or schedules attached hereto or thereto; or (ii)
      any breach or default in performance by Company or any of its Subsidiaries
      of
      any covenant or undertaking to be performed by Company or any of its
      Subsidiaries hereunder in any material respect, under any other Related
      Agreement or any other agreement entered into by the Company and/or any of
      its
      Subsidiaries and Purchaser relating hereto or thereto.

     

    8.2 Purchaser's
      Indemnification .
      Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company
      and each of the Company's officers, directors, agents, affiliates, control
      persons and principal shareholders, at all times against any claim, cost,
      expense, liability, obligation, loss or damage (including reasonable legal
      fees)
      of any nature, incurred by or imposed upon the Company which results, arises
      out
      of or is based upon: (i) any misrepresentation by Purchaser or breach of any
      warranty by Purchaser in this Agreement or in any exhibits or schedules attached
      hereto or any Related Agreement; or (ii) any breach or default in performance
      by
      Purchaser of any covenant or undertaking to be performed by Purchaser hereunder,
      or any other agreement entered into by the Company and Purchaser relating
      hereto.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    

     

    9. 
      [Intentionally Omitted] .

     

    10. Registration
      Rights.

     

    10.1 Registration
      Rights Granted .
      The
      Company has granted registration rights to the Purchaser pursuant to a
      Registration Rights Agreement dated as of even date herewith between the Company
      and the Purchaser. 

     

    10.2 Offering
      Restrictions .
      Except
      as previously disclosed in the SEC Reports or in the Exchange Act Filings,
      or
      stock or stock options granted to employees or directors of the Company (these
      exceptions hereinafter referred to as the "Excepted Issuances"), neither the
      Company nor any of its Subsidiaries will issue any securities with a
      continuously variable/floating conversion feature which are or could be (by
      conversion or registration) free-trading securities (i.e. common stock subject
      to a registration statement) prior to the full repayment of the Note (together
      with all accrued and unpaid interest and fees related thereto).

     

    11. Miscellaneous .

     

    11.1 Governing
      Law .
      THIS
      AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
      ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
      OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER
      CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED
      AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE
      FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
      INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF
      THE
      COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL
      BY
      JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
      DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
      APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
      INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
      MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
      MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
      OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
      AGREEMENT.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    11.2 Survival .
      The
      representations, warranties, covenants and agreements made herein shall survive
      any investigation made by the Purchaser 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 Company pursuant hereto in connection with the transactions
      contemplated hereby shall be deemed to be representations and warranties by
      the
      Company hereunder solely as of the date of such certificate or
      instrument.

     

    11.3 Successors .
      Except
      as otherwise expressly provided herein, the provisions hereof shall inure to
      the
      benefit of, and be binding upon, the successors, heirs, executors and
      administrators of the parties hereto and shall inure to the benefit of and
      be
      enforceable by each person who shall be a holder of the Securities from time
      to
      time, other than the holders of Common Stock which has been sold by the
      Purchaser pursuant to Rule 144 or an effective registration statement. Purchaser
      may not assign its rights hereunder to a competitor of the Company.

     

    11.4 Entire
      Agreement .
      This
      Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
      and the other documents delivered pursuant hereto constitute the full and entire
      understanding and agreement between the parties with regard to the subjects
      hereof and no party shall be liable or bound to any other in any manner by
      any
      representations, warranties, covenants and agreements except as specifically
      set
      forth herein and therein.

     

    11.5 Severability .
      In case
      any provision of the Agreement shall be invalid, illegal or unenforceable,
      the
      validity, legality and enforceability of the remaining provisions shall not
      in
      any way be affected or impaired thereby.

     

    11.6 Amendment
      and Waiver .

     

    (a) This
      Agreement may be amended or modified only upon the written consent of the
      Company and the Purchaser.

     

    (b) The
      obligations of the Company and the rights of the Purchaser under this Agreement
      may be waived only with the written consent of the Purchaser. 

     

    (c) The
      obligations of the Purchaser and the rights of the Company under this Agreement
      may be waived only with the written consent of the Company.

     

    11.7 Delays
      or Omissions .
      It is
      agreed that no delay or omission to exercise any right, power or remedy accruing
      to any party, upon any breach, default or noncompliance by another party under
      this Agreement or the Related Agreements, shall impair any such right, power
      or
      remedy, nor shall it be construed to be a waiver of any such breach, default
      or
      noncompliance, or any acquiescence therein, or of or in any similar breach,
      default or noncompliance thereafter occurring. All remedies, either under this
      Agreement or the Related Agreements, by law or otherwise afforded to any party,
      shall be cumulative and not alternative.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    11.8 Notices .
      All
      notices required or permitted hereunder shall be in writing and shall be deemed
      effectively given:

     

    (a) upon
      personal delivery to the party to be notified;

     

    (b) when
      sent
      by confirmed facsimile if sent during normal business hours of the recipient,
      if
      not, then on the next business day;

     

    (c) three
      (3)
      business days after having been sent by registered or certified mail, return
      receipt requested, postage prepaid; or

     

    (d) one
      (1)
      day after deposit with a nationally recognized overnight courier, specifying
      next day delivery, with written verification of receipt.

     

    All
      communications shall be sent as follows:

     

    
      	
              If
                to the Company, to:

            	
              GVI
                Security Solutions, Inc.

              1621
                West Crosby

              Suite
                104

              Carrollton,
                TX 75006

              Attention:
                Nazzareno E. Paciotti, Chief Financial Officer

              Facsimile:
                972-245 7333

            
	 	 
	 	
              with
                a copy to:

            
	 	
              Kronish
                Lieb Weiner & Hellman LLP

              1114
                Avenue of the Americas

              New
                York, NY 10036

            
	 	
              Attention:
                Alison Newman, Esq.

              Facsimile:
                212-479-6275

            
	 	 
	
              If
                to the Purchaser, to:

            	
              Laurus
                Master Fund, Ltd.

              c/o
                Ironshore Corporate Services ltd.

              P.O.
                Box 1234 G.T.

              Queensgate
                House, South Church Street

              Grand
                Cayman, Cayman Islands

              Facsimile: 345-949-9877

            
	 	 
	 	
              with
                a copy to:

            
	 	 
	 	
              John
                E. Tucker, Esq.

              825
                Third Avenue 14th Floor

              New
                York, NY 10022

              Facsimile: 212-541-4434

            

    

    

    or
      at
      such other address as the Company or the Purchaser may designate by written
      notice to the other parties hereto given in accordance herewith.

     

    11.9 Attorneys'
      Fees .
      In the
      event that any suit or action is instituted to enforce any provision in this
      Agreement, the prevailing party in such dispute shall be entitled to recover
      from the losing party all fees, costs and expenses of enforcing any right of
      such prevailing party under or with respect to this Agreement, including,
      without limitation, such reasonable fees and expenses of attorneys and
      accountants, which shall include, without limitation, all fees, costs and
      expenses of appeals.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    11.10 Titles
      and Subtitles .
      The
      titles of the sections and subsections of this Agreement are for convenience
      of
      reference only and are not to be considered in construing this
      Agreement.

     

    11.11 Facsimile
      Signatures; Counterparts .
      This
      Agreement may be executed by facsimile signatures and in any number of
      counterparts, each of which shall be an original, but all of which together
      shall constitute one instrument.

     

    11.12 Broker's
      Fees .
      Except
      as set forth on Schedule 11.12 hereof, each party hereto represents and warrants
      that no agent, broker, investment banker, person or firm acting on behalf of
      or
      under the authority of such party hereto is or will be entitled to any broker's
      or finder's fee or any other commission directly or indirectly in connection
      with the transactions contemplated herein. Each party hereto further agrees
      to
      indemnify each other party for any claims, losses or expenses incurred by such
      other party as a result of the representation in this Section 11.12 being
      untrue.

     

    11.13 Construction .
      Each
      party acknowledges that its legal counsel participated in the preparation of
      this Agreement and the Related Agreements and, therefore, stipulates that the
      rule of construction that ambiguities are to be resolved against the drafting
      party shall not be applied in the interpretation of this Agreement to favor
      any
      party against the other.

     

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      REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE
      AGREEMENT as of the date set forth in the first paragraph hereof.

     

    
      	
              COMPANY:

            	 	
              PURCHASER:

            
	 	 	 
	
              
                
                  
                    GVI SECURITY
                      SOLUTIONS,
                      INC.

                  

                

              

            	 	
              
                LAURUS MASTER
                  FUND,
                  LTD.

              

            
	 	 	 
	 	 	 
	
              By:

            	 	 	
              By:

            	 
	
              Name:

            	 	 	
              Name:

            	 
	
              Title:

            	 	 	
              Title:

            	 

    

     

    
      
        
        

      

      
        25Exhibit
        10.4

       

      AMENDED
        AND RESTATED SECURITY AGREEMENT

       

      This
        Security Agreement is made as of May 27, 2004, and amended and restated as
        of
        October 4, 2006 (the “Restatement Date”), by and between LAURUS MASTER FUND,
        LTD., a Cayman Islands corporation (“Laurus”) and GVI Security Solutions, Inc.,
        a Delaware corporation (the “Company”). This Security Agreement amends and
        restates in its entirety that certain Security Agreement made by the Company
        in
        favor of Laurus on May 27, 2004 (the “Original Security
        Agreement”).

       

      BACKGROUND

      

      On
        May
        27, 2004, Laurus made certain advances available to the Company pursuant
        to the
        terms of that certain Original Security Agreement; 

       

      The
        Company and Laurus have agreed to amend and restate the Original Agreement
        in
        the form hereof in order to incorporate and give effect, from and after the
        Restatement Date, to certain mutually agreed-to terms; 

       

      The
        term
“date hereof” and words of similar import used herein, shall unless otherwise
        specified, mean May 27, 2004; and

       

      Laurus
        has agreed to continue to make such advances to Company on the terms and
        conditions set forth in this Amended and Restated Security Agreement (this
        “Agreement”).

       

      AGREEMENT

       

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

       

      1.  (a) General
        Definitions.
        Capitalized terms used in this Agreement shall have the meanings assigned
        to
        them in Annex A.

       

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

       

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

       

      (d) Rules
        of Construction.
        All
        Schedules, Addenda, Annexes and Exhibits hereto or expressly identified to
        this
        Agreement are incorporated herein by reference and taken together with this
        Agreement constitute but a single agreement. The words “herein”, hereof” and
“hereunder” or other words of similar import refer to this Agreement as a whole,
        including the Exhibits, Addenda, Annexes and Schedules thereto, as the same
        may
        be from time to time amended, modified, restated or supplemented, and not
        to any
        particular section, subsection or clause contained in this Agreement. Wherever
        from the context it appears appropriate, each term stated in either the singular
        or plural shall include the singular and the plural, and pronouns stated
        in the
        masculine, feminine or neuter gender shall include the masculine, the feminine
        and the neuter. The term “or” is not exclusive. The term “including” (or any
        form thereof) shall not be limiting or exclusive. All references to statutes
        and
        related regulations shall include any amendments of same and any successor
        statutes and regulations. All references in this Agreement or in the Schedules,
        Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
        disclosure schedules, exhibits, and attachments shall refer to the corresponding
        sections, schedules, disclosure schedules, exhibits, and attachments of or
        to
        this Agreement. All references to any instruments or agreements, including
        references to any of this Agreement or the
        Ancillary Agreements shall include any and all modifications or amendments
        thereto and any and all extensions or renewals thereof.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      2. Loans.
        (a)(i)
        Subject to the terms and conditions set forth herein and in the Ancillary
        Agreements, Laurus shall make loans (the “Loans”) to Company from time to time
        during the Term which, in the aggregate at any time outstanding, will not
        exceed
        the lesser of (x) the Capital Availability Amount or (y) an amount equal
        to (I)
        the Accounts Availability plus (II) the Inventory Availability minus (III)
        such
        reserves as Laurus may reasonably in its good faith judgment deem proper
        and
        necessary from time to time (the “Reserves”). The amount derived at any time
        from Section 2(a)(i)(y)(I) plus 2(a)(i)(y)(II) minus 2(a)(i)(y)(III) shall
        be
        referred to as the “Formula Amount”.
        Company
        shall execute and deliver to Laurus on the Closing Date a Minimum Borrowing
        Note
        and a Secured Revolving Note evidencing the Loans funded on the Closing Date.
        Notwithstanding
        the limitations set forth above, if requested by the Company, Laurus retains
        the
        right to lend to Company from time to time such amounts in excess of such
        limitations as Laurus may determine in its sole discretion.

       

      (i) Company
        acknowledges that the exercise of Laurus’ discretionary rights hereunder may
        result during the Term in one or more increases or decreases in the Reserves
        used in determining the Formula Amount, which may limit or restrict advances
        requested by Company.

       

      (ii) If
        Company does not pay any interest, fees, costs or charges to Laurus when
        due,
        Company shall thereby be deemed to have requested, and Laurus is hereby
        authorized at its discretion to make and charge to Company’s account, a Loan to
        Company as of such date in an amount equal to such unpaid interest, fees,
        costs
        or charges.

       

      (iii) If
        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 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 reasonable attorneys’ fees
        and legal expenses) incurred by Laurus in connection with or as a result
        of the
        performance or observance of such agreements or the taking of such action
        by
        Laurus shall be charged to Company’s account as a Loan and added to the
        Obligations. To facilitate Laurus’ performance or observance of such covenants
        of Company, Company hereby irrevocably appoints Laurus, or Laurus’ delegate,
        acting alone, as Company’s attorney in fact (which appointment is coupled with
        an interest) with the right (but not the duty) from time to time to create,
        prepare, complete, execute, deliver, endorse or file in the name and on behalf
        of Company any and all instruments, documents, assignments, security agreements,
        financing statements, applications for insurance and other agreements and
        writings required to be obtained, executed delivered or endorsed by
        Company.

       

      
        
          
          

        

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

       

      (v) During
        the Term, Company may borrow, repay and reborrow Loans in excess of the Minimum
        Borrowing Amount, all in accordance with the terms and conditions hereof.
        

       

      (vi) If
        any
        Eligible Account is not paid by the Account Debtor within ninety (90) days
        after
        the date that such Eligible Account was invoiced or if any Account Debtor
        asserts a deduction, dispute, contingency, set-off, or counterclaim with
        respect
        to any Eligible Account, (a “Delinquent Account”), the Company shall (i)
        reimburse Laurus for the amount of the Revolving Credit Advance made with
        respect to such Delinquent Account or (ii) immediately replace such Delinquent
        Account with an otherwise Eligible Account.

       

      (b) Following
        the occurrence of an Event of Default that continues to exist beyond any
        applicable grace period, 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), Company 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 Company, in consideration of the cancellation of such portion
        of the Loans offset by the purchase and collection in full of such corresponding
        Eligible Accounts, all right, title and interest of Company in and to all
        Accounts which shall at such time constitute Eligible Accounts (the “Receivables
        Purchase”). All outstanding loans not so offset 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, Company 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 Company’s failure to enter into any
        such documentation shall not impair or affect the Receivables Purchase in
        any
        manner whatsoever.

       

      
        
          
          

        

        
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      (c) [Intentionally
        Omitted].

       

      3. Repayment
        of the Loans.
        Company
        (a)
        may prepay the Obligations in excess of the Minimum Borrowing Amount 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); and
        (b)
        shall repay on the expiration of the Term (i) the then aggregate outstanding
        principal balance of the Loans made by Laurus to Company hereunder together
        with
        accrued and unpaid interest, fees and charges and (ii) all other amounts
        owed
        Laurus
        under this Agreement and the Ancillary Agreements. Any payments of principal,
        interest, fees or any other amounts payable hereunder or under any Ancillary
        Agreement shall be made prior to 12:00 noon (New York time) on the due date
        thereof in immediately available funds.

       

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

       

      5. Interest
        and Payments. 

       

      (a) Interest.

       

      (i) Except
        as
        modified by Section 5(a)(iii) below, Company shall 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 Company 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
        by three percent (3%) per annum (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 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). 

       

      
        
          
          

        

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

       

      (b) Payments.

       

      (i) Closing
        Payments.
        Upon
        execution of this Agreement by Company and Laurus, Company shall pay to Laurus
        Capital Management, LLC a closing payment in an amount equal to three and
        nine-tenths percent (3.90%) of the Capital Availability Amount. Such payment
        shall be deemed fully earned on the Closing Date and shall not be subject
        to
        rebate or proration for any reason. 

       

      (ii) Overadvance
        Payment.
        Without
        affecting Laurus’ rights hereunder in the event the Loans exceed the amounts
        permitted by Section 2 (“Overadvances”), in the event an Overadvance occurs or
        is made by Laurus, all such Overadvances shall bear interest at an annual
        rate
        equal to one percent (1%) of the amount of such Overadvances for each month
        or
        portion thereof as such amounts shall be outstanding. 

       

      6. Security
        Interest.

       

      (a) To
        secure
        the prompt payment to Laurus of the Obligations, Company hereby
        acknowledges, confirms and agrees that Laurus has and shall continue to have
        a
        security interest in all of the Collateral heretofore granted by the Company
        to
        Laurus pursuant to the Original Security Agreement and
        hereby
        assigns, pledges and grants to Laurus a continuing security interest in and
        Lien
        upon all of the Collateral. Each confirmatory assignment schedule or other
        form
        of assignment hereafter executed by Company shall be deemed to include the
        foregoing grant, whether or not the same appears therein. 

       

      (b) Company
        hereby (i) authorizes Laurus to file any financing statements, continuation
        statements or amendments thereto that (x) indicate the Collateral (1) as
        all
        assets of 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. 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 Company’s rights under Section 9-509(d)(2) of the
        UCC.

       

      (c) Company
        hereby grants to Laurus an irrevocable, non-exclusive license (exercisable
        only
        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 Company) to use, transfer, license or sublicense any
        Intellectual Property now owned, licensed to, or hereafter acquired by 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.

       

      
        
          
          

        

        
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      7. Representations,
        Warranties and Covenants Concerning the Collateral.
        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 Company 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) Company
        shall not encumber, mortgage, pledge, assign or grant any Lien in any Collateral
        of Company or any of Company’s other assets to anyone other than Laurus and
        except for Permitted Liens.

       

      (c) The
        Liens
        granted pursuant to this Agreement, upon completion of the filings and other
        actions listed on Exhibit
        7(c)
        (which,
        in the case of all filings and other documents referred to in said Exhibit,
        have
        been delivered to Laurus in duly executed form) 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 creditors of and
        any
        purchasers from Company
        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) Company
        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 $25,000 and only to the extent that (i) the proceeds of any
        such
        disposition are used to acquire replacement Equipment which is subject to
        Laurus’ first priority security interest or are used to repay Loans or to pay
        general corporate expenses, or (ii) following the occurrence of an Event
        of
        Default which continues to exist the proceeds of which are remitted to Laurus
        to
        be held as cash collateral for the Obligations.

       

      (f) Company
        shall defend the right, title and interest of Laurus in and to the Collateral
        against the claims and demands of all Persons whomsoever, and take such actions,
        including (i) all actions necessary to grant Laurus “control” of any Investment
        Property, Deposit Accounts, Letter-of-Credit Rights or electronic Chattel
        Paper
        owned by Company, 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 the Company (in each case, accompanied by stock powers, allonges
        or other instruments of transfer executed in blank), (iii) notification of
        Laurus’ interest in Collateral at Laurus’ request, and (iv) the institution of
        litigation against third parties as shall be prudent in order to protect
        and
        preserve Company’s and Laurus’ respective and several interests in the
        Collateral as determined by the Company in its reasonable
        discretion. 

       

      
        
          
          

        

        
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      (g) Company
        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, Company shall
        enter into a supplement to this Agreement granting to Laurus a Lien in such
        commercial tort claim.

       

      (h) Company
        shall place notations upon its Books and Records and any financial statement
        of
        Company to disclose Laurus’ Lien in the Collateral.

       

      (i) If
        Company retains possession of any Chattel Paper or Instrument with Laurus’
consent, upon Laurus’ request such Chattel Paper and Instruments shall be marked
        with the following legend: “This writing and obligations evidenced or secured
        hereby are subject to the security interest of Laurus Master Fund,
        Ltd.”

       

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

       

      (k) Company
        shall notify Laurus promptly and in any event within three (3) Business Days
        after obtaining knowledge thereof (i) of any event or circumstance that to
        Company’s knowledge would cause Laurus to consider any then existing Account
        with a face amount of $250,000 or more as no longer constituting an Eligible
        Account; (ii) of any assertion by any Account Debtor of any material claims,
        offsets or counterclaims; (iii) of any material allowances, credits and/or
        monies granted by Company to any Account Debtor other than in the ordinary
        course of business; (iv) of any material return of goods; and (v) of any
        loss,
        damage or destruction of any material portion of the Collateral.

       

      (l) All
        Eligible Accounts (i) which are billed on a construction completion basis
        but
        not payable until the project is completed, represent complete bona fide
        transactions which require no further act under any circumstances on Company’s
        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 Company. Company has not made, and will not make any agreement
        with any Account Debtor for any extension of time for the payment of any
        Account, any compromise or settlement for less than the full amount thereof,
        any
        release of any Account Debtor from liability therefor, or any deduction
        therefrom except a discount or allowance for prompt or early payment allowed
        by
        Company in the ordinary course of its business consistent with historical
        practice.

       

      
        
          
          

        

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

       

      (n) Company
        shall maintain and keep all of its Books and Records concerning the Collateral
        at Company’s executive offices listed in Exhibit
        12(d).

       

      (o) Company
        shall maintain and keep the tangible Collateral (other than Collateral in
        transit) at the addresses listed in Exhibit
        12(d),
        provided, that Company may change such locations or open a new location,
        provided that Company provides Laurus at least thirty (30) days prior written
        notice of such changes or new location and (ii) prior to such change or opening
        of a new location where Collateral having a value of more than $50,000 will
        be
        located, Company executes and delivers to Laurus such agreements as Laurus
        may
        reasonably request, including landlord agreements, mortgagee agreements and
        warehouse agreements, each in form and substance satisfactory to
        Laurus.

       

      (p) Exhibit
        7(p)
        lists
        all banks and other financial institutions at which Company maintains deposits
        and/or other accounts, and such Exhibit correctly identifies the name, address
        and telephone number of each such depository, the name in which the account
        is
        held, a description of the purpose of the account, and the complete account
        number. The Company shall not establish any depository or other bank account
        of
        any with any financial institution
        (other than the accounts set forth on Exhibit
        7(p))
        without
        Laurus’ prior written consent.

       

      8. Payment
        of Accounts. 

       

      (a) 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 lockbox maintained by Company (the “Lockbox”) with North Fork
        Bank (the “Lockbox Bank”) pursuant to the terms of the Clearing Account
        Agreement dated May 27, 2004 or such other financial institution accepted
        by
        Laurus in writing as may be selected by Company. On or prior to the Closing
        Date, 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 Company’s invoices, account statements and other written or oral
        communications directing, instructing, demanding or requesting payment of
        any
        Account of 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, Company receives any payments, Company shall immediately
        remit
        such payments to Laurus in their original form with all necessary endorsements.
        Until so remitted, 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.

       

      
        
          
          

        

        
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      (b) At
        Laurus’ election, following the occurrence of an Event of Default which is
        continuing, Laurus may notify 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 account.

       

      9. Collection
        and Maintenance of Collateral.

       

      (a) Laurus
        may verify 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
        of
        Laurus’ receipt of such proceeds in good funds in dollars of the United States
        of America in Laurus’ if received prior to 12:00 noon on such day. Any amount
        received by Laurus on any day other than a Business Day or 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, it shall remit all such proceeds (net
        of
        interest, fees and other amounts then due and owing to Laurus hereunder)
        to
        Company 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 such proceeds as cash collateral
        for the Obligations and 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, upon reasonable advance notice, 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
        Company’s properties and the Collateral, (b) inspect, audit and copy (or take
        originals if necessary) and make extracts from Company’s Books and Records,
        including management letters prepared by independent accountants, and (c)
        discuss with Company’s principal officers, and independent accountants,
        Company’s business, assets, liabilities, financial condition, results of
        operations and business prospects. Company will deliver to Laurus any instrument
        necessary for Laurus to obtain records from any service bureau maintaining
        records for 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
        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 Company, Company’s audited financial statements with a report of
        independent certified public accountants of recognized standing selected
        by
        Company and acceptable to Laurus (the “Accountants”), which annual financial
        statements shall include Company’s balance sheet as at the end of such fiscal
        year and the related statements of Company’s income, retained earnings and cash
        flows for the fiscal year then ended, prepared, if Laurus so requests, on
        a
        consolidating and consolidated basis to include all Subsidiaries and Affiliates,
        all in reasonable detail and prepared in accordance with GAAP, together with
        (i)
        if and when available, copies of any management letters prepared by such
        accountants; and (ii) a certificate of Company’s President, Chief Executive
        Officer or Chief Financial Officer stating that such financial statements
        have
        been prepared in accordance with GAAP and whether or not such officer has
        knowledge of the occurrence of any Default or Event of Default hereunder
        and, if
        so, stating in reasonable detail the facts with respect thereto;

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

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

       

      (c) Within
        thirty (30) days after the end of each month (or more frequently if Laurus
        so
        requests), agings of Company’s Accounts, unaudited trial balances and their
        accounts payable and a calculation of Company’s Accounts and Eligible Accounts,
        and thirty (30) days after the end of each fiscal quarter, an Inventory ledger
        as at the end of such quarter,
        provided, however, that if Laurus shall request the foregoing information
        more
        often than as set forth in the immediately preceding clause, the 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 Company’s most recent registration
        statements and annual, quarterly, monthly or other regular reports which
        Company
        files with the Securities and Exchange Commission (the “SEC”), and (ii) the
        issuance thereof, copies of such financial statements, reports and proxy
        statements as Company shall send to its stockholders.

       

      12. Additional
        Representations and Warranties.
        Company
        represents and warrants (each of which such representations and warranties
        shall
        be deemed repeated upon the making of a request for a Loan and made as of
        the
        time of each Loan made hereunder), as follows:

       

      (a) Company
        is a corporation duly incorporated and validly existing under the laws of
        the
        jurisdiction of its incorporation and duly qualified and in good standing
        in
        every other state or jurisdiction in which the nature of Company’s business
        requires such qualification, except where the failure to be so qualified
        would
        not have a Material Adverse Effect.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (b) The
        execution, delivery and performance of this Agreement and the Ancillary
        Agreements (i) have been duly authorized, (ii) are not in contravention of
        Company’s certificate of incorporation, by-laws or of any indenture, agreement
        or undertaking to which Company is a party or by which Company is bound and
        (iii) are within Company’s corporate powers.

       

      (c) This
        Agreement and the Ancillary Agreements executed and delivered by Company
        are
        Company’s legal, valid and binding obligations, enforceable in accordance with
        their terms,
        except
        (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
        or other laws of general application affecting enforcement of creditors'
        rights,
        and (b) as limited by general principles of equity that restrict the
        availability of equitable and legal remedies.

       

      (d) Exhibit
        12(d)
        sets
        forth Company’s name as it appears in official filing in the state of its
        incorporation, the type of entity of Company, the organizational identification
        number issued by Company’s state of incorporation or a statement that no such
        number has been issued, Company’s state of incorporation, and the location of
        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 Exhibit
        12(d),
        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
        Exhibit
        12(d),
        Company
        has not been known as or conducted business in any other name (including
        trade
        names). Company has only one state of incorporation.

       

      (e) Based
        upon the Employee Retirement Income Security Act of 1974 (“ERISA”), and the
        regulations and published interpretations thereunder: (i) Company has not
        engaged in any Prohibited Transactions as defined in Section 406 of ERISA
        and
        Section 4975 of the Internal Revenue Code, as amended; (ii) Company has met
        all
        applicable minimum funding requirements under Section 302 of ERISA in respect
        of
        its plans; (iii) Company has no 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) Company
        has no
        fiduciary responsibility for investments with respect to any plan existing
        for
        the benefit of persons other than Company’s employees; and (v) except as
        disclosed in Exhibit
        12(e)
        attached
        hereto, Company has not withdrawn, completely or partially, from any
        multi-employer pension plan so as to incur liability under the Multiemployer
        Pension Plan Amendments Act of 1980.

       

      (f) There
        is
        no pending or threatened litigation, court order, judgment, writ, suit, action
        or proceeding that has not been disclosed to Laurus which could reasonably
        be
        expected to have a Material Adverse Effect.

       

      (g) All
        balance sheets and income statements which have been delivered to Laurus
        fairly,
        accurately and properly state Company’s financial condition on a basis
        consistent with that of previous financial statements and except as reflected
        in
        such financial statements there has been no material adverse change in Company’s
        financial condition as reflected in such statements since the balance sheet
        date
        of the statements last delivered to Laurus and such statements do not fail
        to
        disclose any fact or facts which might have a Material Adverse Effect on
        Company’s financial condition.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (h) Company
        possesses or has licenses to use all of the Intellectual Property necessary
        to
        conduct its business. There has been no assertion or claim of violation or
        infringement with respect to any Intellectual Property. Exhibit
        12(i)
        describes all Intellectual Property of Company.

       

      (i) Neither
        this Agreement, the exhibits and schedules hereto, the Ancillary Agreements
        nor
        any other document delivered by Company 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.
        The
        issuance of the Notes 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. Neither Company nor any of its Affiliates, nor any
        person
        acting on its or their behalf, has engaged in any form of general solicitation
        or general advertising (within the meaning of Regulation D under the Securities
        Act) in connection with the offer or sale of the Securities. 

       

      (j) The
        Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange
        Act and, except with respect to certain matters set forth on Exhibit
        12(j)
        attached
        hereto, the Company has filed all proxy statements, reports, schedules, forms,
        statements and other documents required to be filed by it under the Exchange
        Act. The Company has filed (i) its Annual Report on Form 10-K for the fiscal
        year ended December 31, 2003 and (ii) its Quarterly Report on Form 10-Q for
        the
        fiscal quarter ended March 31, 2004 (collectively, the “SEC Reports”). 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. The financial statements of the Company included
        in
        the SEC Reports comply as to form in all material respects with applicable
        accounting requirements and the published rules and regulations of the
        Commission or other applicable rules and regulations with respect thereto.
        Such
        financial statements have been prepared in accordance with generally accepted
        accounting principles (“GAAP”) applied on a consistent basis during the periods
        involved (except (i) as may be otherwise indicated in such financial statements
        or the notes thereto or (ii) in the case of unaudited interim statements,
        to the
        extent they may not include footnotes or may be condensed) and fairly present
        in
        all material respects the financial condition, the results of operations
        and the
        cash flows of the Company and its subsidiaries, on a consolidated basis,
        as of,
        and for, the periods presented in each such SEC Report. 

       

      (k) The
        Common Stock of the Company is, as of the date hereof, traded on the Pink
        Sheets
        and satisfies all requirements for the continuation of such trading. The
        Company
        has not received any notice that its common stock will be ineligible to be
        traded on the Pink Sheets or that the Common Stock does not meet all
        requirements for the continuation of such trading. The Company hereby certifies
        that as of the date hereof it meets or exceeds all eligibility requirements
        to
        have its shares listed for trading on the NASD Over the Counter Bulletin
        Board
        (“OTCBB”) and shall secure the listing of its Common Stock on the OTCBB within
        60 days from the date hereof. The Company hereby certifies that as of the
        date
        hereof it meets or exceeds all eligibility requirements to have its shares
        listed for trading on the NASD Over the Counter Bulletin Board (“OTCBB”) and
        shall secure the listing of its Common Stock on the OTCBB no later than December
        31, 2004.

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      (l) Neither
        the Company, 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 (other than a concurrent offering
        to
        Laurus under a Securities Purchase Agreement between the Company and Laurus
        dated as of May 27, 2004) under circumstances that would cause the offering
        of
        the Securities pursuant to this Agreement and the Ancillary Agreements to
        be
        integrated with prior offerings by the Company for purposes of the Securities
        Act which would prevent the Company from selling the Securities pursuant
        to Rule
        506 under the Securities Act, or any applicable exchange-related stockholder
        approval provisions, nor will the Company 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 (other than such concurrent
        offering to Laurus).

       

      (m) 
        The
        Securities are all restricted securities under the Securities Act as of the
        date
        of this Agreement. The Company will not issue any stop transfer order or
        other
        order impeding the sale and delivery of any of the Securities at such time
        as
        such Securities are registered for public sale or an exemption from registration
        is available, except as required by federal or state securities
        laws.

       

      (n) The
        Company understands the nature of the Securities issuable under the Ancillary
        Agreements and recognizes that the issuance of such Securities may have a
        potential dilutive effect. The Company specifically acknowledges that its
        obligation to issue the Securities is binding upon the Company and enforceable
        regardless of the dilution such issuance may have on the ownership interests
        of
        other shareholders of the Company.

       

      (o) Except
        for agreements made in the ordinary course of business, there is no agreement
        that has not been filed with the Commission as an exhibit to a registration
        statement or to a form required to be filed by the Company under the Exchange
        Act, the breach of which could reasonably be expected to have a Material
        Adverse
        Effect or would prohibit or otherwise interfere with the ability of the Company
        to enter into and perform any of its obligations under this Agreement the
        Registration Rights Agreement executed by Company in favor of Laurus in any
        material respect.

       

      (p) Patriot
        Act.
        If the
        Company is a corporation, trust, partnership, limited liability Purchaser
        or
        other organization, the Company certifies that, to the best of Company’s
        knowledge, the Company has not been designated, and is not owned or controlled,
        by a “suspected terrorist” as defined in Executive Order 13224. The Company
        hereby acknowledges that the Purchaser seeks to comply with all applicable
        laws
        concerning money laundering and related activities. In furtherance of those
        efforts, the Company hereby represents, warrants and agrees that: (i) none
        of
        the cash or property that the Company will pay or will contribute to the
        Purchaser 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
        the Company to the Purchaser, to the extent that they are within the Company’s
        control shall cause the Purchaser 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. The Company shall promptly notify the
        Purchaser if any of the representations under this subsection cease to be
        true
        and accurate regarding the Company. The Company agrees to provide the Purchaser
        any additional information regarding the Company that the Purchaser deems
        necessary or convenient to ensure compliance with all applicable laws concerning
        money laundering and similar activities. The Company understands and agrees
        that
        if at any time it is discovered that any of the representations under this
        subsection are incorrect, or if otherwise required by applicable law or
        regulation related to money laundering similar activities, the Purchaser
        may
        undertake appropriate actions to ensure compliance with applicable law or
        regulation, including but not limited to segregation and/or redemption of
        the
        Company’s investment in the Purchaser. The Company further understands that the
        Purchaser may release confidential information about the Company and, if
        applicable, any underlying beneficial owners, to proper authorities if the
        Purchaser, in its sole discretion, determines that it is in the best interests
        of the Purchaser in light of relevant rules and regulations under the laws
        set
        forth in subsection (ii) above.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      (q)
        [Intentionally Omitted].

       

      13. Covenants.
        Company
        covenants as follows:

       

      (a) Company
        will not, without 15-days’ prior written notice to Laurus, change (i) its name
        as it appears in the official filings in the state of its incorporation or
        formation, (ii) the type of legal entity it is, (iii) its organization
        identification number, if any, issued by its state of incorporation, (iv)
        its
        state of incorporation or (v) amend its certificate of incorporation, by-laws
        or
        other organizational document. 

       

      (b) The
        operation of Company’s business is and will continue to be in compliance in all
        material respects with all applicable federal, state and local laws, rules
        and
        ordinances, including to all laws, rules, regulations and orders relating
        to
        taxes, payment and withholding of payroll taxes, employer and employee
        contributions and similar items, securities, employee retirement and welfare
        benefits, employee health safety and environmental matters.

       

      (c) Company
        will pay or discharge when due all taxes, assessments and governmental charges
        or levies imposed upon Company or any of the Collateral unless such amounts
        are
        being diligently contested in good faith by appropriate proceedings provided
        that (i) adequate reserves with respect thereto are maintained on the books
        of
        Company in conformity with GAAP and (ii) the related Lien shall have no effect
        on the priority of the Liens in favor of Laurus or the value of the assets
        in
        which Laurus has a Lien.

       

      (d) Company
        will promptly inform Laurus in writing of: (i) the commencement of all
        proceedings and investigations by or before and/or the receipt of any notices
        from, any governmental or nongovernmental body and all actions and proceedings
        in any court or before any arbitrator against or in any way concerning any
        event
        which could reasonable be expected to have singly or in the aggregate, a
        Material Adverse Effect; (ii) any amendment of Company’s certificate of
        incorporation, by-laws or other organizational document; (iii) any change
        which
        has had or could reasonably be expected to have a Material Adverse Effect;
        (iv)
        any Event of Default or Default; (v) 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 Company is a party or by which
        Company or any of Company’s properties may be bound the breach of which would
        have a Material
        Adverse Effect and (vi) any change in Company’s name or any other name used in
        its business.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      (e) The
        Company will not (i) create, incur, assume or suffer to exist any indebtedness
        for borrowed money (exclusive of trade debt and debt incurred to finance
        the
        purchase of equipment (not in excess of five percent (5%) per annum of the
        fair
        market value of the Company's assets)) whether secured or unsecured, other
        than
        (w) the Company's indebtedness to Laurus, (x) debt subordinated to the Company’s
        indebtedness to Laurus, (y) indebtedness set forth on Exhibit
        13(e)(i)
        attached
        hereto and made a part hereof and any refinancings or replacements thereof
        on
        terms no less favorable to Laurus than the indebtedness being refinanced
        or
        replaced, and (z) any debt incurred in connection with the purchase of assets
        in
        the ordinary course of business, or any refinancings or replacements thereof
        on
        terms no less favorable to Laurus than the indebtedness being refinanced
        or
        replaced; (ii) cancel any debt owing to it in excess of $50,000 in the aggregate
        during any 12 month period; (iii) assume, guarantee, endorse or otherwise
        become
        directly or contingently liable in connection with any obligations of any
        other
        Person, except the endorsement of negotiable instruments by a Company for
        deposit or collection or similar transactions in the ordinary course of
        business; (iv) directly or indirectly declare, pay or make any dividend or
        distribution on any class of its Stock other than to pay dividends on shares
        of
        its outstanding Preferred Stock or apply any of its funds, property or assets
        to
        the purchase, redemption or other retirement of any Stock of the Company
        except
        as set forth on Schedule 6.5 to Securities Purchase Agreement of even date
        herewith between Laurus and Company; (v) purchase or hold beneficially any
        Stock
        or other securities or evidences of indebtedness of, make or permit to exist
        any
        loans or advances to, or make any investment or acquire any interest whatsoever
        in, any other Person, including any partnership or joint venture, except
        (x)
        travel advances, (y) loans to Company’s officers and employees not exceeding at
        any one time an aggregate of $10,000, and (z) existing Subsidiaries of the
        Company or Subsidiaries permitted to exist under clause (vi) below; (vi)
        create
        or permit to exist any Subsidiary, other than any Subsidiary in existence
        on the
        date hereof and listed in Exhibit
        13(e)(ii)
        unless
        such new Subsidiary 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 to grant to Laurus a first priority perfected security
        interest in such Subsidiary’s assets to secure the Obligations; (vii) directly
        or indirectly, prepay any indebtedness (other than to Laurus or in the ordinary
        course of business), or repurchase, redeem, retire or otherwise acquire any
        indebtedness (other than to Laurus or 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) Company is
        the
        surviving entity of such merger or consolidation, (2) no Event of Default
        shall
        exist immediately prior to and after giving effect to such merger or
        consolidation, (3) Company shall have provided Laurus copies of all
        documentation relating to such merger or consolidation and (4) Company shall
        have provided Laurus with at least thirty (30) days’ prior written notice of
        such merger or consolidation; (ix) materially change the nature of the business
        in which it is presently engaged; (x) 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; (xi) enter into any transaction with any employee, director
        or
        Affiliate, except in the ordinary course on arms-length terms; or (xii) bill
        Accounts under any name except the present name of Company or its existing
        Subsidiaries.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (f) None
        of
        the proceeds of the Loans hereunder will 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. 

       

      (g) Company
        will bear the full risk of loss from any loss of any nature whatsoever with
        respect to the Collateral. At Company’s own cost and expense in amounts and with
        carriers acceptable to Laurus, Company shall (i) keep all its insurable
        properties and properties in which it has an interest insured against the
        hazards of fire, 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 Company’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 Company’s 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 the assets or funds
        of
        Company 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 Company is engaged in business; and (v) furnish
        Laurus
        with (x) certificates as to all such insurance coverages and evidence of
        the
        maintenance of such policies at least thirty (30) days before any expiration
        date, (y) endorsements to such policies naming Laurus as “co-insured” or
“additional insured” and appropriate loss payable endorsements in form and
        substance satisfactory to Laurus, naming Laurus as loss payee, and (z) evidence
        that as to Laurus the insurance coverage shall not be impaired or invalidated
        by
        any act or neglect of Company and the insurer will provide Laurus with at
        least
        thirty (30) days notice prior to cancellation or expiration thereof.
Company
        shall instruct the insurance carriers that in the event of any loss thereunder,
        the carriers shall make payment for such loss to Company and Laurus jointly.
        In
        the event that as of the date of receipt of each loss recovery upon any such
        insurance, Laurus has not declared an event of default with respect to this
        Agreement or any of the Ancillary Agreements, then Company shall be permitted
        to
        direct the application of such loss recovery proceeds toward investment in
        property, plant and equipment that would comprise Collateral. In the event
        that
        Laurus has properly declared an Event of Default, then all loss recoveries
        received by Laurus upon any such insurance thereafter may be applied to the
        obligations of Company hereunder and under the Ancillary Agreements, in such
        order as Laurus may determine. Any surplus (following satisfaction of all
        Company obligations to Laurus) shall be paid by Laurus to the Company or
        applied
        as may be otherwise required by law. Any deficiency thereon shall be paid
        by the
        Company to Laurus on demand. 

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      (h) 
        [Intentionally Omitted].

       

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

       

      15. 
        Representations and Warranties of Laurus.

       

      Laurus
        hereby represents and warrants to the Company as follows:

       

      (a) Requisite
        Power and Authority.
        Laurus
        has all necessary power and authority under all applicable provisions of
        law to
        execute and deliver this Agreement and the Ancillary Agreements and to carry
        out
        their provisions. All corporate action on Laurus' part required for the lawful
        execution and delivery of this Agreement and the Ancillary Agreements have
        been
        or will be effectively taken prior to the Closing Date. Upon their execution
        and
        delivery, this Agreement and the Ancillary Agreements will be valid and binding
        obligations of Laurus, enforceable in accordance with their terms, except
        (a) as
        limited by applicable bankruptcy, insolvency, reorganization, moratorium
        or
        other laws of general application affecting enforcement of creditors' rights,
        and (b) as limited by general principles of equity that restrict the
        availability of equitable and legal remedies.

       

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

       

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

       

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

       

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

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      (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 engaged in "short
        sales" of the Company's Common Stock or any other hedging strategies, and
        neither Laurus
        nor any
        of its Affiliates will, or cause any person or entity, directly or indirectly,
        to, engage in "short sales" of Company's Common Stock or any other hedging
        strategies directly involving the Company’s Common Stock as long as any Minimum
        Borrowing Note shall be outstanding.

       

      16. Power
        of Attorney.
        Company
        hereby appoints Laurus, or any other Person whom Laurus may designate as
        Company’s attorney, on or after the occurrence and continuation of an Event of
        Default, with power to: (i) endorse 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 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) notify the post office authorities to change the address
        for
        delivery of Company’s mail to an address designated by Laurus, and to receive,
        open and dispose of all mail addressed to Company. Company hereby ratifies
        and
        approves all acts of the attorney. Neither Laurus, nor the attorney will
        be
        liable for any acts or omissions or for any error of judgment or mistake
        of fact
        or law, except for gross negligence or willful misconduct. This power, being
        coupled with an interest, is irrevocable so long as Laurus has a security
        interest and until the Obligations have been fully satisfied.

       

      17. Term
        of Agreement.
        Laurus’
agreement to make Loans and extend financial accommodations under and in
        accordance with the terms of this Agreement or any Ancillary Agreement shall
        continue in full force and effect until the expiration of the 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 disposed
        of,
        concluded or liquidated. Notwithstanding the foregoing, Laurus shall release
        its
        security interests at any time upon indefeasible payment to it of all
        Obligations in
        full. 

       

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

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

      19. Events
        of Default.
        The
        occurrence of any of the following shall constitute an Event of
        Default:

       

      (a) failure
        to make payment of any of the Obligations when required hereunder and such
        failure shall not be cured with three (3) Business Days; 

       

      (b) failure
        to pay any taxes when due unless such taxes are being contested in good faith
        by
        appropriate proceedings and with respect to which adequate reserves have
        been
        provided on Company’s books;

       

      (c) failure
        to perform in any material respect under and/or committing any material breach
        of this Agreement or any Ancillary Agreement or any other agreement between
        Company and Laurus which shall continue for a period of fifteen (15) days
        after
        the occurrence thereof;

       

      (d) the
        occurrence of a default under any agreement to which Company is a party with
        third parties which has a Material Adverse Effect;

       

      (e) any
        material representation, warranty or statement made by Company hereunder,
        in any
        Ancillary Agreement, any certificate, statement or document delivered pursuant
        to the terms hereof, or in connection with the transactions contemplated
        by this
        Agreement should at any time be false or misleading in any material respect;
        

       

      (f) an
        attachment or levy is made upon Company’s assets having an aggregate value in
        excess of $250,000 or a judgment is rendered against Company or Company’s
        property involving a liability of more than $250,000 which shall not have
        been
        vacated, discharged, stayed or bonded pending appeal within thirty (30) days
        from the entry thereof;

       

      (g) any
        change in Company’s condition or affairs (financial or otherwise) which in
        Laurus’ reasonable, good faith opinion has a Material Adverse
        Effect; 

       

      (h) any
        Lien
        created hereunder or under any Ancillary Agreement on any material portion
        of
        the collateral securing the Obligations for any reason ceases to be or is
        not a
        valid and perfected Lien having a first priority interest (subject to Permitted
        Liens);

       

      (i) if
        Company shall (i) apply for, consent to or suffer to exist the appointment
        of,
        or the taking of possession by, a receiver, custodian, trustee or liquidator
        of
        itself or of all or a substantial part of its property, (ii) make a general
        assignment for the benefit of creditors, (iii) commence a voluntary case
        under
        the federal bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated
        a bankrupt or insolvent, (v) file a petition seeking to take advantage of
        any
        other law providing for the relief of debtors, (vi) acquiesce to, or fail
        to
        have dismissed, within thirty (30) days, any petition filed against it in
        any
        involuntary case under such bankruptcy laws, or (vii) take any action for
        the
        purpose of effecting any of the foregoing;

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      (j) Company
        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;

       

      (k) any
        Affiliate or Subsidiary of the Company shall (i) apply for, consent to or
        suffer
        to exist the appointment of, or the taking possession by, a receiver, custodian,
        trustee or liquidator of itself or of all or a substantial part of its property,
        (ii) admit in writing its inability, or be generally unable, to pay its debts
        as
        they become due or cease operations of its present business, (iii) make a
        general assignment for the benefit of creditors, (iv) commence a voluntary
        case
        under the federal bankruptcy laws (as now or hereafter in effect), (v) be
        adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
        advantage of any other law providing for the relief of debtors, (vii) acquiesce
        to, or fail to have dismissed, within thirty (30) days, any petition filed
        against it in any involuntary case under such bankruptcy laws or (viii) take
        any
        action for the purpose of effecting any of the foregoing;

       

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

       

      (m) 
        the
        occurrence of a change in the controlling ownership of the Company; provided,
        however,
        that a
        change in the controlling ownership of the Company shall be deemed not to
        occur
        if the person obtaining such control possessed beneficial ownership, directly
        or
        indirectly, as of the date hereof, of 35% or more of the outstanding shares
        of
        Common Stock, and provided
        further, that a change in
        the
        controlling ownership of the Company shall be deemed not to occur as a result
        of
        the issuance of Common Stock and Subordinated Notes on the Restatement Date
        in
        accordance with that certain Terms Sheet provided to Laurus by the Company
        on or
        prior to the Restatement Date;

       

      (n) a
        default
        by Company in the payment, when due, of any principal of or interest on any
        other indebtedness for money borrowed in an amount greater than $250,000,
        which
        is not cured within any applicable cure or grace period; 

       

      (o) the
        indictment of Company under any criminal statute, or commencement of criminal
        proceeding against Company; 

       

      (p) any
        Guarantor shall breach any term or provision of any Ancillary Agreement which
        is
        not cured within any applicable cure or grace period;

       

      (q) if
        any
        Guarantor attempts to terminate, challenges the validity of, or its liability
        under any Guaranty or any Guarantor Security Agreement; or

       

      (r) should
        any Guarantor default in its obligations under any Guaranty or any Guarantor
        Security Agreement or if any proceeding shall be brought to challenge the
        validity, binding effect of any Guaranty or any Guarantor Security Agreement
        or
        should any Guarantor breach any material representation, warranty or covenant
        contained in any Guaranty Agreement or any Guarantor Security Agreement or
        should any Guaranty or Guarantor Security Agreement cease to be a valid,
        binding
        and enforceable obligation. 

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      20. Remedies.
        Following the occurrence of an Event of Default which is then continuing,
        Laurus
        shall have the right to demand repayment in full of all Obligations, whether
        or
        not otherwise due. Until all Obligations have been fully satisfied, Laurus
        shall
        retain its Lien in all Collateral. Laurus shall have, in addition to all
        other
        rights provided herein and in each Ancillary Agreement, the rights and remedies
        of a secured party under the UCC, and under other applicable law, all other
        legal and equitable rights to which Laurus may be entitled, including the
        right
        to take immediate possession of the Collateral, to require Company to assemble
        the Collateral, at Company’s expense, and to make it available to Laurus at a
        place designated by Laurus which is reasonably convenient to both parties
        and to
        enter any of the premises of Company or wherever the Collateral shall be
        located, with or without force or process of law, and to keep and store the
        same
        on said premises until sold (and if said premises be the property of Company,
        Company agrees not to charge Laurus for storage thereof), and the right to
        apply
        for the appointment of a receiver for Company’s property. Further, Laurus may,
        at any time or times after the occurrence of an Event of Default which is
        then
        continuing, 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 at
        Company’s address as shown in Laurus’ records, at least ten (10) days before the
        time of the event of which notice is being given. Laurus may be the purchaser
        at
        any sale, if it is public. In connection with the exercise of the foregoing
        remedies, Laurus is granted permission to use all of Company’s trademarks,
        tradenames, tradestyles, patents, patent applications, licenses, franchises
        and
        other proprietary rights. The proceeds of sale shall be applied first to
        all
        costs and expenses of sale, including attorneys’ fees, and second to the payment
        (in whatever order Laurus elects) of all Obligations. After the indefeasible
        payment and satisfaction in full in cash of all of the Obligations, and after
        the payment by Laurus of any other amount required by any provision of law,
        including Section 608(a)(1) of the Code (but only after Laurus has received
        what
        Laurus considers reasonable proof of a subordinate party’s security interest),
        the surplus, if any, shall be paid to Company or its representatives or to
        whosoever may be lawfully entitled to receive the same, or as a court of
        competent jurisdiction may direct. Company shall remain liable to Laurus
        for any
        deficiency. In addition, Company shall pay Laurus a liquidation fee
        (“Liquidation Fee”) in the amount of two percent (2%) 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 18(i) or 18(j), or (y) the cessation of 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. Company and Laurus
        acknowledge that the actual damages that would be incurred by Laurus after
        the
        occurrence of an Event of Default would be difficult to quantify and that
        Company and Laurus have agreed that the fees and obligations set forth in
        this
        Section and in this Agreement would constitute fair and appropriate liquidated
        damages in the event of any such termination.
        The
        parties hereto each hereby agree that the exercise by any party hereto of
        any
        right granted to it or the exercise by any party hereto of any remedy available
        to it (including, without limitation, the issuance of a notice of redemption,
        a
        borrowing request and/or a notice of default), in each case, hereunder or
        under
        any Ancillary Agreement which has been publicly filed with the SEC shall
        not
        constitute confidential information and no party shall have any duty to the
        other party to maintain such information as confidential, except for the
        portions of such publicly filed documents that are subject to confidential
        treatment request made by the Company to the SEC.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      21. Waivers.
        To the
        full extent permitted by applicable law, Company waives (a) presentment,
        demand
        and protest, and notice of presentment, dishonor, intent to accelerate,
        acceleration, protest, default, nonpayment, maturity, release, compromise,
        settlement, extension or renewal of any or all of this Agreement and the
        Ancillary Agreements or any other notes, commercial paper, Accounts, contracts,
        Documents, Instruments, Chattel Paper and guaranties at any time held by
        Laurus
        on which Company 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. 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.
        Company
        shall pay all of Laurus’ reasonable out-of-pocket costs and expenses, including
        reasonable fees and disbursements of in-house or outside counsel and appraisers,
        in connection with the prosecution or defense of any action, contest, dispute,
        suit or proceeding concerning any matter in any way arising out of, related
        to
        or connected with this Agreement or any Ancillary Agreement. Company shall
        also
        pay all of Laurus’ reasonable fees, charges, out-of-pocket costs and expenses,
        including fees and disbursements of counsel and appraisers, in connection
        with
        (a) the preparation, execution and delivery of any waiver, any amendment
        thereto
        or consent proposed or executed in connection with the transactions contemplated
        by this Agreement or the Ancillary Agreements, (b) Laurus’ obtaining performance
        of the Obligations under this Agreement and any Ancillary Agreements, including,
        but not limited to, the enforcement or defense of Laurus’ security interests,
        assignments of rights and Liens hereunder as valid perfected security interests,
        (c) any attempt to inspect, verify, protect, collect, sell, liquidate or
        otherwise dispose of any Collateral, (d) any appraisals or re-appraisals
        of any
        property (real or personal) pledged to Laurus by Company as Collateral for,
        or
        any other Person as security for, Company’s Obligations hereunder and (e) any
        consultations in connection with any of the foregoing. Company shall also
        pay
        Laurus’ customary bank charges for all bank services (including wire transfers)
        performed or caused to be performed by Laurus for Company at Company’s request
        or in connection with Company’s loan account with Laurus . All such costs and
        expenses together with all filing, recording and search fees, taxes and interest
        payable by Company to Laurus shall be payable on demand and shall be secured
        by
        the Collateral. If any tax (other than a tax imposed on income) by any
        Governmental Authority
        is or may be imposed on or as a result of any transaction between Company
        and
        Laurus which Laurus is or may be required to withhold or pay, Company agrees
        to
        indemnify and hold Laurus harmless in respect of such taxes, and Company
        will
        repay to Laurus the amount of any such taxes which shall be charged to Company’s
        account; and until Company shall furnish Laurus with indemnity therefor (or
        supply Laurus with evidence satisfactory to it that due provision for the
        payment thereof has been made), Laurus may hold without interest any balance
        standing to Company’s credit and Laurus shall retain its Liens in any and all
        Collateral.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      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 which is not a competitor of the Company
        and any
        such transferee shall succeed to all of Laurus’ rights with respect thereto.
        Upon such transfer, Laurus shall be released from all responsibility for
        the
        Collateral to the extent same is assigned to any transferee. Upon Company’s
        written approval not to be unreasonably withheld, Laurus may from time to
        time
        sell or otherwise grant participations in any of the Obligations and the
        holder
        of any such participation shall, subject to the terms of any agreement between
        Laurus and such holder, be entitled to the same benefits as Laurus with respect
        to any security for the Obligations in which such holder is a participant.
        Company agrees that each such holder may exercise any and all rights of banker’s
        lien, set-off and counterclaim with respect to its participation in the
        Obligations as fully as though Company were directly indebted to such holder
        in
        the amount of such participation.

       

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

       

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

       

      26. Indemnity.
        Company
        agrees to indemnify and hold Laurus, and its respective affiliates, employees,
        attorneys and agents (each, an “Indemnified Person”), harmless from and against
        any and all suits, actions, proceedings, claims, damages, losses, liabilities
        and expenses of any kind or nature whatsoever (including attorneys’ fees and
        disbursements and other costs of investigation or defense, including those
        incurred upon any appeal) which may be instituted or asserted against or
        incurred by any such Indemnified Person as the result of credit having been
        extended, suspended or terminated under this Agreement or any of the Ancillary
        Agreements or with respect to the execution, delivery, enforcement, performance
        and administration of, or in any other way arising out of or relating to,
        this
        Agreement, the Ancillary Agreements
        or any other documents or transactions contemplated by or referred to herein
        or
        therein and any actions or failures to act with respect to any of the foregoing,
        except to the extent that any such indemnified liability is finally determined
        by a court of competent jurisdiction to have resulted solely from such
        Indemnified Person’s gross negligence or willful misconduct. NO INDEMNIFIED
        PERSON SHALL BE RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY OTHER PARTY OR
        TO ANY
        SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING
        CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY
        OR
        CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
        EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
        AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER
        OR
        THEREUNDER.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      Notices
        shall be provided as follows:

       

      
        	
                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

              

      

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      
        	
                If
                  to Company:

              	 	
                GVI
                  Security Solutions, Inc.

                2801
                  Trade Center Drive

                Suite
                  120

                Carrollton,
                  TX 75007

                Attention:
                  Joseph Restivo, Chief Financial Officer

                Telephone:
                  (972) 245-7353

                Telecopier:
                  (972) 245-7333

              
	 	 	 
	
                With
                  a copy to:

              	 	
                Cooley
                  Godward Kronish LLP

                1114
                  Avenue of the Americas

                New
                  York, NY 10036

                Attention:
                  Alison Newman, Esq.

                Telephone:
                  (212) 479-6190

                Telecopier:
                  (212) 479-6275

              

      

       

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

       

      29. Governing
        Law, Jurisdiction and Waiver of Jury Trial.
        (a)
        THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
        AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
        TO
        CONTRACTS MADE AND PERFORMED IN SUCH STATE.

       

      (b) COMPANY
        HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
        COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
        HEAR
        AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND LAURUS 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 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.
        COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO THE JURISDICTION OF
        SUCH
        NEW YORK COURTS IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY
        HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
        JURISDICTION, IMPROPER VENUE OR FORUM
        NON CONVENIENS.
        COMPANY
        HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
        ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
        COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
        ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN SECTION 28 AND THAT SERVICE
        SO
        MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY’S ACTUAL RECEIPT
        THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
        PREPAID.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      (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 COMPANY
        ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP
        ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY ANCILLARY
        AGREEMENT OR THE TRANSACTIONS RELATED THERETO.

       

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

       

      31. Entire
        Understanding.
        This
        Agreement and the Ancillary Agreements contain the entire understanding between
        Company and Laurus as to the subject matter hereof and thereof and any promises,
        representations, warranties or guarantees not herein contained shall have
        no
        force and effect unless in writing, signed by Company’s and Laurus’ respective
        officers. Neither this Agreement, the Ancillary Agreements, nor any portion
        or
        provisions thereof may be changed, modified, amended, waived, supplemented,
        discharged, cancelled or terminated orally or by any course of dealing, or
        in
        any manner other than by an agreement in writing, signed by the party to
        be
        charged.

       

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

       

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

       

      34. Counterparts;
        Telecopier Signatures.
        This
        Agreement may be executed in two 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.

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

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

       

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

       

      [Intentionally
        Omitted].

       

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

      
        
          
          

        

        
          27

          
            

          

        

        
          
          

        

      

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

      
        	 	 	 
	 	
                GVI
                  SECURITY SOLUTIONS, INC.

              
	 
 	 
 	 
 
	
              	By:  	
              
	 	 	
                

              
	 	Name: 	 
	 	 	
                

              
	 	Title:	 
	 	
                
 
	 	
              
	 	 

      

      
        	 	 	 
	 	LAURUS
                MASTER FUND, LTD.
	 
 	 
 	 
 
	
              	By:  	
              
	 	 	
                

              
	 	Name:  	 
	 	 	
                

              
	 	Title:	 
	 	
                

              
	 	
              

      

       

      
        
          
          

        

        
          28

          
            

          

        

        
          
          

        

      

       

      Annex
        A - Definitions

       

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

       

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

       

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

       

      “Accounts
        Availability”
means
        the amount of Loans against Eligible Accounts that Laurus may from time to
        time
        make available to Company equal to the sum of ninety percent (90%) of the
        net
        face amount of Eligible Accounts based solely on Accounts of Company and
        its
        Subsidiaries.

       

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

       

      “Ancillary
        Agreements”
means,
        the Notes, Registration Rights Agreement, each Guaranty, each Guaranty Security
        Agreement and all other agreements, instruments, documents, mortgages, pledges,
        powers of attorney, consents, assignments, contracts, notices, security
        agreements, trust agreements and guarantees whether heretofore, concurrently,
        or
        hereafter executed by or on behalf of Company or any other Person or delivered
        to Laurus, relating to this Agreement or to the transactions contemplated
        by
        this Agreement.

       

      “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.

       

      
        
          
          

        

        
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      “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
        $10,000,000.

       

      “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
        May 27, 2004.

       

      “Collateral”
means
        all of 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;

       

      (j) all
        Letter-of-Credit Rights;

       

      (k) all
        Instruments;

       

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

       

      (m) all
        Books
        and Records;

       

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

       

      
        
          
          

        

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

       

      (p) all
        products and Proceeds of all or any of the foregoing, tort claims and all
        claims
        and other rights to payment including insurance claims against third parties
        for
        loss of, damage to, or destruction of, 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 common stock, par value $.001 per share, of the Company.

       

      “Contract
        Rate”
means
        an interest rate per annum equal to the Prime Rate plus two percent (2.0%).
        The
        Contract Rate shall be calculated on the last business day of each month
        (the
“Determination Date”) hereafter until the Maturity Date and shall in no event be
        less than zero percent (0%).

       

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

       

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

       

      “Deposit
        Accounts”
means
        all “deposit accounts” as such term is defined in the UCC, now or hereafter held
        in the name of any Person, including, without limitation, the Lockbox
        Account.

       

      “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.

       

      
        
          
          

        

        
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      “Eligible
        Accounts”
means
        and includes each Account which conforms to the following criteria: (a) shipment
        of the merchandise or the rendition of services has been completed; (b) no
        return, rejection or repossession of the merchandise has occurred; (c)
        merchandise or services shall not have been rejected or disputed by the Account
        Debtor and there shall not have been asserted any offset, defense or
        counterclaim; (d) continues to be in full conformity with the representations
        and warranties made by Company to Laurus with respect thereto; (e) Laurus
        is,
        and continues to be, satisfied with the credit standing of the Account Debtor
        in
        relation to the amount of credit extended; (f) there are no facts existing
        or
        threatened which are likely to result in any adverse change in the Account
        Debtor’s financial condition; (g) is documented by an invoice and shall not be
        unpaid more than ninety (90) days from invoice date; (h) not more than twenty
        five percent (25%) of the unpaid amount of invoices due from such Account
        Debtor
        remains unpaid more than ninety (90) days from invoice date; (i) is not
        evidenced by chattel paper or an instrument of any kind with respect to or
        in
        payment of the Account unless such instrument is duly endorsed to and in
        possession of Laurus or represents a check in payment of a 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 Company unless
        made
        at arms’ length; (m) is payable to Company or any of its Subsidiaries; (n) does
        not arise out of a bill and hold sale prior to shipment and does not arise
        out
        of a sale to any Person to which Company is indebted; (o) is net of any returns,
        discounts, claims, credits and allowances; (p) if the Account arises out
        of
        contracts between Company or any of its Subsidiaries and the United States,
        any
        state, or any department, agency or instrumentality of any of them, 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 Company or any of its Subsidiaries or work,
        labor
        and/or services rendered by Company or any of its Subsidiaries; (r) does
        not
        arise out of progress billings prior to completion of the order; (s) the
        total
        unpaid Accounts from such Account Debtor does not exceed fifty percent (50%)
        of
        all Eligible Accounts; (t) Company’s right to payment is absolute and not
        contingent upon the fulfillment of any condition whatsoever; (u) Company
        or any
        of its Subsidiaries is able to bring suit and enforce its remedies against
        the
        Account Debtor through judicial process; (v) does not represent interest
        payments, late or finance charges owing to Company or any of its Subsidiaries
        and (w) is otherwise satisfactory to Laurus as determined by Laurus in the
        exercise of its reasonable discretion. In the event Company requests that
        Laurus
        include within Eligible Accounts certain Accounts of one or more of Company’s
        acquisition targets, Laurus shall at the time of such request consider such
        inclusion, but any such inclusion shall be at the sole option of Laurus and
        shall at all times be subject to the execution and delivery to Laurus of
        all
        such documentation (including, without limitation, guaranty and security
        documentation) as Laurus may require in its sole discretion.

       

      “Eligible
        Inventory”
means
        Inventory owned by Company or any of its Subsidiaries which Laurus, in its
        sole
        and absolute discretion, determines: (a) is subject to a first priority
        perfected Lien in favor of Laurus and is subject to no other Liens whatsoever
        (other than Permitted Liens); (b) is not in transit; (c) is in good condition
        and meets all standards imposed by any governmental agency, or department
        or
        division thereof having regulatory Governmental Authority over such Inventory,
        its use or sale including the Federal Fair Labor Standards Act of 1938 as
        amended, and all rules, regulations and orders thereunder; (d) is currently
        either usable or salable in the normal course of Company’s business; (e) is not
        placed by Company on consignment or held by Company on consignment from another
        Person; (f) is in conformity with the representations and warranties made
        by
        Company to Laurus with respect thereto; (g) does not require the consent
        of any
        Person for the completion of manufacture, sale or other disposition of such
        Inventory and such completion, manufacture or sale does not constitute a
        breach
        or default under any contract or agreement to which Company is a party or
        to
        which such Inventory is or may be subject; (h) is not work-in-process; (i)
        is
        covered by casualty insurance acceptable to Laurus; and (j) is located on
        premises with respect to which Laurus has received a landlord or mortgagee
        waiver acceptable in form and substance to Laurus.

       

      
        
          
          

        

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

       

      “ERISA”
shall
        have the meaning given to such term in Section 12(e).

       

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

       

      “Fixed
        Conversion Price”
has
        the
        meaning given such term in the Minimum Borrowing Note. 

       

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

       

      “Formula
        Amount”
has
        the
        meaning set forth in Section 2(a)(i).

       

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

       

      “General
        Intangibles”
means
        all “general intangibles” as such term is defined in the UCC, 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
        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.

       

      
        
          
          

        

        
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      “Guarantor”
means
        and any Person who may guarantee payment of performance of the whole or any
        part
        of the Obligations.

       

      “Guarantor
        Security Agreements”
means
        all security agreements, mortgages, cash collateral deposit letters, pledges
        and
        other agreements which are executed by any Guarantor in favor of
        Laurus.

       

      “Guaranty”
means
        all agreements to perform all or any portion of the Obligations on behalf
        of
        Company.

       

      “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.
        

       

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

       

      “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 Licenses, patents, patent registrations, copyrights, copyright
        registrations, trademarks, trademark registrations, trade secrets and customer
        lists.

       

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

       

      “Inventory
        Availability”
means
        the amount of Loans against Eligible Inventory Laurus may from time to time
        make
        available to Company up to sixty percent (60%) of the value of Eligible
        Inventory of the Company and its Subsidiaries (calculated on the basis of
        the
        lower of cost or market, on a first-in first-out basis) up to a maximum of
        $3,500,000 outstanding at any time.

       

      “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.

       

      
        
          
          

        

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

       

      “Lien”
means
        any mortgage, security deed, deed of trust, pledge, hypothecation, assignment,
        security interest, lien (whether statutory or otherwise), charge, claim or
        encumbrance, or preference, priority or other security agreement or preferential
        arrangement held or asserted in respect of any asset of any kind or nature
        whatsoever including any conditional sale or other title retention agreement,
        any lease having substantially the same economic effect as any of the foregoing,
        and the filing of, or agreement to give, any financing statement under the
        UCC
        or comparable law of any jurisdiction.

       

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

       

      “Material
        Adverse Effect”
means
        a
        material adverse effect on (a) the condition, operations, assets, business
        or
        prospects of Company and its Subsidiaries, taken as a whole, (b) Company’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.

       

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

       

      “Minimum
        Borrowing Amount”
means
        $5,000,000, which such aggregate amount shall be evidenced by Minimum Borrowing
        Note. 

       

      “Minimum
        Borrowing Note”
shall
        mean the Amended and Restated Minimum Borrowing Note made by the Company
        in
        favor of Laurus to evidence the Minimum Borrowing Amount. 

       

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

       

      “Obligations”
means
        all Loans, all advances, debts, liabilities, obligations, covenants and duties
        owing by Company to Laurus (or any corporation that directly or indirectly
        controls or is controlled by or is under common control with Laurus) of every
        kind and description (whether or not evidenced by any note or other instrument
        and whether or not for the payment of money or the performance or
        non-performance of any act), direct or indirect, absolute or contingent,
        due or
        to become due, contractual or tortious, liquidated or unliquidated, whether
        existing by operation of law or otherwise now existing or hereafter arising
        including any debt, liability or obligation owing from Company 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
        applicable rate provided in this Agreement after the filing of any petition
        in
        bankruptcy, or the commencement of any insolvency, reorganization or like
        proceeding, whether or not a claim for post-filing or post-petition interest
        is
        allowed in such proceeding), charges or any other payments Company is required
        to make by law or otherwise arising under or as a result of this Agreement
        and
        the Ancillary Agreements, together with all reasonable expenses and reasonable
        attorneys’ fees chargeable to Company’s account or incurred by Laurus in
        connection with Company’s account whether provided for herein or in any
        Ancillary Agreement.

       

      
        
          
          

        

        
          35

          
            

          

        

        
          
          

        

      

       

      “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 workmen’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 applicable
        Company in conformity with GAAP; (c) Liens in favor of Laurus; (d) Liens
        for
        taxes (i) not yet due or (ii) being diligently contested in good faith by
        appropriate proceedings, provided that adequate reserves with respect thereto
        are maintained on the books of the Company in conformity with GAAP provided,
        that, the Lien shall have no effect on the priority of Liens in favor of
        Laurus
        or the value of the assets in which Laurus has a Lien; (e) Purchase Money
        Liens
        securing Purchase Money Indebtedness to the extent permitted in this Agreement
        and (f) Liens specified on Exhibit
        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.

       

      “Prime
        Rate”
means
        the “prime rate” published in The
        Wall Street Journal
        from
        time to time. The Prime Rate shall be increased or decreased as the case
        may be
        for each increase or decrease in the Prime Rate in an amount equal to such
        increase or decrease in the Prime Rate; each change to be effective as of
        the
        day of the change in such rate.

       

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

       

      
        
          
          

        

        
          36

          
            

          

        

        
          
          

        

      

       

      “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
        those registration rights agreements from time to time entered into between
        Company and Laurus, as amended, modified and supplemented from time to
        time.

       

      “Revolving
        Note”
means
        that secured revolving note made by the Company in favor of Laurus in the
        aggregate principal amount of Five Million Dollars ($5,000,000).

       

      “Securities”
means
        the Notes being issued by the Company to Laurus pursuant to this Agreement
        and
        the Ancillary Agreements.

       

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

       

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

       

      “Subsidiary”
of
        any
        Person means a corporation or other entity whose shares of stock or other
        ownership interests having ordinary voting power (other than stock or other
        ownership interests having such power only by reason of the happening of
        a
        contingency) to elect a majority of the directors of such corporation, or
        other
        Persons performing similar functions for such entity, are owned, directly
        or
        indirectly, by such Person.

       

      
        
          
          

        

        
          37

          
            

          

        

        
          
          

        

      

       

      “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 December 31, 2007, subject
        to
        acceleration at the option of Laurus upon the occurrence of an Event of Default
        hereunder or other termination hereunder.

       

      “UCC”
means
        the Uniform Commercial Code as the same may, from 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.

       

      EXHIBITS

       

      Exhibit
        1(A) - Commercial Tort Claims

      Exhibit
        2
        - Permitted Liens

      Exhibit
        7(c) - Actions for Perfection

      Exhibit
        7(p) - Bank Accounts

      Exhibit
        12(d) - Corporate Information and Locations of Collateral

      Exhibit
        12(e) - ERISA

      Exhibit
        12(i) - Licenses, Patents, Trademarks and Copyrights

      Exhibit
        12(j) - Certain SEC matters

      Exhibit
        13(e)(i) - Permitted Indebtedness

      Exhibit
        13(e)(ii) - Existing Subsidiaries

      Exhibit
        A
        - Form of Borrowing Base Certificate

      

      
        
          
          

        

        
          38

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