Document:

Exhibit 4.5

     

    Exhibit
      4.5

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (this
      "Security
      Agreement") is
      entered into as of May
      9,
      2007, by and among VERUTEK
      TECHNOLOGIES, INC., a
      Nevada
      corporation (the "Company")
      and
      NITE
      CAPITAL MASTER, LTD, solely
      in
      its capacity as the Collateral Agent
      for
      the benefit of the Purchasers (as defined below) pursuant to the Securities
      Purchase Agreement
      (as defined below) (the "Collateral
      Agent").

     

    RECITALS

     

    WHEREAS,
      the
      Company has agreed, on the terms and subject to the conditions set forth
      in
      the Securities Purchase Agreement, dated as of May 9, 2007 (the "Securities
      Purchase Agreement"),
      to
      issue
      and sell to the Purchasers named therein (the "Purchasers")
      (A)
      a
      6.0% Secured
      Convertible Note in the form attached to the Securities Purchase Agreement
      (the
"Notes")
      and
      (B) a
      Warrant in the form attached to the Securities Purchase Agreement (the
"Warrants");
      and

     

    WHEREAS,
      it
      is a
      condition precedent to the effectiveness of the Securities Purchase Agreement
      and the obligations of the Purchasers to purchase the Notes and the Warrants
      from the
      Company under the Securities Purchase Agreement that the Company shall have
      executed and
      delivered this Security Agreement in favor of the Purchasers and the Collateral
      Agent.

     

    NOW,
      THEREFORE, in
      consideration of these premises and other good and valuable consideration,
      the receipt and sufficiency of which is hereby acknowledged, the parties hereto
      agree
      as
      follows:

     

    Article
      1.Definitions.

     

     

     1.1
      Unless otherwise defined herein, capitalized terms used herein shall have
the
      meanings ascribed to such terms in the Securities Purchase Agreement, and the
      following terms
      which are defined in the Uniform Commercial Code of the State of New York,
      as
      now or hereafter
      in effect, are used herein as so defined: Accounts, Chattel Paper, Commercial
      Tort Claims,
      Deposit Accounts, Documents, Equipment, Farm Products, Fixtures, General
Intangibles,
      Instruments, Inventory, Investment Property, Proceeds, and Supporting
      Obligations.

     

    1.2In
      addition, the following terms shall have the following meanings:

     

    "Contracts"
      means
      all
      contracts and agreements to which the Company is a party,
      as
      each may be amended, supplemented or otherwise modified from time to time,
      including, without limitation, (i) all rights of the Company to receive moneys
      due and to become due to it thereunder or in connection therewith, (ii) all
      rights of the Company to damages arising out of or for breach or default in
      respect thereof and (iii) all rights of the Company
      to exercise all remedies thereunder, to the extent such interests may be
assigned
      without creating a default under such contract or agreement.

     

    "Copyright
      License" means
      any
      agreement, written or oral, providing for the grant by
      or to
      the Company of any right to use any Copyright including, without limitation,
      any
      thereof referred to in Schedule
      1 attached
      hereto.

    

    
      
        
          

        

         

      

      
        1

        
          

        

      

      
         

        
          

        

      

    

     

    "Copyrights"
      means
      (a)
      all registered United States copyrights in all Works, now existing or hereafter
      created or acquired, all registrations and recordings thereof, and all
applications
      in connection therewith, including, without limitation, registrations,
recordings
      and applications in the United States Copyright Office including, without
limitation,
      any thereof referred to in Schedule
      1 attached
      hereto, and (b) all renewals thereof including, without limitation, any thereof
      referred to in Schedule
      1 attached
      hereto.

     

    "Intellectual
      Property" means
      all
      Copyrights, Copyright Licenses, Patents, Patent Licenses,
      Trademarks and Trademark Licenses.

     

    "Patent
      License" means
      all
      agreements, whether written or oral, providing for the grant
      by
      or to the Company of any right to manufacture, use or sell any invention covered
      by a Patent, including, without limitation, any thereof referred to in
Schedule
      1 attached
      hereto.

     

    "Patents"
      means
      (a)
      all letters patent of the United States or any other country and all
      reissues and extensions thereof, including, without limitation, any thereof
      referred to in Schedule
      1 attached
      hereto, and (b) all applications for letters patent of the United States or
      any
      other
      country and all divisions, continuations and continuations-in-part thereof,
      including,
      without limitation, any thereof referred to in Schedule
      1 attached
      hereto.

     

    "Permitted
      Senior Debt" means
      the
      following: (1) the Company, as borrower, executed
      a term promissory note with Webster National Bank, N.A. (the "Bank")
      on
      August
      16, 2006 in the amount of $82,500 for a term of sixty months at the rate of
      9.25% per
      year
      (the "Term
      Note"); (2)
      the
      Company, as borrower, executed a revolving credit promissory
      note with the Bank on May 26, 2006 in the amount of $350,000, terminating
on
      May
      25, 2007 (the "Revolving
      Note"); and
      (3)
      any debt facility which replaces and satisfies the Term Note or the Revolving
      Note in its entirety, including but not limited to outstanding
      principal, accrued interest, default penalties and any other payments
thereunder.

     

    "Required
      Holders" means
      the
      holders of Notes representing at least two-thirds (2/3rd)
      of the aggregate principal amount of the Notes then outstanding.

     

    "Secured
      Obligations" means
      any
      and all indebtedness, liabilities and obligations of
      the
      Company to the Purchaser evidenced by and/or arising pursuant to the Securities
      Purchase Agreement or the Notes or any other Transaction Documents, now existing
      or hereafter
      arising, whether direct, indirect, related, unrelated, fixed, contingent,
      liquidated, unliquidated,
      joint, several or joint and several, including, without limitation, the
obligations
      of the Company to repay principal of the Notes, to pay interest on the Notes
      (including,
      without limitation, interest accruing after any bankruptcy, insolvency,
      reorganization or other similar filing) and to pay all fees, indemnities, costs
      and expenses (including
      attorneys' fees) provided for in the Securities Purchase Agreement or the
Notes
      or
      any other Transaction Documents.

    

    
      
        
          
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        2

        
          

        

      

      
         

        
          

        

      

    

     

    "Trademark
      License" means
      any
      agreement, written or oral, providing for the grant
      by
      or to the Company of any right to use any Trademark, including, without
      limitation, any
      thereof referred to in Schedule
      1 attached
      hereto.

     

    "Trademarks"
      means
      (a)
      all trademarks, trade names, corporate names, company names, business names,
      fictitious business names, trade styles, service marks, logos and other
      source or business identifiers, and the goodwill associated therewith, now
      existing or hereafter adopted or acquired, all registrations and recordings
      thereof, and all applications in connection
      therewith, whether in the United States Patent and Trademark Office or in any
      similar office or agency of the United States, any state thereof or any other
      country or any political
      subdivision thereof, or otherwise, including, without limitation, any thereof
      referred to in Schedule
      1 attached
      hereto; and (b) all renewals thereof including, without limitation, any
      thereof referred to in Schedule
      1 attached
      hereto.

     

    "Work"
      means
      any
      work which is subject to copyright protection pursuant to Title 17
      of the
      United States Code.

     

    Article
      2.
      Grant
      of Security Interest in the Collateral. To
      secure
      the prompt payment and
      performance in full when due, whether by lapse of time, acceleration or
      otherwise, of the Secured Obligations, the Company hereby grants to the
      Collateral Agent, for the benefit of the Purchasers,
      a continuing second priority security interest, subject only to the first
      priority security
      interest granted in connection with the Permitted Senior Debt, in, and a right
      to set off against,
      any and all right, title and interest of the Company in and to all of the assets
      and property of
      the
      Company, whether real or personal, tangible or intangible and whether now owned
      or existing
      or owned, acquired, or arising hereafter including, without limitation, the
      following (collectively,
      the "Collateral"):

     

    (a)  all
      Accounts;

     

    (b)  all
      Chattel Paper;

     

    (c)  the
      Commercial Tort Claims more particularly described on Schedule
      2 attached
      hereto;

     

    (d)  all
      Copyrights;

     

                                                  
      (e)       
      all
      Copyright Licenses;

     

    (0)   
       all
      Deposit Accounts;

     

    (g)  all
      Documents;

     

    (h)  all
      Equipment;

     

    (i)  all
      Fixtures;

     

    (j)  all
      General Intangibles, including, without limitation, all rights under
      the
      Contracts not otherwise included within Accounts;

    

    
      
        
          
            3

          

        

         

      

      
        3

        
          

        

      

      
         

        
          

        

      

    

    (K)   
      all Instruments;

     

    (l)     
      all Inventory;

     

    (m)    
      all Investment Property;

     

    (n)    
      all Patents and Patent Applications;

     

    (o)     
      all Patent Licenses;

     

    (p)     
      all Trademarks;

     

    (q)     
      all Trademark Licenses;

     

    (r)      
      all books, records, ledger cards, files, correspondence, computer programs,
      tapes, disks, and related data processing software (owned by the Company or
      in
      which it
      has an
      interest) that at any time evidence or contain information relating to any
      Collateral or are
      otherwise necessary or helpful in the collection thereof or realization
      thereupon; and

     

    (s)   
       to
      the
      extent not otherwise included, all Proceeds, products and Supporting
      Obligations of any and all of the foregoing.

     

    Notwithstanding
      the foregoing, the security interest granted herein shall not extend to and
      the
      term
      "Collateral" shall not include any specific rights under the Contracts to the
      extent the granting
      of a security interest therein is prohibited by or would constitute a default
      under any agreement
      or document otherwise permitted under the Securities Purchase Agreement
      governing such
      specific rights under the Contracts (but only to the extent such prohibition
      is
      enforceable under
      applicable law); provided,
      however, that
      in
      no event shall this provision have the effect of limiting
      the "blanket" lien nature of the foregoing granting clause except with respect
      to any such
      specific rights under the Contracts.

     

    The
      Company and the Collateral Agent, on behalf of the Purchasers, hereby
      acknowledge and
      agree
      that the security interest created hereby in the Collateral (i) constitutes
      continuing second
      priority collateral security, subject only to the first priority security
      interest granted in connection
      with the Permitted Senior Debt, for all of the Secured Obligations, whether
      now
existing
      or hereafter arising and (ii) is not to be construed as an assignment of any
      Copyrights, Copyright
      Licenses, Patents, Patent Licenses, Trademarks or Trademark
      Licenses.

     

    Article
      3. Representations
      and Warranties. The
      Company hereby represents and warrants
      to the Collateral Agent, for the benefit of the Purchasers, that so long as
      any
      of the Secured
      Obligations remain outstanding:

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     3.1
      Chief
      Executive Office; Books & Records. The
      Company's chief executive
      office and chief place of business is, and for the prior four months has been,
      located at the
      locations set forth on Schedule
      3(a) hereto,
      and the Company keeps its books and records at such
      locations.

     

    3.2Location
      of Collateral. The
      location of all Collateral owned by the

     

    Company
      is as shown on Schedule
      3(b) hereto.

     

     3.3
      Ownership.
      The
      Company is the legal and beneficial owner of its Collateral
      and has the right to pledge, sell, assign or transfer the same. The Company's
      legal name,
      as
      set forth in the organizational documents for the Company recorded with the
      Company's
      jurisdiction of formation, is as shown in this Security Agreement and the
      Company has not in the four months preceding the date of its becoming a party
      hereto changed its name, been
      party to a merger, consolidation or other change in structure or used any
      tradename except as
      set
      forth in Schedule
      3(c) attached
      hereto. Schedule
      3(c) also
      sets
      forth the organizational identification
      number issued by the Company's state of organization or incorporation or a
      statement
      that no such number has been issued.

     

     3.4
      Security
      Interest/Priority. Upon
      conversion of the convertible notes held by
      the
      Bridge Investors (as defined in the Notes), immediately prior to the closing
      hereof, this Security
      Agreement creates a valid second priority security interest in favor of the
      Collateral Agent
      for
      the benefit of the Purchasers, subject only to the first priority security
      interest granted in
      connection with the Permitted Senior Debt, in the Collateral of the Company
      and,
      when properly
      perfected by filing, shall constitute a valid perfected second priority security
      interest in such
      Collateral, subject only to the first priority security interest granted in
      connection with the Permitted
      Senior Debt, to the extent such security can be perfected by filing under the
      UCC, free and
      clear
      of all Liens except for such first priority security interest and except for
      the
      Permitted Liens.

     

    3.5Farm
      Products. None
      of
      the Collateral constitutes, or is the Proceeds of,

     

    Farm
      Products.

     

     3.6
      Accounts.
      (i)
      Each
      Account of the Company and the papers and documents
      relating thereto are genuine and in all material respects what they purport
      to
      be, (ii)
      each
      Account arises out of (A) a bona fide sale of goods sold and delivered by the
      Company (or
      is in
      the process of being delivered) or (B) services actually rendered or to be
      rendered by the Company
      to the account debtor named therein, (iii) no Account of the Company is
      evidenced by any
      Instrument or Chattel Paper unless such Instrument or Chattel Paper has been
      theretofore endorsed
      over and delivered to the Collateral Agent and (iv) no surety bond was required
      or given
      in
      connection with any Account of the Company or the contracts or purchase orders
      out of which
      they arose.

     

    3.7   
      Inventory.No
      Inventory is held by the Company pursuant to

     

    consignment,
      sale or return, sale on approval or similar arrangement.

     

    3.8   
      Copyrights,
      Patents and Trademarks.

     

                        (i)  
      Schedule
      1 attached
      hereto includes all Copyrights, Copyright
      Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses owned
      by
      the Company
      in its own name as of the date hereof.

    
      
        
          
            5

          

        

         

      

      
        5

        
          

        

      

      
         

        
          

        

      

    

     

    (ii)  Each
      Copyright, Patent and Trademark of the Company is

     

    valid,
      subsisting, unexpired, enforceable and has not been abandoned.

     

    (iii)  Except
      as
      set forth in Schedule
      1 attached
      hereto, none of

     

    such
      Copyrights, Patents and Trademarks is the subject of any licensing or franchise
      agreement.

     

    (iv)  No
      holding, decision or judgment has been rendered which

     

    would
      limit, cancel or question the validity of any Copyright, Patent or
      Trademark.

     

    (v)  No
      action
      or proceeding is pending seeking to limit, cancel or question
      the validity of any Copyright, Patent or Trademark, or which, if adversely
      determined, would
      have a Material Adverse Effect.

     

    (vi)  All
      applications pertaining to the Copyrights, Patents and Trademarks of the Company
      have been duly and properly filed, and all registrations or letters pertaining
      to such Copyrights, Patents and Trademarks have been duly and properly filed
      and
issued,
      and all of such Copyrights, Patents and Trademarks are valid and
      enforceable.

     

    (vii)  The
      Company has not made any assignment or agreement in conflict
      with the security interest in the Copyrights, Patents or Trademarks of the
      Company hereunder.

     

    Article
      4.Covenants.
      The
      Company covenants that it will, so long as any of the

     

    Secured
      Obligations remain outstanding:

     

     4.1
      Other
      Liens. Defend
      the Collateral against the claims and demands of all other
      parties claiming an interest therein, keep the Collateral free from all Liens,
      except for the Permitted
      Liens, and not sell, exchange, transfer, assign, lease or otherwise dispose
      of
      the Collateral
      or any interest therein, except as permitted under the Securities Purchase
      Agreement and
      the
      other Transaction Documents.

     

    4.2
      Preservation
      of Collateral. Keep
      the
      Collateral in good order, condition and
      repair (excepting ordinary wear and tear) and not use the Collateral in
      violation of the provisions of this Security Agreement or any other agreement
      relating to the Collateral or any policy
      insuring the Collateral or any applicable statute, law, bylaw, rule, regulation
      or ordinance.

     

    4.3
      Instruments/Chattel
      Paper. If
      any
      amount payable under or in connection with
      any
      of the Collateral shall be or become evidenced by any Instrument or Chattel
      Paper, immediately
      deliver (subject to any delivery requirements under the Permitted Senior Debt)
      such Instrument
      or Chattel Paper to the Collateral Agent, duly indorsed in a manner satisfactory
      to the Collateral
      Agent, to be held as Collateral pursuant to this Security
      Agreement.

     

     4.4
      Change
      in Location. Not,
      without providing at least thirty (30) days prior written
      notice to the Collateral Agent and without filing such amendments to any
      previously filed financing
      statements as the Collateral Agent may require, (a) change the location of
      its
      chief

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    executive
      office and chief place of business (as well as its books and records) from
      the
      locations set
      forth
      on Schedule
      3(a) attached
      hereto, (b) change the location of its Collateral from the locations
      set forth for the Company on Schedule
      3(b) attached
      hereto, (c) change its name, be party
      to
      a merger, consolidation or other change in structure or use any tradename other
      than as set
      forth
      on Schedule
      3(c) attached
      hereto, or (d) change its jurisdiction of formation from the location
      set forth on Schedule
      3(d) attached
      hereto.

     

     4.5
      Inspection.
      Upon
      reasonable notice, at such reasonable times during normal
      business hours and as often as may be reasonably desired, allow the Collateral
      Agent, any
      Purchaser or their respective representatives free access to and right of
      inspection of the tangible
      Collateral.

     

     4.6
      Perfection
      of Security Interest. Execute
      and deliver to the Collateral Agent
      such agreements, assignments or instruments (including affidavits, notices,
      reaffirmations and
      amendments and restatements of existing documents, as the Collateral Agent
      may
reasonably
      request) and do all such other things as the Collateral Agent may reasonably
      deem necessary or appropriate (i) to assure to the Collateral Agent its security
      interests hereunder, including:
      (A) such financing statements (including renewal statements) or amendments
      thereof or
      supplements thereto or other instruments as the Collateral Agent may from time
      to time reasonably
      request in order to perfect and maintain the security interests granted
      hereunder in accordance
      with the UCC, (B) with regard to Copyrights, a Notice of Grant of Security
      Interest in
      Copyrights in the form of Schedule
      4.6(i), (C)
      with
      regard to Patents, a Notice of Grant of Security
      Interest in Patents for filing with the United States Patent and Trademark
      Office in the form
      of
Schedule
      4.6(ii) attached
      hereto and (D) with regard to Trademarks, a Notice of Grant of Security
      Interest in Trademarks for filing with the United States Patent and Trademark
      Office in the
      form
      of Schedule
      4.6(iii) attached
      hereto, (ii) to consummate the transactions contemplated hereby
      and (iii) to otherwise protect and assure the Collateral Agent of its rights
      and
      interests hereunder,
      including, without limitation: (A) if any Account, Contract, Chattel Paper,
      Instrument,
      General Intangible and each Patent License and Trademark License shall be
evidenced
      by a promissory note or other instrument or chattel paper, delivering and
      pledging to the
      Collateral Agent hereunder, to the extent not required to be delivered and
      pledged under the Permitted
      Senior Debt, such note, instrument or chattel paper duly endorsed and
      accompanied by executed
      instruments of transfer or assignment, all in form and substance satisfactory
      to
      the Collateral
      Agent, (B) filing such financing or continuation statements, or amendments
      thereto, as may be necessary or desirable or that the Collateral Agent may
      request in order to perfect and preserve
      the security interest purported to be created hereby, and (C) furnishing to
      the
      Collateral Agent
      from time to time statements and schedules further identifying and describing
      the Collateral
      and such other reports in connection with the Collateral as the Collateral
      Agent
      may reasonably
      request, all in reasonable detail. To that end, the Company agrees that the
      Collateral Agent
      may
      file one or more financing statements disclosing the Collateral Agent's security
      interest
      in any or all of the Collateral of the Company without, to the extent permitted
      by law, the Company's
      signature thereon, and further the Company also hereby irrevocably makes,
constitutes
      and appoints the Collateral Agent, its nominee or any other person whom the
      Collateral
      Agent may designate, as the Company's attorney in fact with full power and
      for
      the limited
      purpose to sign in the name of the Company any such financing statements, or
      amendments
      and supplements to financing statements, renewal financing statements, notices
      or any
      similar documents which in the Collateral Agent's reasonable discretion would
      be
      necessary,

    

    
      
         

      

      
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    appropriate
      or convenient in order to perfect and maintain perfection of the security
      interests granted
      hereunder, such power, being coupled with an interest, being and remaining
      irrevocable so
      long
      as the Securities Purchase Agreement and the Notes are in effect or any amounts
      payable thereunder
      or under any other Transaction Document shall remain outstanding. The Company
      hereby
      agrees that a carbon, photographic or other reproduction of this Security
      Agreement or any such financing statement is sufficient for filing as a
      financing statement by the Collateral Agent
      without notice thereof to the Company wherever the Collateral Agent may in
      its
      sole discretion
      desire to file the same. In the event for any reason the law of any jurisdiction
      other than the State of New York becomes or is applicable to the Collateral
      of
      the Company or any part
      thereof, or to any of the Secured Obligations, the Company agrees to execute
      and
      deliver all such instruments and to do all such other things as the Collateral
      Agent in its sole discretion reasonably
      deems necessary or appropriate to preserve, protect and enforce the security
      interests of
      the
      Collateral Agent under the law of such other jurisdiction (and, if the Company
      shall fail to do so promptly upon the request of the Collateral Agent, then
      the
      Collateral Agent may execute any
      and
      all such requested documents on behalf of the Company pursuant to the power
      of
attorney
      granted hereinabove). If any Collateral is in the possession or control of
      the
      Company's agent
      and
      the agent so requests, the Company agrees to notify such agent in writing of
      the
agent's
      security interest therein and, upon the agent's request, instruct them to hold
      all such Collateral
      for the Purchasers' account and subject to the Collateral Agent's instructions.
      The Company
      agrees to mark its books and records to reflect the security interest of the
      Collateral Agent
      in
      the Collateral.

     

    4.7Covenants
      Relating to Accounts.

     

    (i)  Upon
      the
      occurrence of any Event of Default and during the
      continuation thereof, set aside and hold as trustee for the Collateral Agent
      any
      merchandise which is returned by a customer or account debtor or otherwise
      recovered. Unless and until an Event
      of
      Default occurs and is continuing, the Company may settle and adjust disputes
      and
claims
      with its customers and account debtors, handle returns and recoveries and grant
      discounts, credits
      and allowances in the ordinary course of its business as presently conducted
      and
otherwise
      for amounts and on terms which the Company in good faith considers advisable.
      However,
      upon the occurrence of any Event of Default and during the continuation thereof,
      if so instructed
      by the Collateral Agent, the Company shall settle and adjust disputes and claims
      at no expense to the Collateral Agent, but no discount, credit or allowance
      other than on normal trade terms
      in
      the ordinary course of business shall be granted to any customer or account
      debtor and no returns of merchandise shall be accepted by the Company without
      the Collateral Agent's consent.
      The Collateral Agent may (but shall not be required to), at all times upon
      the
occurrence
      of any Event of Default and during the continuance thereof, settle or adjust
      disputes and
      claims directly with customers or account debtors for amounts and upon terms
      which the Collateral
      Agent considers advisable.

     

    (ii)  If
      any of
      the Inventory is at any time evidenced by a document
      of title, immediately upon request by the Collateral Agent, deliver such
      document of title
      to
      the Collateral Agent.

     

    (iii) If
      any
      Inventory or Equipment is in the possession or

     

    control
      of the Company's agents or any other third party (including bailees and
      warehousemen

    

    
      
         

      

      
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    and
      the
      operators of pipelines and storage facilities), the Company will, upon the
      reasonable request
      of the Collateral Agent, (A) notify such agents or third parties of the
      Collateral Agent's security
      interest therein; (B) instruct them to hold all such Inventory or Equipment
      pursuant to the
      Permitted Senior Debt, or for the Collateral Agent's and the Company's account
      and subject to
      the
      Permitted Senior Debt and the Collateral Agent's instructions; and (C) obtain
      a
      written acknowledgement
      from them that they are holding all such Inventory or Equipment pursuant to
      the
      Permitted Senior Debt and for the Collateral Agent's account.

     

    (iv)
      If
      any Inventory or Equipment is stored with any third party,
      the Company shall cause all documents, instruments and certificates as the
      Collateral Agent
      may
      from time to time reasonably require related to such Inventory and Equipment
      to
      be delivered
      to the Collateral Agent, to the extent not required to be delivered under the
      Permitted Senior
      Debt, and the Company shall take or cause to be taken all such other actions
      as
      the Collateral
      Agent may from time to time require in connection with its security interest
      in
      such Inventory or Equipment.

     

    4.8Covenants
      Relating to Copyrights.

     

    (i)  Employ
      the Copyright for each Work with such notice of copyright
      as may be required by law to secure copyright protection.

     

    (ii)  Not
      do
      any act or omit to do any act whereby any Copyright
      may become invalidated and (A) not do any act, or omit to do any act, whereby
      any Copyright
      may become injected into the public domain; (B) notify the Collateral Agent
      immediately
      if it knows, or has reason to know, that any Copyright may become injected
      into
      the public
      domain or of any adverse determination or development (including, without
      limitation, the institution
      of, or any such determination or development in, any court or tribunal in the
      United States
      or
      any other country) regarding the Company's ownership of any such Copyright
      or
      its validity;
      (C) take all necessary steps as it shall deem appropriate under the
      circumstances, to maintain
      and pursue each application (and to obtain the relevant registration) and to
      maintain each
      registration of each Copyright owned by the Company including, without
      limitation, filing of
      applications for renewal where necessary; and (D) promptly notify the Collateral
      Agent of any material
      infringement of any Copyright of the Company of which it becomes aware and
      take
such
      actions as it shall reasonably deem appropriate under the circumstances to
      protect such Copyright,
      including, where appropriate, the bringing of suit for infringement, seeking
      injunctive relief
      and seeking to recover any and all damages for such infringement.

     

    (iii) Not
      make
      any assignment or agreement in conflict with the

     

    security
      interest in the Copyrights of the Company hereunder.

     

    4.9Covenants
      Relating to Patents and Trademarks.

     

    (i)
      (A)
      Continue to use each Trademark on each and every trademark
      class of goods applicable to its current line as reflected in its current
      catalogs, brochures
      and price lists in order to maintain such Trademark in full force free from
      any
      claim of abandonment
      for non-use, (B) maintain as in the past the quality of products and services
      offered under
      such Trademark, (C) employ such Trademark with the appropriate notice of
      registration,

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (D)
      not
      adopt or use any mark which is confusingly similar or a colorable imitation
      of
      such Trademark
      unless the Collateral Agent, for the ratable benefit of the Purchasers, shall
      obtain a perfected
      security interest in such mark pursuant to this Security Agreement, and (E)
      not
      (and not permit
      any licensee or sublicensee thereof to) do any act or knowingly omit to do
      any
      act whereby
      any such Trademark may become invalidated.

     

    (ii)  Not
      do
      any act, or knowingly omit to do any act, whereby any
      Patent may become abandoned or dedicated.

     

    (iii)  Notify
      the Collateral Agent and the Purchasers immediately if
      it
      knows, or has reason to know, that any application or registration relating
      to
      any Patent or Trademark
      may become abandoned or dedicated, or of any adverse determination or
development
      (including, without limitation, the institution of, or any such determination
      or
development
      in, any proceeding in the United States Patent and Trademark Office or any
      court
      or tribunal
      in any country) regarding the Company's ownership of any Patent or Trademark
      or
      its right
      to
      register the same or to keep and maintain the same.

     

    (iv)  Whenever
      the Company, either by itself or through the Collateral
      Agent, employee, licensee or designee, shall file an application for the
      registration of any Patent or Trademark with the United States Patent and
      Trademark Office or any similar office
      or
      agency in any other country or any political subdivision thereof, the Company
      shall report
      such filing to the Collateral Agent and the Purchasers within five Business
      Days
      after the last
      day
      of the fiscal quarter in which such filing occurs. Upon request of the
      Collateral Agent, the Company shall execute and deliver any and all agreements,
      instruments, documents and papers
      as
      the Collateral Agent may reasonably request to evidence the Collateral Agent's
      and the Purchasers'
      security interest in any Patent or Trademark and the goodwill and general
      intangibles of the Company relating thereto or represented thereby.

     

    (v)  Take
      all
      reasonable and necessary steps, including, without limitation,
      in any proceeding before the United States Patent and Trademark Office, or
      any
similar
      office or agency in any other country or any political subdivision thereof,
      to
      maintain and pursue each application (and to obtain the relevant registration)
      and to maintain each registration of
      the
      Patents and Trademarks, including, without limitation, filing of applications
      for renewal, affidavits
      of use and affidavits of incontestability.

     

    (vi)  Promptly
      notify the Collateral Agent and the Purchasers

    after
      it
      learns that any Patent or Trademark included in the Collateral is infringed,
      misappropriated
      or diluted by a third party and promptly sue for infringement, misappropriation
      or dilution, to seek injunctive relief where appropriate and to recover any
      and
      all damages for such
      infringement, misappropriation or dilution, or take such other actions as it
      shall reasonably deem
      appropriate under the circumstances to protect such Patent or
      Trademark.

     

    (vii)  Not
      make
      any assignment or agreement in conflict with the security interest in the
      Patents or Trademarks of the Company hereunder.

     

    4.10
      New
      Patents, Copyrights and Trademarks.

     

    (i)Promptly
      notify the Collateral Agent of any filing of any

    

    
      
         

      

      
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    application
      for registration of any Copyright, Trademark or Patent with the United States
      Copyright
      Office or United States Patent and Trademark Office or any similar office or
      agency in
      any
      other country or any political subdivision thereof, and promptly deliver to
      the
      Collateral Agent
      (A)
      with respect to Copyrights, a duly executed Notice of Security Interest in
      Copyrights, (B)
      with
      respect to Patents, a duly executed Notice of Security Interest in Patents,
      (C)
      with respect
      to Trademarks, a duly executed Notice of Security Interest in Trademarks or
      (D)
      such other
      duly executed documents as the Collateral Agent may reasonably request in a
      form
acceptable
      to counsel for the Collateral Agent and suitable for recording to evidence
      the
      security interest in the Copyright, Patent or Trademark which is the subject
      of
      such new application.

     

    (ii)
      Concurrently with the delivery of the financial statements delivered
      pursuant to Section 4.5 of the Securities Purchase Agreement, provide the
      Collateral Agent
      with a listing of all applications, if any, for new Copyrights, Patents or
      Trademarks (together
      with a listing of the issuance of registrations or letters on present
      applications), which new applications and issued registrations or letters shall
      be subject to the terms and conditions hereunder.

     

     Article
      5. Special
      Provisions Relating to Accounts. Anything
      herein to the contrary notwithstanding,
      the Company shall remain liable under each of the Accounts to observe and
perform
      all the conditions and obligations to be observed and performed by it
      thereunder, all in accordance
      with the terms of any agreement giving rise to each such Account. Neither the
      Collateral
      Agent nor any Purchaser shall have any obligation or liability under any Account
      (or any
      agreement giving rise thereto) by reason of or arising out of this Security
      Agreement or the receipt
      by the Collateral Agent or any Purchaser of any payment relating to such Account
      pursuant
      hereto, nor shall the Collateral Agent or any Purchaser be obligated in any
      manner to perform
      any of the obligations of the Company under or pursuant to any Account (or
      any
agreement
      giving rise thereto), to make any payment, to make any inquiry as to the nature
      or the sufficiency
      of any payment received by it or as to the sufficiency of any performance by
      any
party
      under any Account (or any agreement giving rise thereto), to present or file
      any
      claim, to take
      any
      action to enforce any performance or to collect the payment of any amounts
      which
      may have
      been
      assigned to it or to which it may be entitled at any time or times.

     

    Article
      6.Special
      Provisions Regarding Inventory. 

     

     6.1
      Notwithstanding anything to the contrary contained in this Security Agreement,
      the Company may, unless and until an Event of Default occurs and is continuing
      and the
      Collateral Agent instructs the Company otherwise, without further consent or
      approval of the Collateral
      Agent, use, consume, sell, lease and exchange the Inventory in the ordinary
      course of its
      business as presently conducted, whereupon, in the case of such a sale or
      exchange, the security
      interest created hereby in the Inventory so sold or exchanged (but not in any
      proceeds arising
      from such sale or exchange) shall cease immediately without any further action
      on the part
      of
      the Collateral Agent.

     

    6.2
      Upon
      the Purchasers' purchasing the Notes and Warrants pursuant to the Securities
      Purchase Agreement, the Company shall be deemed to have warranted that all
      warranties
      of the Company set forth in this Security Agreement with respect to its
      Inventory are

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    true
      and
      correct in all material respects with respect to such Inventory, including
      without limitation
      that such Inventory is located at a location permitted by Section
      3(b) or
      4(d)
      hereof.

     

    Article
      7.Events
      of Default. 

     

    The
      occurrence of an event which under the Notes would constitute an Event of
      Default (as
      defined in the Notes) shall be an event of default hereunder (an "Event
      of Default").

     

    Article
      8.Remedies.
      Subject
      to the terms of the Intercreditor Agreement:

     

     8.1
      General
      Remedies. Upon
      the
      occurrence of an Event of Default and during
      continuation thereof, the Purchasers shall have, in addition to the rights
      and
      remedies provided
      herein, in the Transaction Documents or by law (including, but not limited
      to,
      the rights and
      remedies set forth in the Uniform Commercial Code of the jurisdiction applicable
      to the affected
      Collateral), the rights and remedies of a secured party under the UCC
      (regardless of whether
      the UCC is the law of the jurisdiction where the rights and remedies are
      asserted and regardless
      of whether the UCC applies to the affected Collateral), and further, the
      Collateral Agent
      may, with or without judicial process or the aid and assistance of others,
      (i)
      enter on any premises
      on which any of the Collateral may be located and, without resistance or
      interference by
      the
      Company, take possession of the Collateral, (ii) dispose of any Collateral
      on
      any such premises,
      (iii) require the Company to assemble and make available to the Collateral
      Agent
      at the expense
      of the Company any Collateral at any place and time designated by the Collateral
      Agent which
      is
      reasonably convenient to both parties, (iv) remove any Collateral from any
      such
premises
      for the purpose of effecting sale or other disposition thereof, and/or (v)
      without demand and without advertisement, notice, hearing or process of law,
      all
      of which the Company hereby waives
      to
      the fullest extent permitted by law, at any place and time or times, sell and
      deliver any or
      all
      Collateral held by or for it at public or private sale, by one or more
      contracts, in one or more parcels, for cash, upon credit or otherwise, at such
      prices and upon such terms as the Collateral
      Agent deems advisable, in its sole discretion (subject to any and all mandatory
      legal requirements).
      In addition to all other sums due the Collateral Agent and the Purchasers with
      respect
      to the Secured Obligations, the Company shall pay the Collateral Agent and
      each
      of the Purchasers
      all reasonable documented costs and expenses incurred by the Collateral Agent
      or
any
      such
      Purchasers, including, but not limited to, reasonable attorneys' fees and court
      costs, in obtaining
      or liquidating the Collateral, in enforcing payment of the Secured Obligations,
      or in the prosecution
      or defense of any action or proceeding by or against the Collateral Agent or
      the
Purchasers
      or the Company concerning any matter arising out of or connected with this
      Security Agreement,
      any Collateral or the Secured Obligations, including, without limitation, any
      of
      the foregoing
      arising in, arising under or related to a case under any bankruptcy, insolvency
      or similar
      law. To the extent the rights of notice cannot be legally waived hereunder,
      the
      Company agrees
      that any requirement of reasonable notice shall be met if such notice is
      personally served on
      or
      mailed, postage prepaid, to the Company in accordance with the notice provisions
      of Section
      12.6 of the Securities Purchase Agreement at least ten (10) days before the
      time
      of sale or
      other
      event giving rise to the requirement of such notice. The Collateral Agent and
      the Purchasers shall not be obligated to make any sale or other disposition
      of
      the Collateral regardless
      of notice having been given. To the extent permitted by law, any Purchaser
      may
      be a purchaser
      at any such sale. To the extent permitted by applicable law, the Company hereby
      waives
      all of its rights of redemption with respect to any such sale. Subject to the
      provisions of

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    applicable
      law, the Collateral Agent and the Purchasers may postpone or cause the
      postponement of the sale of all or any portion of the Collateral by announcement
      at the time and place of such sale,
      and
      such sale may, without further notice, to the extent permitted by law, be made
      at the time
      and
      place to which the sale was postponed, or the Collateral Agent and the
      Purchasers may further postpone such sale by announcement made at such time
      and
      place.

     

     8.2
      Remedies
      relating to Accounts. Upon
      the
      occurrence of an Event of Default
      and during the continuation thereof, whether or not the Collateral Agent has
      exercised any or all of its rights and remedies hereunder, the Collateral Agent
      or its designee may notify the
      Company's customers and account debtors that the Accounts of the Company have
      been assigned to the Collateral Agent or of the Collateral Agent's security
      interest therein, and may (either in its own name or in the name of the Company
      or both) demand, collect, receive, take receipt
      for, sell, sue for, compound, settle, compromise and give acquittance for any
      and all amounts
      due or to become due on any Account, and, in the Collateral Agent's discretion,
      file any claim
      or
      take any other action or proceeding to protect and realize upon the security
      interest of the
      Purchasers in the Accounts. The Company acknowledges and agrees that the
      Proceeds of its Accounts
      remitted to or on behalf of the Collateral Agent in accordance with the
      provisions hereof
      shall be solely for the Collateral Agent's own convenience and that the Company
      shall not have
      any
      right, title or interest in such Accounts or in any such other amounts except
      as
      expressly provided
      herein. The Collateral Agent may apply all or any part of any Proceeds of
      Accounts or other
      Collateral received by it from any source to the payment of the Secured
      Obligations (whether
      or not then due and payable). The Collateral Agent shall have no obligation
      to
      apply or give
      credit for any item included in proceeds of Accounts or other Collateral until
      it has received final
      payment therefor at its offices in cash. However, if the Collateral Agent does
      permit credit to be given for any item prior to receiving final payment therefor
      and the Collateral Agent fails to
      receive such final payment or an item is charged back to the Collateral Agent
      for any reason, the
      Collateral Agent may at its election in either instance charge the amount of
      such item back against
      the Company, together with interest thereon at a rate equal to the Late Charge
      (as defined in
      the
      Notes). The Company hereby indemnifies the Collateral Agent from and against
      all
liabilities,
      damages, losses, actions, claims, judgments, costs, expenses, charges and
      reasonable attorneys' fees (except such as result from the Collateral Agent's
      gross negligence or willful misconduct)
      suffered or incurred by the Collateral Agent because of the maintenance of
      the
foregoing
      arrangements. The Collateral Agent shall have no liability or responsibility
      to
      the Company
      for accepting any check, draft or other order for payment of money bearing
      the
      legend "payment
      in full" or words of similar import or any other restrictive legend or
      endorsement whatsoever
      or be responsible for determining the correctness of any
      remittance.

     

     8.3
      Access.
      In
      addition to the rights and remedies hereunder, upon the occurrence
      of an Event of Default and during the continuance thereof, the Collateral Agent
      shall have
      the
      right to take physical possession of any and all of the Collateral and anything
      found therein, the right for that purpose to enter without legal process and
      without breach of the peace any premises where the Collateral may be found
      (provided such entry be done lawfully), and the right to maintain such
      possession on the Company's premises (the Company hereby agreeing to lease
      warehouses and storage facilities to the Collateral Agent or its designee if
      the
      Collateral Agent so requests) or to remove the Collateral or any part thereof
      to
      such other places as the Collateral Agent may desire. Upon the occurrence of
      any
      Event of Default and during the continuation thereof, the Company shall, upon
      the Collateral Agent's demand, assemble the

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    Collateral
      and make it available to the Collateral Agent at a place reasonably designated
      by the Collateral
      Agent. If the Collateral Agent exercises its right to take possession of the
      Collateral, the Company shall also at its expense perform any and all other
      steps reasonably requested by the
      Collateral Agent to preserve and protect the security interest hereby granted
      in
      the Collateral, such
      as
      placing and maintaining signs indicating the security interest of the Collateral
      Agent, appointing overseers for the Collateral and maintaining inventory
      records.

     

     8.4
      Nonexclusive
      Nature of Remedies. Failure
      by the Collateral Agent or the Purchasers to exercise any right, remedy or
      option under this Security Agreement, any other Transaction
      Document or as provided by law, or any delay by the Collateral Agent or the
      Purchasers
      in exercising the same, shall not operate as a waiver of any such right, remedy
      or option.
      No waiver hereunder shall be effective unless it is in writing, signed by the
      party against whom
      such
      waiver is sought to be enforced and then only to the extent specifically stated,
      which in the case of the Collateral Agent or the Purchasers shall only be
      granted as provided herein. To the
      extent permitted by law, neither the Collateral Agent, the Purchasers, nor
      any
      party acting as attorney
      for the Collateral Agent or the Purchasers, shall be liable hereunder for any
      acts or omissions
      or for any error of judgment or mistake of fact or law other than their gross
      negligence or willful misconduct hereunder. The rights and remedies of the
      Collateral Agents and the Purchasers
      under this Security Agreement shall be cumulative and not exclusive of any
      other
right
      or
      remedy which the Collateral Agent or the Purchasers may have.

     

     8.5
      Retention
      of Collateral. The
      Collateral Agent may, after providing the notices
      required by Section 9-620 of the UCC or otherwise complying with the
      requirements of applicable
      law of the relevant jurisdiction, to the extent the Collateral Agent is in
      possession of any
      of
      the Collateral, retain the Collateral in satisfaction of the Secured
      Obligations. Unless and until
      the
      Collateral Agent shall have provided such notices, however, the Collateral
      Agent
      shall not
      be
      deemed to have retained any Collateral in satisfaction of any Secured
      Obligations for any reason.

     

     8.6
      Deficiency.
      In
      the
      event that the proceeds of any sale, collection or realization
      are insufficient to pay all amounts to which the Collateral Agent or the
      Purchasers are legally
      entitled, the Company shall be jointly and severally liable for the deficiency,
      together with
      interest at a rate equal to the Late Charge (as defined in the Notes), together
      with the costs of
      collection and the reasonable fees of any attorneys employed by the Collateral
      Agent to collect
      such deficiency. Any surplus remaining after the full payment and satisfaction
      of the Secured
      Obligations shall be returned to the Company or to whomsoever a court of
      competent jurisdiction
      shall determine to be entitled thereto.

     

    Article
      9.Rights
      of the Collateral Agent. Subject
      to the terms of the Intercreditor

     

    Agreement:

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    9.1
      Power
      of Attorney. In
      addition to other powers of attorney contained herein,
      the Company hereby designates and appoints the Collateral Agent, on behalf
      of
      the Purchasers,
      and each of its designees or agents, as attorney-in-fact of the Company,
      irrevocably and
      with
      power of substitution, with authority to take any or all of the following
      actions upon the occurrence
      and during the continuance of an Event of Default:

     

    (i)  demand,
      collect, settle, compromise, adjust, give discharges

     

     

    and
      releases, all as the Collateral Agent may reasonably determine;

     

    (ii)  commence
      and prosecute any actions at any court for the

    purposes
      of collecting any Collateral and enforcing any other right in respect
      thereof;

     

    (iii)  defend,
      settle or compromise any action brought and, in connection
      therewith, give such discharge or release as the Collateral Agent may deem
      reasonably
      appropriate;

     

    (iv)  receive,
      open and dispose of mail addressed to the Company
      and endorse checks, notes, drafts, acceptances, money orders, bills of lading,
      warehouse
      receipts or other instruments or documents evidencing payment, shipment or
      storage of
      the
      goods giving rise to the Collateral of the Company on behalf of and in the
      name
      of the Company,
      or securing, or relating to such Collateral;

     

    (v)  sell,
      assign, transfer, make any agreement in respect of, or otherwise
      deal with or exercise rights in respect of, any Collateral or the goods or
      services which have given rise thereto, as fully and completely as though the
      Collateral Agent were the absolute owner
      thereof for all purposes;

     

    (vi)  adjust
      and settle claims under any insurance policy relating

     

     

    thereto;

     

    (vii)  execute
      and deliver all assignments, conveyances, statements,
      financing statements, renewal financing statements, security agreements,
      affidavits, notices
      and other agreements, instruments and documents that the Collateral Agent may
      reasonably
      determine to be necessary in order to perfect and maintain the security
      interests and liens
      granted in this Security Agreement and in order to fully consummate all of
      the
      transactions contemplated
      therein;

     

    (viii)  institute
      any foreclosure proceedings that the Collateral

     

     

    Agent
      may
      deem appropriate; and

     

    (ix)
      do
      and perform all such other acts and things as the Collateral
      Agent may reasonably deem to be necessary, proper or convenient in connection
      with the
      Collateral.

     

    This
      power of attorney is a power coupled with an interest and shall be irrevocable
      for so long
      as
      any of the Secured Obligations remain outstanding or any Note is in effect.
      The
Collateral
      Agent shall be under no duty to exercise or withhold the exercise of any of
      the
      rights, powers,
      privileges and options expressly or implicitly granted to the Collateral Agent
      in this

    

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    Security
      Agreement, and shall not be liable for any failure to do so or any delay in
      doing so. The Collateral
      Agent shall not be liable for any act or omission or for any error of judgment
      or any mistake of fact or law in its individual capacity or its capacity as
      attorney-in-fact except acts or omissions
      resulting from its gross negligence or willful misconduct. This power of
      attorney is conferred
      on the Collateral Agent solely to protect, preserve and realize upon its
      security interest in
      the
      Collateral.

     

     9.2
      Performance
      by the Collateral Agent of Obligations. If
      the
      Company fails to
      perform any agreement or obligation contained herein, the Collateral Agent
      itself may perform,
      or cause performance of, such agreement or obligation, and the expenses of
      the
Collateral
      Agent incurred in connection therewith shall be payable by the Company on a
      joint and
      several basis pursuant to Section
      23 hereof.

     

     9.3
      Assignment
      by the Collateral Agent. Subject
      to Section 10 of the Securities
      Purchase Agreement, the Collateral Agent may from time to time assign the
      Secured Obligations
      and any portion thereof and/or the Collateral and any portion thereof, and
      the
      assignee shall be entitled to all of the rights and remedies of the Collateral
      Agent under this Security
      Agreement in relation thereto.

     

     9.4
      The
      Collateral Agent's Duty of Care. Other
      than the exercise of reasonable
      care to assure the safe custody of the Collateral while being held by the
      Collateral Agent
      hereunder, the Collateral Agent shall have no duty or liability to preserve
      rights pertaining thereto,
      it being understood and agreed that the Company shall be responsible for
      preservation of all
      rights in the Collateral, and the Collateral Agent shall be relieved of all
      responsibility for the Collateral upon surrendering it or tendering the
      surrender of it to the Company. The Collateral Agent
      shall be deemed to have exercised reasonable care in the custody and
      preservation of the Collateral
      in its possession if the Collateral is accorded treatment substantially equal
      to
      that which
      the
      Collateral Agent accords its own property, which shall be no less than the
      treatment employed
      by a reasonable and prudent Collateral Agent in the industry, it being
      understood that the
      Collateral Agent shall not have responsibility for taking any necessary steps
      to
      preserve rights
      against any parties with respect to any of the Collateral.

     

     Article
      10. Application
      of Proceeds. In
      accordance with the terms of the Intercreditor Agreement,
      upon the occurrence and during the continuation of an Event of Default, the
      Proceeds
      and avails of the Collateral at any time received by the Collateral Agent shall,
      when received
      by the Collateral Agent in cash or its equivalent, be applied as follows: first,
      to all reasonable costs and expenses of the Collateral Agent (including without
      limitation reasonable

    attorneys'
      fees and expenses) incurred in connection with the implementation and/or
enforcement
      of this Security Agreement and/or any of the other Transaction Documents;
      second, to
      all
      costs and expenses of the Purchasers (including without limitation reasonable
      attorneys' fees
      and
      expenses) incurred in connection with the implementation and/or enforcement
      of
      this Security
      Agreement and/or any of the other Transaction Documents; third, to the principal
      amount
      of
      the Secured Obligations; fourth, to such of the Secured Obligations consisting
      of accrued but unpaid interest and fees; fifth, to all other amounts payable
      with respect to the Secured
      Obligations; and sixth, to the payment of the surplus, if any, to whoever may
      be
      lawfully entitled
      to receive such surplus. The Company shall remain liable to the Collateral
      Agent
      and the Purchasers
      for any deficiency.

    

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    Article
      11. Costs
      of Counsel. If
      at any
      time hereafter, whether upon the occurrence of an
      Event
      of Default or not, the Collateral Agent employs counsel to prepare or consider
      amendments, waivers or consents with respect to this Security Agreement, or
      to
      take action or make a response in or with respect to any legal or arbitral
      proceeding relating to this Security Agreement or relating to the Collateral,
      or
      to protect the Collateral or exercise any rights or remedies
      under this Security Agreement or with respect to the Collateral, then the
      Company agrees
      to
      promptly pay upon demand any and all such reasonable documented costs and
expenses
      incurred by the Collateral Agent or the Purchasers, all of which costs and
      expenses shall
      constitute Secured Obligations hereunder.

     

    Article
      12. Continuing
      Agreement. 

     

    12.1
      This
      Security Agreement shall be a continuing agreement in every respect and
      shall
      remain in full force and effect so long as the Securities Purchase Agreement
      and
      the Notes
      are
      in effect or any amounts payable thereunder or under any Note shall remain
      outstanding.
      Upon such payment and termination, this Security Agreement shall be automatically
      terminated and the Purchasers shall, upon the request and at the expense of
      the
Company,
      forthwith release all of its liens and security interests hereunder and shall
      execute and deliver
      all UCC termination statements and/or other documents reasonably requested
      by
      the Company
      evidencing such termination. Notwithstanding the foregoing all releases and
      indemnities
      provided hereunder shall survive termination of this Security
      Agreement.

     

    12.2
      This
      Security Agreement shall continue to be effective or be automatically
reinstated,
      as the case may be, if at any time payment, in whole or in part, of any of
      the
      Secured Obligations
      is rescinded or must otherwise be restored or returned by the Collateral Agent
      or any Purchaser
      as a preference, fraudulent conveyance or otherwise under any bankruptcy,
      insolvency or
      similar law, all as though such payment had not been made; provided
      that
      in
      the event payment of all or any part of the Secured Obligations is rescinded
      or
      must be restored or returned, all reasonable costs and expenses (including
      without limitation any reasonable legal fees
      and
      disbursements) incurred by the Collateral Agent or any Purchaser in defending
      and enforcing
      such reinstatement shall be deemed to be included as a part of the Secured
      Obligations.

     

    Article
      13. Amendments;
      Waivers; Modifications. This
      Security Agreement and the provisions
      hereof may not be amended, waived, modified, changed, discharged or terminated
      except with the written consent of the Required Holders.

     

    Article
      14. Successors
      in Interest. This
      Security Agreement shall create a continuing security
      interest in the Collateral and shall be binding upon the Company, its successors
      and assigns
      and shall inure, together with the rights and remedies of the Collateral Agent
      and the Purchasers
      hereunder, to the benefit of the Collateral Agent and the Purchasers and their
      successors
      and permitted assigns; provided, however, the Company may not assign its rights
      or delegate
      its duties hereunder without the prior written consent of the Collateral Agent.
      To the fullest
      extent permitted by law, the Company hereby releases the Collateral Agent and
      each Purchasers, and its successors and permitted assigns, from any liability
      for any act or omission relating
      to this Security Agreement or the Collateral, except for any liability arising
      from the gross negligence or willful misconduct of the Collateral Agent, or
      such
      Purchasers, or its officers,
      employees or Collateral Agents.

    

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    Article
      15.
      Notices.
      All
      notices required or permitted to be given under this Security Agreement
      shall be in conformance with Section 12.6 of the Securities Purchase
      Agreement.

     

    Article
      16.
      Counterparts.
      This
      Security Agreement may be executed in any number of
      counterparts, each of which where so executed and delivered shall be an
      original, but all of which
      shall constitute one and the same instrument. It shall not be necessary in
      making proof of this
      Security Agreement to produce or account for more than one such
      counterpart.

     

    Article
      17.
      Headings.
      The
      headings of the sections and subsections hereof are provided
      for convenience only and shall not in any way affect the meaning or construction
      of any provision
      of this Security Agreement.

     

    Article
      18.
      Governing
      Law; Jurisdiction; Jury Trial. All
      questions concerning the construction, validity, enforcement and interpretation
      of this Security Agreement shall be governed
      by the internal laws of the State of New York, without giving effect to any
      choice of law or conflict of law provision or rule (whether of the State of
      New
      York or any other jurisdictions)
      that would cause the application of the laws of any jurisdictions other than
      the
State
      of
      New York. Each party hereby irrevocably submits to the exclusive jurisdiction
      of
      the state
      and
      federal courts sitting in the City of New York, Borough of Manhattan for the
      adjudication
      of any dispute hereunder or in connection herewith or with any transaction
      contemplated
      hereby or discussed herein, and hereby irrevocably waives, and agrees not to
      assert in any suit, action or proceeding, any claim that it is not personally
      subject to the jurisdiction of any
      such
      court, that such suit, action or proceeding is brought in an inconvenient forum
      or that the
      venue
      of such suit, action or proceeding is improper. Each party hereby irrevocably
      waives personal
      service of process and consents to process being served in any such suit, action
      or proceeding
      by mailing a copy thereof to such party at the address for such notices to
      it
      under this Security
      Agreement and agrees that such service shall constitute good and sufficient
      service of process
      and notice thereof. Nothing contained herein shall be deemed to limit in any
      way
      any right
      to
      serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
      WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST,
      A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
      IN
      CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
      HEREBY.

     

    Article
      19.
      Severability.
      If
      any
      provision of this Security Agreement is determined to be
      illegal, invalid or unenforceable, such provision shall be fully severable
      and
      the remaining provisions shall remain in full force and effect and shall be
      construed without giving effect to the illegal,
      invalid or unenforceable provisions.

     

    Article
      20.
      Entirety.
      This
      Security Agreement and the other Transaction Documents represent
      the entire agreement of the parties hereto and thereto, and supersede all prior
      agreements
      and understandings, oral or written, if any, including any commitment letters
      or
correspondence
      relating to the Notes or the transactions contemplated herein and
      therein.

     

    Article
      21.
      Survival.
      All
      representations and warranties of the Company hereunder shall
      survive the execution and delivery of this Security Agreement and the other
      Transaction Documents,
      the delivery of the Notes.

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    Article
      22. Other
      Security. To
      the
      extent that any of the Secured Obligations are now or
      hereafter secured by property other than the Collateral (including, without
      limitation, real property
      and securities owned by the Company), or by a guarantee, endorsement or property
      of any
      other
      Person, then the Collateral Agent and the Purchasers shall have the right to
      proceed against such other property, guarantee or endorsement upon the
      occurrence and during the continuance
      of any Event of Default (unless waived or cured in accordance with the Notes),
      and the
      Collateral Agent and the Purchasers have the right, in their sole discretion,
      to
      determine which rights, security, liens, security interests or remedies the
      Collateral Agent and the Purchasers
      shall at any time pursue, relinquish, subordinate, modify or take with respect
      thereto, without
      in any way modifying or affecting any of them or any of the Collateral Agent's
      and the Purchasers'
      rights or the Secured Obligations under this Security Agreement, under any
      other
      of the
      Transaction Documents.

     

    Article
      23. Rights
      of Required Holders. All
      rights of the Collateral Agent hereunder, if
      not
      exercised by the Collateral Agent, may be exercised by the Required
      Holders.

     

     

     

     

     

    [Remainder
      of page intentionally left blank.]

     

     

     

     

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    Each
      of
      the parties hereto has caused a counterpart of this Security Agreement to be
      duly executed and delivered as of the date first above written.

     

     

    COMPANY:

     

     

    
      	 	 	 
	 	VERUTEK
              TECHNOLOGIES, INC.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
              

            
	 	Title 

    

     

    
      
        COLLATERAL
          AGENT:
          

      

       

      
        	 	 	 
	 	
                NITE
                  CAPITAL MASTER, LTD, as
                  Collateral Agent

              
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

              
	 	Title 

      

    

     

     

    
      [Signature
        Page to Security Agreement]

    

     

     

    
       

      
        20

        
          

        

      

      
         

      

    

     

    Each
      of
      the parties hereto has caused a counterpart of this Security Agreement to
be
      duly
executed
      and delivered as of the date first above written.

     

    
       

      COMPANY:

       

       

      
        	 	 	 
	 	VERUTEK
                TECHNOLOGIES, INC.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

              
	 	Title 

      

       

      
        
          COLLATERAL
            AGENT:
            

        

         

        
          	 	 	 
	 	
                  NITE
                    CAPITAL MASTER, LTD, as
                    Collateral Agent

                
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                  

                
	 	Title 

        

      

       

       

       

      
        [Signature
          Page to Security Agreement]Unassociated Document

     

    CONSULTING
      AGREEMENT

     

    

     

    THIS
      AGREEMENT
      made and
      dated for reference the  1st
      day
      of
      January 2007.
      

    

    
      	 BETWEEN: 	 	TRADE SHOW MARKETING COMPANY
              LTD 	 
	 	 	
               4550
                E Cactus Rd, Ste. 220

              Phoenix,
                AZ

              USA
                85032-7718

              (the
                "Company")

            	 

    

     

    
      OF
      THE
      FIRST PART

    

    
      	 AND: 	 	Tim McCarthy	 
	 	 	Fountain
              Hills, AZ	 
	 	 	(the
              "Consultant")	 

    

    

      OF
        THE
        SECOND PART

    

     

    

    	A.  	
            The
              Company wishes to develop a franchise model for the operation of retail
              stores providing to the general public products that have been advertised
              on television as well as other ancillary and related products and services
              (the “Business”);

          

    

    	B.  	
            The
              Consultant is in the business of providing franchise services,
              and

          

    

    C. The
      Company is
      desirous of retaining the Consultant to provide consulting services in
      connection with the Business of the Company in
      accordance with the terms and conditions of this agreement (the
“Agreement”).

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    NOW
      THEREFORE THIS AGREEMENT WITNESSES
      that in
      consideration of the premises and mutual covenants herein contained, the parties
      hereto agree as follows:

    

    ARTICLE
      ONE -- CONSULTING SERVICES

     

    1.1 Retainer.
      The
      Company hereby agrees to retain the Consultant to provide the Company with
      consulting services consisting of the following and such other consulting
      services as the Company and the Consultant may from time to time agree upon,
      (the "Services") and the Consultant hereby agrees to provide such Services
      to
      the Company:

    

    	(a)  	
            Advise
              the Company as to the best way of structuring the franchise corporate
              entity in terms of regulatory acceptance, limitation of liability,
              financial disclosure requirements, trademark usage, future spin-off
              possibilities, and Provincial and State regulatory
              requirements;

          

    	(b)  	
            Assist
              the Company with the applications for its trademarks in America and
              the
              US;

          

    	(c)  	
            Advise
              the Company on the structure and level of initial license fees, ongoing
              fees, renewal fees and assignment fees, site selection criteria, and
              territorial considerations; 

          

    	(d)  	
            Provide
              the Company with recommendations regarding the organizational structure
              of
              the franchisor;

          

    	(e)  	
            Develop
              a franchise agreement and area representative agreement which reflect
              the
              recommended business model and provides the strong enforceable controls
              necessary to achieve a successful franchise
              program;

          

    	(f)  	
            Provide
              ancillary documentation as required such as: offer to purchase/deposit
              agreement, franchise application report, confidentiality/non-disclosure
              agreement, sub-lease, and conditional assignment of
              lease;

          

    	(g)  	
            Draft
              a Uniform Offering Circular (“UFOC”) that complies with the provisions of
              the Federal Trade Commission’s requirements for franchise
              offerings;

          

    	(h)  	
            Develop
              a pre-opening manual and operations/ policy and procedures
              manual;

          

    	(i)  	
            Develop
              a franchisee Proforma template and business plan template for potential
              franchisees;

          

    	(j)  	
            Identify
              possible additional future revenue
              streams;

          

    	(k)  	
            Advise
              the Company on the structure of an initial training program for new
              franchisees;

          

    	(l)  	
            Design
              management information systems to evaluate the performance of the
              franchisee’s particular business in relationship to other similar
              franchises in the system; 

          

    	(m)  	
            Develop
              materials to explain the franchise model and sell the Company’s franchise
              opportunity to qualified prospects;

          

    	(n) 	 Serve
            on the Company’s Board.

     

    
 

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    1.2 Term
      of Agreement.
      This
      Agreement shall remain in full force and effect commencing on the date first
      above written subject to earlier termination as hereinafter provided.

     

    1.3Provision
      of Services.
      It is
      agreed and acknowledged that the Consultant will not provide services to other
      persons, firms or companies and that the Consultant shall at no time while
      this
      Agreement remains in force provide consultancy services to any competitor of
      the
      Company that is not an affiliate of the Company. 

     

    1.4Board
      Policy and Instructions.
      The
      Consultant covenants with the Company that it will act in accordance with any
      policy of and carry out all reasonable instructions of the board of directors
      of
      the Company. The Consultant acknowledges that such policies and instructions
      may
      limit, restrict or remove any power or discretion, which might otherwise have
      been exercised by the Consultant.

     

    1.5Compensation.
      In
      consideration for the services rendered by the Consultant, the Company shall
      pay
      to the Consultant consulting fees in the sum of seventy thousand ($70,000.00)
      dollars and shares, which shall be paid as follows:

    

    (a) Upon
      execution of this Agreement  - 100,000
      Shares Monthly,
      (paid on the 30th
      of each
      month) $5834.00
      

    

     

    Note:
      Compensation does not include additional costs associated with graphic design,
      website development, printing of manuals, trademark applications or trademark
      registrations. 

    

    ARTICLE
      TWO - CONFIDENTIALITY AND NON-COMPETITION

    

    2.1 Confidential
      Information.
      The
      Consultant covenants and agrees that it shall not disclose to anyone any
      confidential information with respect to the business or affairs of the Company
      except as may be necessary or desirable to further the business interests of
      the
      Company. This obligation shall survive the expiry or termination of this
      Agreement.

    

    2.2 Return
      of Property.
      Upon
      expiry or termination of this Agreement the Consultant shall return to the
      Company any property, documentation, or confidential information which is the
      property of the Company.

    

    2.3 Promotion
      of Company's Interests.
      The
      Consultant agrees to perform the services contemplated by this Agreement to
      the
      best of the Consultant’s abilities.

    

    ARTICLE
      THREE - TERMINATION

    

    3.1 Termination
      of Agreement.
      This
      Agreement will, subject to the provisions of this Agreement, be deemed to be
      terminated immediately for cause. 

    

    3.2  Definition
      of Cause.
      For the
      purposes of this Agreement, “cause” means: (i) the Consultant breaches its
      obligations under article 3 of this Agreement; or (ii) the existence of cause
      for termination of this Agreement at common law resulting from any recognized
      ground of termination for cause, including but not limited to fraud, dishonesty,
      illegality, breach of statute or regulation, conflict of interest, or gross
      incompetence; or (iii) if the Consultant breaches any other obligation under
      this Agreement and fails to rectify such breach upon provision of written notice
      to do so by the Company.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    3.3  Compensation
      for Cause.
      In the
      event of a termination for cause, the Consultant will receive payment of any
      consulting fees earned to the date of termination.

    

    ARTICLE
      FOUR - CAPACITY

    

    4.1 Capacity
      of Consultant. It
      is
      acknowledged by the parties hereto that the Consultant is being retained by
      the
      Company in the capacity of independent contractor and not as an employee of
      the
      Company. The Consultant and the Company acknowledge and agree that this
      Agreement does not create a partnership or joint venture between
      them.

    

    

    ARTICLE
      FIVE - GENERAL CONTRACT PROVISIONS

    

    5.1 Severability.
      If any
      provision herein is determined to be invalid or unenforceable by a court of
      competent jurisdiction from which no further appeal lies or is taken, that
      provision shall be deemed to be severed herefrom, and the remaining provisions
      herein shall not be affected thereby and shall remain valid and
      enforceable. 

    

    5.2  Further
      Assurances.
      The
      parties shall deliver to each other such further documentation and shall perform
      such further acts as and when the same may be required to carry out and give
      effect to the terms and intent of this Agreement. 

    

    5.3  Time
      of the Essence.
      Time
      shall be of the essence of this Agreement and of every part hereof and no
      extension or variation of this Agreement shall operate as a waiver of this
      provision.

    

    5.4  Prompt
      Review of Information. 
      The
      principals of the Company will be available and will perform a prompt review
      of
      any information that is pertinent to the timely completion of this Agreement.
      

    

    5.5  Entire
      Agreement.
      This
      Agreement contains the entire agreement among the parties pertaining to the
      subject matter hereof, and supersedes and replaces all previous written and
      oral
      agreements among the parties with respect to the subject matter
      hereof.

    

    5.6  Enurement.
      This
      Agreement shall enure to the benefit of and be binding upon the parties and
      their respective legal personal representatives, heirs, executors,
      administrators or successors.

    

    5.7  Assignment.
      This
      Agreement is not assignable by either party without the prior written consent
      of
      the other party. 

    

    5.8  Currency.
      Unless
      otherwise provided for herein, all monetary amounts referred to herein shall
      refer to the lawful money of America. 

    

    5.9  Headings
      for Convenience Only.
      The
      division of this Agreement into articles and sections is for convenience of
      reference only and shall not affect the interpretation or construction of this
      Agreement. 

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    5.10  Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Arizona and the federal laws of America applicable therein and each
      of
      the parties hereto agrees irrevocably to conform to the non-exclusive
      jurisdiction of the Courts of such state.

     

    IN
      WITNESS WHEREOF
      the
      parties have duly executed this Consulting Agreement as of the date set out
      on
      the first page of this Agreement.

    

    TRADE
      SHOW MARKETING COMPANY

    

    /s/
      Peggie-Ann Kirk

    
      
        

      

    

    Authorized
      Signatory

    

    

    TIM
      MCCARTHY

     

    /s/
      Timothy McCarthy 

    
      
Authorized
      Signatory

    

    Date:
      January 1, 2007

     

     

    5

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