Document:

EXHIBIT 10.4

 

ESCROW AGREEMENT

 

THIS ESCROW AGREEMENT (this “Agreement”) is made and entered into as of
the 31st day of August, 2005, by and among INLAND AMERICAN REAL ESTATE TRUST, INC., a Maryland
corporation (the “Company”), INLAND
SECURITIES CORPORATION, a Delaware corporation (the “Dealer Manager”)
and LASALLE BANK NATIONAL ASSOCIATION,
a national banking association (the “Escrow Agent”).

 

1.                                       The Company does hereby open this escrow and
Escrow Agent’s sole concern and duties shall be as specifically set forth
herein:  From time to time during the
course of this escrow, in connection with the Company’s offering (the “Offering”)
of up to 500,000,000 shares of common stock on a “best efforts” basis (the “Shares”)
(exclusive of Shares offered and sold pursuant to the Company’s distribution
reinvestment plan), Escrow Agent will receive from subscribers deposits to be
held in escrow in accordance with the terms hereof. All such funds received by
Escrow Agent shall be placed into an interest-bearing account entitled “Inland
American Real Estate Trust, Inc. Subscription Account” (the “Escrow
Account”).

 

2.                                       All deposits from each subscriber shall be
accompanied by the subscriber name, social security number, current address and
investment amount.

 

3.                                       Checks deposited in the Escrow Account from the
various subscribers shall be made payable to “LBNA/Escrow Agent for IARETI.”

 

4.                                       All parties understand and are aware that all
funds received during the course of the escrow and deposited in the Escrow
Account must clear the normal banking channels prior to the release of any
funds.

 

5.                                       The Company understands that it is not entitled to
any funds received into escrow in the event of cancellation of the Offering and
in such event, deposits shall be returned to the subscribers.

 

6.                                       The parties agree that this is an impound escrow
between the Company, the Dealer Manager and the Escrow Agent. The Company and
the Dealer Manager agree that the subscribers who deposit into the Escrow
Account are not a party to this escrow.

 

7.                                       All documents, including any instrument necessary
for the negotiation or other transfer of escrow assets, deposited
simultaneously with the execution of this Agreement are approved by the
Company, and the Escrow Agent shall not be obligated to inquire as to the form,
manner of execution or validity of these documents or any document hereafter
deposited pursuant to the provisions hereof, nor shall the Escrow Agent be
obligated to inquire as to the identity, authority or rights of the persons
executing the same. The Escrow Agent shall be liable under this Agreement only
for its gross negligence or willful misconduct in the performance of its duties
expressly set forth in this Agreement. The Escrow Agent shall have a lien on
all securities, monies and documents deposited in this escrow by each
subscriber to secure Escrow Agent’s reasonable compensation and expenses and
for judgments, attorneys’ fees and other liabilities which the Escrow Agent may
incur or sustain by reason of this escrow, and the undersigned agrees to pay to
Escrow Agent, upon demand, amounts to satisfy all such liabilities, fees and
expenses. In case of conflicting demands upon it, the Escrow Agent may withhold

 

 

performance of this escrow until such time as the conflicting demands
shall have been withdrawn or the rights of the respective parties shall have
been settled by court adjudication, arbitration, joint order or otherwise.

 

8.                                       Until the termination of the Offering, the Company
shall notify the Escrow Agent of the Company’s acceptance or rejection of each
subscription agreement as promptly as practicable, but in any event within ten (10) days
of its receipt, and of any subscription which is rescinded within five (5) days
of such rescission. If the Escrow Agent receives notice that a subscription is
rejected by the Company, the subscriber’s deposit will be returned by the
Escrow Agent to the subscriber, without interest or deduction, as promptly as
practicable, but in any event within ten (10) days after its receipt of
notice from the Company that the subscription has been rejected. If a
subscription is rescinded, the Escrow Agent shall return to the subscriber the
subscriber’s deposit, without interest or deduction, within seven (7) days
of being notified by the Company of such rescission. In the event the check of
a subscriber whose subscription has been rescinded has been negotiated (and if
the funds represented thereby have been disbursed to the Company), the Company
shall deposit with the Escrow Agent an amount of funds equal to the amount
necessary to be returned to the subscriber (or the Escrow Agent may deduct such
amount from any funds due to the Company under this Agreement). The Escrow
Agent shall not be liable for the failure to return a rejected or rescinded
subscription if the Company fails to notify the Escrow Agent of the rejection
of rescission of the corresponding subscription agreement.

 

9.                                       Commencing with the date paid subscriptions have
been received and accepted for at least 200,000 Shares or $2,000,000 (the “Minimum
Offering”), provided such date is within one (1) year of the original
effective date of the Company’s prospectus (such original effective date of the
Company’s prospectus being the “Effective Date”), and ending on the Termination
Date (the “Offering Period”), the Escrow Agent shall:

 

(a)                                  disburse
to the Company on a weekly basis any funds received by the Escrow Agent for
accepted subscriptions (but not those funds of a subscriber whose subscription
has been rejected or rescinded of which the Escrow Agent has been notified by
the Company, or otherwise in accordance with the Company’s written request, and

 

(b)                                 subject
to Section 10 hereof, invest any funds held in the escrow in such
instruments as the Company may direct.

 

Upon termination of the Offering, which shall occur not later than twelve
(12) months after the Effective Date, provided however that, subject to
requalification in certain states, the Company may extend the Offering Period
from time to time, but in no event more than two years after the Effective Date
(the “Termination Date”), all amounts theretofore undistributed shall be
distributed to the Company, and this escrow shall close and be consummated in
its entirety. If subscriptions for at least the Minimum Offering have not been
received, accepted and paid for within one (1) year of the Effective Date,
all funds received will be promptly returned in full to subscribers, together
with their pro rata share of any interest earned thereon pursuant to
instructions made by the Company, upon which the Escrow Agent may conclusively
rely. If such refund is made, Inland Real Estate Investment Corporation, an
affiliate of the Dealer Manager, will pay any escrow fees.

 

2

 

10.                                 The funds deposited herein shall be invested in
federally insured bank accounts (e.g., savings
accounts), short-term certificates of deposit issued by a bank, short-term
securities issued or guaranteed by the United States government and any other
investments permitted under Rule 15c2-4 of the Securities Exchange Act of
1934, as amended, at the direction of the Company. The interest on such
investments shall, on a monthly basis while subscribers’ deposits remain in
escrow and, if all conditions herein are met, when such deposits are disbursed
to the Company, be disbursed by the Escrow Agent to the Company in accordance
with Section 9 hereof.

 

11.                                 The Company agrees to disburse to the Dealer
Manager any funds due to it for the Offering in accordance with the terms and
conditions of the Dealer Manager Agreement dated August 29, 2005 between
the Company and the Dealer Manager, provided that the Escrow Agent has
disbursed to the Company the funds due to the Company for the related
subscriptions. The Dealer Manager shall assist the Company in connection with
the Company’s compliance with this Agreement. The Dealer Manager shall not have
any lien on or security interest in any securities, monies or documents
deposited in this escrow.

 

12.                                 Any notices which are required or desired to be
given hereunder to the parties hereto shall be in writing and may be given by
mailing the same to the address indicated below (or to such other address as
either of the parties may have theretofore substituted therefor by written
notification to the other party hereto), by registered or certified United
States mail, postage prepaid. For all purposes hereof, any notice so mailed by
the Escrow Agent shall be treated as though served upon the party to whom it
was mailed at the time it is deposited in the United States mail by the Escrow
Agent whether or not such party thereafter actually receives such notice.
Notices to the Escrow Agent shall be in writing and shall not be deemed to be
given until actually received by the Escrow Agent’s trust department. Whenever
under the terms hereof the time for giving a notice or performing an act falls
upon a Saturday, Sunday or bank holiday, such time shall be extended to the
Escrow Agent’s next business day.

 

13.                                 The Escrow Agent, when acting as the Escrow Agent hereunder,
undertakes to perform only such duties as are expressly set forth herein and
the Escrow Agent shall not be subject to, nor obliged to recognize, any other
agreement between, or direction or instruction of, the Company even though
reference thereto may be made herein; provided, however, this Agreement may be
amended at any time or times by an instrument in writing signed by the Company,
the Dealer Manager and Escrow Agent. In the event the Escrow Agent becomes
involved in or is threatened with litigation by reason hereof, it is hereby
authorized to and may deposit with the clerk of a court of competent
jurisdiction any and all funds held by it pursuant hereto, and thereupon the
Escrow Agent shall stand fully relieved and discharged of any further duties
hereunder.

 

14.                                 If any property subject hereto is at any time
attached, garnished or levied upon, under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property
shall be stayed or enjoined by any court order, or in any case any order,
judgment or decree shall be made or entered by any court affecting such
property, or any part thereof, then in any of such events, the Escrow Agent is
authorized, in its sole discretion, to rely upon and comply with any such
order, writ, judgment or decree, which it is advised by legal counsel of its
own choosing is binding upon it, and if it complies with any such order, writ,

 

3

 

judgment or decree, it shall not be liable to any of the parties hereto
or to any other person, firm or corporation by reason of such compliance, even
though such order, writ, judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.

 

15.                                 This Agreement shall be construed, enforced and
administered in accordance with the internal laws, as opposed to the conflicts
of laws provisions, of the State of Illinois.

 

16.                                 The Escrow Agent shall be entitled to reasonable
fees in connection with this Escrow, which fees shall be payable by the
Company.

 

17.                                 The Escrow Agent may resign at any time upon
giving at least thirty (30) days’ prior written notice to the Company;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
The Company shall use its best efforts to select a successor escrow agent
within thirty (30) days after receiving such notice. If the Company fails to
appoint a successor escrow agent within such time, the Escrow Agent shall have
the right to appoint a successor escrow agent. The successor escrow agent shall
execute and deliver an instrument accepting such appointment and it shall,
without further acts, be vested with all the estates, properties, rights,
powers, and duties of the predecessor escrow agent as if originally named as
escrow agent. Upon delivery of such instrument, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement. The
Escrow Agent shall be paid any outstanding fees and expenses prior to
transferring assets to a successor escrow agent.

 

18.                                 Any notice required to be given hereunder by any
of the parties hereto shall be addressed as follows:

 

	
  If to the
  Company:

  	
   

  	
  Inland American Real Estate Trust, Inc.

  2901 Butterfield Road

  Oak Brook, IL  60523  

  
	
   

  	
   

  	
  Attention:

  	
  Ms. Roberta S. Matlin  

  
	
   

  	
   

  	
  Telephone:

  	
  (630) 218-8000  

  
	
   

  	
   

  	
  Facsimile:

  	
  (630) 218-4955

  
	
   

  	
   

  	
   

  
	
  If to the
  Dealer Manager:

  	
   

  	
  Inland Securities Corporation

  2901 Butterfield Road

  Oak Brook, IL  60523

  
	
   

  	
   

  	
  Attention:

  	
  Ms. Brenda G. Gujral  

  
	
   

  	
   

  	
  Telephone:

  	
  (630) 218-8000  

  
	
   

  	
   

  	
  Facsimile:

  	
  (630) 218-4955

  

 

4

 

	
  If to
  Escrow Agent:

  	
  LaSalle Bank National Association

  Corporate Trust Department

  135 South LaSalle Street

  Chicago, IL  60603

  
	
   

  	
  Attention:

  	
  Mark Loiacono

  
	
   

  	
  Telephone:

  	
  (312) 904-2931

  
	
   

  	
  Facsimile:

  	
  (312) 904-2236

  

 

19.                                 The foregoing is subject to the following
conditions:

 

(a)                                  The
obligations and duties of the Escrow Agent are confined to those specifically
enumerated in the escrow instructions. The Escrow Agent shall not be subject
to, nor be under any obligation to ascertain or construe the terms and
conditions of any other instrument, whether or not now or hereafter deposited
with or delivered to the Escrow Agent or referred to in the escrow instructions,
nor shall the Escrow Agent be obligated to inquire as to the form, execution,
sufficiency, or validity of any such instrument nor to inquire as to the
identity, authority, or rights of the person or persons executing or delivering
the same.

 

(b)                                 The
Escrow Agent shall not be personally liable for any act which it may do or omit
to do hereunder in good faith and in the exercise of its own best judgment. Any
act done or omitted by the Escrow Agent pursuant to the advice of its attorneys
shall be deemed conclusively to have been performed or omitted in good faith by
the Escrow Agent.

 

(c)                                  If
the Escrow Agent should receive or become aware of any conflicting demands or
claims with respect to this Agreement, or the rights of any of the parties
hereto, or any money, property, or instruments deposited herein or affected
hereby, the Escrow Agent shall have the right in its sole discretion, without
liability for interest or damages, to discontinue any or all further acts on
its part until such conflict is resolved to its satisfaction and/or to commence
or defend any action or proceeding for the determination of such conflict.
Notwithstanding any other provision hereof, in the event of any dispute,
disagreement or legal action relating to or arising in connection with the
escrow, the Escrow Fund, or the performance of the Escrow Agent’s duties under
this Agreement, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and funds and may wait for settlement of any such controversy by
final appropriate legal proceedings, arbitration, or other means as, in the
Escrow Agent’s discretion, it may require. In such event, the Escrow Agent will
not be liable for interest or damage. Furthermore, the Escrow Agent may, at its
option, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves. The Escrow Agent is
authorized, at its option, to deposit with the Court in which such interpleader
action is filed all documents and funds held in escrow. The Escrow Agent is
further authorized to withhold from such deposit for its own account an amount
sufficient to compensate itself for all costs, expenses, charges, and
reasonable attorneys’ fees incurred by it due to the interpleader action. Upon
initiating such action, the Escrow Agent shall be fully released

 

5

 

and discharged of and from all
obligations and liability imposed by the terms of this Agreement.

 

(d)                                 The
Company and Dealer Manager agree, jointly and severally, to indemnify and hold
the Escrow Agent, its officers, directors and employees harmless from and
against all costs, damages, judgments, attorney’s fees (whether such attorneys
shall be regularly retained or specially employed), expenses, obligations and
liabilities of every kind and nature which the Escrow Agent may incur, sustain,
or be required to pay in connection with or arising out of this Agreement, and
to pay the Escrow Agent on demand the amount of all such costs, damages,
judgments, attorney’s fees, expenses, obligations, and liabilities. To secure
said indemnification and to satisfy its compensation hereunder, the Escrow
Agent is hereby given a first lien upon and the right to reimburse itself
therefor out of, all of the rights, titles, and interests of each of said
parties in all money, property, and instruments deposited hereunder, except for
any money, property or instruments that relate to money received that must be
returned pursuant to the provisions of the second to last sentence of Section 9.

 

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

6

 

IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement as of the day and year first above written.

 

	
   

  	
  INLAND AMERICAN REAL ESTATE TRUST, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brenda
  G. Gujral

  	
   

  
	
   

  	
  Name:

  	
  Brenda G.
  Gujral

  	
   

  
	
   

  	
  Its:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INLAND SECURITIES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Roberta
  S. Matlin

  	
   

  
	
   

  	
  Name:

  	
  Roberta S.
  Matlin

  	
   

  
	
   

  	
  Its:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LASALLE BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John W.
  Porter

  	
   

  
	
   

  	
  Name:

  	
  John W.
  Porter

  	
   

  
	
   

  	
  Its:

  	
  Vice
  PresidentExhibit
10.23

 

SECURITY AGREEMENT

 

LAURUS MASTER FUND, LTD.

 

STONEPATH GROUP, INC.

 

and

 

EACH COMPANY SET FORTH ON EXHIBIT A HERETO

 

Dated: August 31, 2005

 

 

 

TABLE OF
CONTENTS

 

	
  1.

  	
  General
  Definitions and Terms; Rules of Construction

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Loan Facility

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Repayment of
  the Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Procedure for
  Loans

  	
   

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Interest and
  Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Security
  Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Representations,
  Warranties and Covenants Concerning the Collateral

  	
   

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Payment of Accounts

  	
   

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Collection
  and Maintenance of Collateral

  	
   

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Inspections
  and Appraisals

  	
   

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Financial
  Reporting

  	
   

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Additional
  Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Further
  Assurances

  	
   

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Representations,
  Warranties and Covenants of Laurus

  	
   

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Power
  of Attorney

  	
   

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Term
  of Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Termination
  of Lien

  	
   

  
	
   

  	
   

  	
   

  
	
  19.

  	
  Events
  of Default

  	
   

  
	
   

  	
   

  	
   

  
	
  20.

  	
  Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  21.

  	
  Waivers

  	
   

  
	
   

  	
   

  	
   

  
	
  22.

  	
  Expenses

  	
   

  
	
   

  	
   

  	
   

  
	
  23.

  	
  Assignment By Laurus

  	
   

  

 

i

 

	
  24.

  	
  No Waiver;
  Cumulative Remedies

  	
   

  
	
   

  	
   

  	
   

  
	
  25.

  	
  Application of Payments

  	
   

  
	
   

  	
   

  	
   

  
	
  26.

  	
  Indemnity

  	
   

  
	
   

  	
   

  	
   

  
	
  27.

  	
  Revival

  	
   

  
	
   

  	
   

  	
   

  
	
  28.

  	
  Borrowing Agency
  Provisions

  	
   

  
	
   

  	
   

  	
   

  
	
  29.

  	
  Notices

  	
   

  
	
   

  	
   

  	
   

  
	
  30.

  	
  Governing
  Law, Jurisdiction and Waiver of Jury Trial

  	
   

  
	
   

  	
   

  	
   

  
	
  31.

  	
  Limitation of Liability

  	
   

  
	
   

  	
   

  	
   

  
	
  32.

  	
  Entire
  Understanding; Maximum Interest

  	
   

  
	
   

  	
   

  	
   

  
	
  33.

  	
  Severability

  	
   

  
	
   

  	
   

  	
   

  
	
  34.

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  
	
  35.

  	
  Captions

  	
   

  
	
   

  	
   

  	
   

  
	
  36.

  	
  Counterparts;
  Telecopier Signatures

  	
   

  
	
   

  	
   

  	
   

  
	
  37.

  	
  Construction

  	
   

  
	
   

  	
   

  	
   

  
	
  38.

  	
  Publicity

  	
   

  
	
   

  	
   

  	
   

  
	
  39.

  	
  Joinder

  	
   

  
	
   

  	
   

  	
   

  
	
  40.

  	
  Legends

  	
   

  

 

ii

 

SECURITY AGREEMENT

 

This Security Agreement is made as of August 31,
2005 by and among LAURUS MASTER FUND, LTD., a Cayman Islands corporation (“Laurus”),
STONEPATH GROUP, INC., a Delaware corporation (the “Parent”), and each
party listed on Exhibit A attached hereto (each an “Eligible
Subsidiary” and collectively, the “Eligible Subsidiaries”) the
Parent and each Eligible Subsidiary, each a “Company” and collectively,
the “Companies”).

 

BACKGROUND

 

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

 

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

 

AGREEMENT

 

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

 

1.                                       General Definitions and
Terms; Rules of Construction.

 

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

 

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

 

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

 

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

 

 

schedules, disclosure schedules, exhibits, and attachments shall refer
to the corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to this Agreement.  All
references to any instruments or agreements, including references to any of
this Agreement or the Ancillary Agreements shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof.

 

2.                                       Loan Facility.

 

(a)                                  Loans.

 

(i)                                     Subject
to the terms and conditions set forth herein and in the Ancillary Agreements,
Laurus shall, so long as no Event of Default shall have occurred and then be
continuing, make loans (the “Loans”) to Companies from time to time
during the Term which, in the aggregate at any time outstanding, will not
exceed the lesser of (x) (I) the Capital Availability Amount minus (II)
such reserves as Laurus may reasonably in its good faith judgment deem proper
and necessary from time to time (the “Reserves”) (including, without
limitation, reserves with respect to (i) sums that the Companies are
required to pay (such as taxes, assessments, insurance premiums, or, in the
case of leased assets, rents or other amounts payable under such leases) and
have failed to pay under any Section of this Agreement or any other
Ancillary Agreement, (ii) amounts owing by the Companies or their
Subsidiaries to any Person to the extent secured by a Lien on, or trust over,
any of the Collateral, (such as Liens or trusts in favor of landlords,
warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or
Liens or trusts for ad valorem,
excise, sales, or other taxes) or (iii) any deterioration in the financial
condition or credit quality of any Account Debtor), and (y) an amount equal to
(I) the Accounts Availability minus (II) the Reserves.  The amount derived at any time from Section 2(a)(i)(y)(I)
minus 2(a)(i)(y)(II) shall be referred to as the “Formula Amount.”  The Companies shall, jointly and severally,
execute and deliver to Laurus on the Closing Date the Revolving Note and a
Minimum Borrowing Note evidencing the Loans funded on the Closing Date.  From time to time thereafter, the Companies
shall jointly and severally execute and deliver to Laurus immediately prior to
the final funding of each additional $10,000,000 tranche of Loans allocated to
any Minimum Borrowing Note issued after the date hereof (calculated on a
cumulative basis for each such tranche) a new Minimum Borrowing Note evidencing
such tranche, substantially in the form of the Minimum Borrowing Note delivered
by the Companies to Laurus on the Closing Date, except that the fixed
conversion price applicable to such new Minimum Borrowing Note shall be
determined based upon an amount equal to 115% of the average closing price of
the Common Stock for the ten (10) trading days immediately prior to the
date of the new Minimum Borrowing Note (the “New Minimum Borrowing Note Date”) but
in no event greater than 120% of the closing price of the Common Stock on the
New Minimum Borrowing Note Date. 
Notwithstanding anything herein to the contrary, whenever during the
Term the outstanding balance on the Minimum Borrowing Note shall be less than
the Minimum Borrowing Amount (such amount being referred to herein as the “Transferable
Amount”) to the extent that the outstanding balance on the Revolving Note
should equal or exceed $1,000,000, that portion of the balance of the Revolving
Note that exceeds $1,000,000, but does not exceed the Transferable Amount,
shall be segregated from the outstanding balance under the Revolving Note and
allocated to and aggregated with the then existing balance of the next unissued
serialized Minimum Borrowing Note (the “Next Unissued Serialized Note”);
provided that such segregated amount shall remain subject to the terms and
conditions of such Revolving Note until

 

2

 

a new serialized Minimum Borrowing Note is issued as set forth
below.  The Next Unissued Serialized Note
shall remain unissued and in book entry form until the balance thereunder shall
equal the Minimum Borrowing Amount, at which time a new serialized Minimum
Borrowing Note in the face amount equal to the Minimum Borrowing Amount will be
issued, the Common Stock into which the new Minimum Borrowing Note is
convertible will be registered as set forth in the Registration Rights
Agreement, the outstanding balance under the Revolving Note shall at such time
be correspondingly reduced in the amount equal to the Minimum Borrowing Amount
as a result of the issuance of such new serialized Minimum Borrowing Note and
the prior Minimum Borrowing Note shall be surrendered by Laurus to the Company
Agent for cancellation.

 

(ii)                                  Notwithstanding
the limitations set forth above, if requested by any Company, Laurus retains
the right (but not the obligation) to lend to such Company from time to time
such amounts in excess of such limitations as Laurus may determine in its sole
discretion.

 

(iii)                               The Companies
acknowledge that, in the exercise of its reasonable credit judgment, Laurus may
increase the advance percentages used in determining Accounts Availability and
may decrease the advance percentages used in determining Accounts Availability
for reasons relating to either a material increase in Dilution or other
material deterioration of the Accounts, in each case, as determined by Laurus
in its reasonable discretion.  Each of
the Companies hereby consent to any such increases or decreases which may limit
or restrict advances requested by the Companies.

 

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

 

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

 

3

 

statements, applications for insurance and other agreements and
writings required to be obtained, executed, delivered or endorsed by such
Company.

 

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

 

(vii)                           During the Term, the
Companies may borrow and prepay Loans in accordance with the terms and
conditions of this Agreement and Notes.

 

(viii)                        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 Companies shall jointly and
severally (i) reimburse Laurus for the amount of the Loans made with
respect to such Delinquent Account plus an adjustment fee in an amount equal to
fifteen basis points (0.15%) of the gross face amount of such Eligible Account
or (ii) immediately replace such Delinquent Account with an otherwise
Eligible Account.

 

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

 

(c)                                  Minimum
Borrowing Amount.  After a
registration statement registering the Registrable Securities has been declared
effective by the SEC, conversions of the Minimum Borrowing Amount into the
Common Stock may be initiated as set forth in the respective Minimum Borrowing
Note.  From and after the date upon which
any outstanding principal of the Minimum Borrowing Amount (as evidenced by the
first Minimum Borrowing Note) is converted into Common Stock (the “First
Conversion Date”), (i) corresponding amounts of all outstanding Loans (not
attributable to the then outstanding Minimum Borrowing Amount) existing on or
made after the First Conversion Date will be aggregated in accordance with Section 2(a)(i) and

 

4

 

(ii) the Companies will issue a new (serialized) Minimum Borrowing
Note to Laurus in accordance with Section 2(a)(i), and (iii) the
Parent shall prepare and file a subsequent registration statement with the SEC
to register the Common Stock underlying such subsequent Minimum Borrowing Note
as set forth in the Registration Rights Agreement.

 

3.                                       Repayment of the Loans.  The Companies (a) may prepay the
Obligations from time to time in accordance with the terms and provisions of
the Notes (and Section 17 hereof if such prepayment is due to a
termination of this Agreement); (b) shall repay on the expiration of the
Term (i) the then aggregate outstanding principal balance of the Loans
together with accrued and unpaid interest, fees and charges and; (ii) all
other amounts owed Laurus under this Agreement and the Ancillary Agreements;
and (c) subject to Section 2(a)(ii), shall repay on any day on which
the then aggregate outstanding principal balance of the Loans are in excess of
the Formula Amount at such time, Loans in an amount equal to such excess. Any
payments of principal, interest, fees or any other amounts payable hereunder or
under any Ancillary Agreement shall be made prior to 12:00 noon (New York time)
on the due date thereof in immediately available funds.

 

4.                                       Procedure for Loans.  Company Agent may by written notice request a
borrowing of Loans prior to 11:30 a.m. (New York time) on the Business Day
of its request to incur, on the day of a notification, a Loan.  Company Agent shall deliver on each Business
Day to Laurus a Borrowing Base Certificate in the form of Exhibit B
attached hereto, which shall be certified as true and correct by the Treasurer
or President of Company Agent together with all supporting documentation
relating thereto and shall reflect all allowances, credits and monies, as
applicable, granted by each Company to Account Debtors.  All Loans shall be disbursed from whichever
office or other place Laurus may designate from time to time and shall be
charged to the Companies’ account on Laurus’ books.  The proceeds of each Loan made by Laurus
shall be made available to Company Agent (a) on the Business Day so requested
if such request is received prior to 11:30 a.m. and (b) on the
Business Day following the Business Day so requested if such request is
received on or after 11:30 a.m., in each case in accordance with the terms
of this Section 4 by way of credit of immediately available funds to the
applicable Company’s operating account maintained with such bank as Company
Agent designated to Laurus.  Any and all
Obligations due and owing hereunder may be charged to the Companies’ account
and shall constitute Loans.

 

5.                                       Interest and Payments.

 

(a)                                  Interest.

 

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

 

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

 

5

 

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

 

(iv)                              In
no event shall the aggregate interest payable hereunder exceed the maximum rate
permitted under any applicable law or regulation, as in effect from time to
time (the “Maximum Legal Rate”), and if any provision of this Agreement
or any Ancillary Agreement is in contravention of any such law or regulation,
interest payable under this Agreement and each Ancillary Agreement shall be
computed on the basis of the Maximum Legal Rate (so that such interest will not
exceed the Maximum Legal Rate).

 

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

 

(b)                                 Payments;
Certain Closing Conditions.

 

(i)                                     Closing/Annual
Payments.  Upon execution of this
Agreement by each Company and Laurus, the Companies shall jointly and severally
pay to Laurus Capital Management, LLC a closing payment in an amount equal to
three and one-half percent (3.50%) of the Capital Availability Amount.  Such payment shall be deemed fully earned on
the Closing Date and shall not be subject to rebate or proration for any
reason.

 

(ii)                                  Overadvance
Payment.  Without affecting Laurus’
rights hereunder in the event the Loans exceed the Formula Amount (each such
event, an “Overadvance”), all such Overadvances shall bear additional
interest at a rate equal to two percent (2%) per month of the amount of such
Overadvances for all times such amounts shall be in excess of the Formula
Amount.  All amounts that are incurred
pursuant to this Section 5(b)(ii) shall be due and payable by the
Companies monthly, in arrears, on the first business day of each calendar month
and upon expiration of the Term.

 

(iii)                               Financial Information
Default.  Without affecting Laurus’
other rights and remedies, in the event any Company fails to deliver the
financial information required by Section 11 on or before the date
required by this Agreement, the Companies shall jointly and severally pay
Laurus an aggregate fee in the amount of $500.00 per week (or portion thereof)
for each such failure until such failure is cured to Laurus’ satisfaction or
waived in writing by Laurus.  All amounts
that are incurred pursuant to this Section 5(b)(iii) shall be due and
payable by the Companies monthly, in arrears, on the first business of each
calendar month and upon expiration of the Term.

 

(iv)                              Expenses.  The Companies shall jointly and severally
reimburse Laurus for its expenses incurred in connection with the preparation
and negotiation of this Agreement and the Ancillary Agreements, up to a maximum
amount of $37,500.  Also, the Companies
shall jointly and severally reimburse Laurus for all of its reasonable legal
fees and expenses in connections with the preparation of this Agreement and the
Ancillary Agreements.

 

6

 

In addition, the Companies shall jointly and severally reimburse Laurus
for its expenses incurred in connection with Laurus’ due diligence review of
each Company and its Subsidiaries and all related matters up to a maximum of
$32,500, provided, however, that such amount does not include the cost of any
required third-party appraisals or extraordinary diligence that may be
required.  Any such additional due
diligence expenses shall be approved by the Companies in advance.  Amounts required to be paid under this Section 5(b)(iv) will
be paid on the Closing Date.  The
Companies have previously paid a good faith deposit of $15,000 to Laurus, which
shall be credited towards the Companies’ obligations to reimburse Laurus
hereunder.

 

6.                                       Security Interest.

 

(a)                                  To
secure the prompt payment to Laurus of the Obligations, each Company hereby
assigns, pledges and grants to Laurus a continuing security interest in and
Lien upon all of the Collateral.  All of
each Company’s Books and Records relating to the Collateral shall, until
delivered to or removed by Laurus, be kept by such Company in trust for Laurus
until all Obligations have been paid in full. 
Each confirmatory assignment schedule or other form of assignment
hereafter executed by each Company shall be deemed to include the foregoing
grant, whether or not the same appears therein.

 

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

 

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

 

7.                                       Representations,
Warranties and Covenants Concerning the Collateral. 
Each Company represents, warrants (each of which such representations
and warranties shall be

 

7

 

deemed
repeated upon the making of each request for a Loan and made as of the time of
each and every Loan hereunder) and covenants as follows:

 

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

 

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

 

(c)                                  the
Liens granted pursuant to this Agreement, upon completion of the filings and
other actions listed on Schedule 7(c) (which, in the case of
all filings and other documents referred to in said Schedule, have been
delivered to Laurus in duly executed form) constitute valid perfected security
interests in all of the Collateral in favor of Laurus as security for the
prompt and complete payment and performance of the Obligations, enforceable in
accordance with the terms hereof against any and all of its creditors and
purchasers and such security interest is prior to all other Liens in existence
on the date hereof, other than the Liens described in clauses (a), (b) and
(e) of the definition of Permitted Liens.

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

(k)                                  it
shall notify Laurus promptly and in any event within five (5) Business Days
after obtaining knowledge thereof (i) of any event or circumstance that,
to its knowledge, would cause Laurus to consider any then existing Account as
no longer constituting an Eligible Account; (ii) of any delay (beyond the
time period for such performance set forth in the applicable shipping documents
or, if no such time period is so designated, the time period otherwise agreed
to by such Company and the applicable Account Debtor in the ordinary course of
business consistent with such Company’s past practices) in its performance of
any of its obligations to any Account Debtor; (iii) of any assertion by
any Account Debtor of any material claims, offsets or counterclaims; (iv) of
all material adverse information it becomes aware of relating to the financial
condition of an Account Debtor; (v) of any material return of goods; and (vi) of
any loss, damage or destruction of any of the Collateral.

 

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

 

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

 

9

 

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

 

(o)                                 it
shall maintain and keep the tangible Collateral at the addresses listed in Schedule 12(bb),
provided, that it may change such locations or open a new location, provided
that it provides Laurus at least ten (10) Business 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, it executes and delivers to Laurus such agreements deemed
reasonably necessary or prudent by Laurus, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus, to adequately protect and maintain Laurus’ security
interest in such Collateral.

 

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

 

8.                                       Payment of Accounts.

 

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

 

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

 

10

 

9.                                       Collection and
Maintenance of Collateral.

 

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

 

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

 

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

 

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

 

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

 

(a)                                  As
soon as available, and in any event within ninety (90) days after the end of
each fiscal year of the Parent, the Parent’s consolidated audited financial
statements with a report of independent certified public accountants of
recognized standing selected by the Parent and reasonably acceptable to Laurus
(the “Accountants”), it being agreed that Grant Thornton LLP is acceptable to
Laurus, which annual financial statements shall be without qualification and
shall include Parent’s consolidated balance sheet as at the end of such fiscal
year and Parent’s consolidated income, retained earnings and cash flows for the
fiscal year then ended, all in reasonable detail and prepared in accordance
with GAAP, together with (i) if and when

 

11

 

available, copies of any management letters prepared by the
Accountants; and (ii) a certificate of the Parent’s President, Chief
Executive Officer or Chief Accounting Officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;

 

(b)                                 As
soon as available and in any event within forty five (45) days after the end of
each fiscal quarter of the Parent, an unaudited/internal consolidated balance
sheet and statements of income, retained earnings and cash flows as at the end
of and for such quarter and for the year to date period then ended, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end adjustments and accompanied by a certificate of
the Parent’s President, Chief Executive Officer or Chief Accounting 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)                                  As
soon as available and in any event within thirty-one (31) days after the end of
each calendar month, an unaudited/internal consolidated and consolidating
balance sheet and statements of income, retained earnings and cash flows
(provided that notwithstanding the foregoing, all statements of retained
earnings and cash flows shall only be required to be prepared on a consolidated
(not a consolidating) basis) of each of the Parent and its Subsidiaries as at
the end of and for such month and for the year to date period then ended,
prepared on a consolidated basis to include the Parent, each Subsidiary of the
Parent and each of their respective 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 the Parent’s President, Chief
Executive Officer or Chief Accounting 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;

 

(d)                                 Within
twenty (20) days after the end of each month (or more frequently if Laurus so
requests), agings of each Company’s Accounts, unaudited trial balances and
their accounts payable and a calculation of each Company’s Accounts, Eligible
Accounts, provided, however, that if Laurus shall request the foregoing
information more often than as set forth in the immediately preceding clause,
each Company shall have twenty (20) days from each such request to comply with
Laurus’ demand;

 

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

 

12

 

(f)                                    The
Parent shall deliver, or cause the applicable Subsidiary of the Parent to
deliver, such other information as the Purchaser shall reasonably request.

 

12.                                 Additional
Representations and Warranties.  Each Company
hereby represents and warrants to Laurus as follows:

 

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

 

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

 

(c)                                  Capitalization;
Voting Rights.

 

(i)                                     The
authorized capital stock of the Parent, as of the date hereof consists of
110,000,000 shares, of which 100,000,000 are shares of Common Stock, par value
$0.001 per share, 43,712,726 shares of which are issued and outstanding, and
10,000,000 are shares of preferred stock, par value $0.001 per share of which
none are issued and outstanding.  The
authorized, issued and outstanding capital stock of each Subsidiary and Foreign
Subsidiary of each Company is set forth on Schedule 12(c).

 

(ii)                                  Except
as disclosed on Schedule 12(c), other than:  (i) the shares reserved for issuance
under the Parent’s stock option plans; and (ii) shares which may be issued
pursuant to this Agreement and the Ancillary Agreements, and (iii) shares
which may be issued in connection with the transaction identified in the “Asia
Facility Transaction” in Schedule 12(c) and subject to the
express terms in respect thereof as set forth on Schedule 12(c),
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder
agreements, or arrangements or agreements of any kind for the purchase or
acquisition from the Parent of any of its securities.  Except as disclosed on Schedule 12(c),
neither the offer or issuance of any of the Notes or the Warrants, or the
issuance of any of the Note Shares or the Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a change in the price or
number of any securities of the Parent

 

13

 

outstanding, under anti-dilution or other similar provisions contained
in or affecting any such securities.

 

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

 

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

 

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

 

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

 

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

 

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

 

(e)                                  Liabilities.  It has no liabilities, except current
liabilities incurred in the ordinary course of business, liabilities disclosed
in any Exchange Act Filings and liabilities not required to be disclosed in any
Exchange Act Filings because of the size or nature thereof.

 

(f)                                    Agreements;
Action.  Except as set forth on Schedule 12(f) or
as disclosed in any Exchange Act Filings:

 

(i)                                     There
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which it or any of its
Subsidiaries is

 

14

 

a party or to its knowledge by which it is bound which may involve:  (i) obligations (contingent or
otherwise) of, or payments to, it or any of its Subsidiaries in excess of
$50,000 (other than obligations of, or payments to, it or any of its
Subsidiaries arising from (1) purchase or sale agreements entered into in
the ordinary course of business consistent with past practice) and/or (2) agreements
entered into in the ordinary course of business in connection with
transportation, freight forwarding or other value added services purchased or
provided by any Company or from or to others; or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right to or
from it (other than licenses arising from the purchase of “off the shelf” or
other standard products); or (iii) provisions restricting the development,
manufacture or distribution of its or any of its Subsidiaries’ products or
services; or (iv) indemnification by it or any of its Subsidiaries with
respect to infringements of proprietary rights.

 

(ii)                                  Since
December 31, 2004 (the “Balance Sheet Date”) neither it nor any of
its Subsidiaries has:  (i) declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock; (ii) except as set
forth on Schedule 12(f)(ii)(a) and indebtedness and
liabilities between and among any Company, 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 such 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 advances for
travel expenses, and other than as set forth on Schedule 12(f)(ii)(b) or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its Inventory in the ordinary course of business.

 

(iii)                               For the purposes of
subsections (i) and (ii) of this Section 12(f), all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same Person (including Persons it or
any of its applicable Subsidiaries has reason to believe are affiliated
therewith or with any Subsidiary thereof) shall be aggregated for the purpose
of meeting the individual minimum dollar amounts of such subsections.

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

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

 

(g)                                 Obligations
to Related Parties.  Except as set
forth on Schedule 12(g), neither it nor any of its Subsidiaries has
any obligations to their respective officers, directors, stockholders or employees
other than:

 

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

 

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

 

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

 

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

 

Except as described above or set forth on Schedule 12(g),
none of its officers, directors (with respect to clause (1) below) or, to
the best of its knowledge, directors (with respect to clause (2) below),
key employees or stockholders, any of its Subsidiaries or any members of their
immediate families, (1) are indebted to it or any of its Subsidiaries,
individually or in the aggregate, in excess of $50,000 or (2) have any
direct or indirect ownership interest in any Person with which it or any of its
Subsidiaries is affiliated or with which it or any of its Subsidiaries has a
business relationship, or any Person which competes with it or any of its
Subsidiaries, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete
with it or any of its Subsidiaries. Except as described above, none of its
officers, directors or stockholders, or any member of their

 

16

 

immediate families, is, directly or indirectly,
interested in any material contract with it or any of its Subsidiaries and no
agreements, understandings or proposed transactions are contemplated between it
or any of its Subsidiaries and any such Person. 
Except as set forth on Schedule 12(g), neither it nor any of
its Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person.

 

(h)                                 Changes.  Since June 30, 2005, except as disclosed
in any Exchange Act Filing or in any Schedule to this Agreement or to any
of the Ancillary Agreements, there has not been:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

(i)                                     Title
to Properties and Assets; Liens, Etc. 
Except as set forth on Schedule 12(i), it and each of its
Subsidiaries has good and marketable title to their respective properties and
assets owned by them, and good title to its valid leasehold interests in
properties and assets leased by them, in each case subject to no Lien, other
than Permitted Liens.

 

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

 

(j)                                     Intellectual
Property.

 

(i)                                     It
and each of its Subsidiaries owns or possesses sufficient legal rights to all
Intellectual Property necessary for their respective businesses as now
conducted and, to its knowledge as presently proposed to be conducted, without
any known infringement of the rights of others. 
Except as set forth on Schedule 12(j)(i), there are no
outstanding options, licenses or agreements of any kind relating to its or any
of its Subsidiary’s Intellectual Property, nor is it or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property of any other Person other than such
licenses or agreements arising from the purchase of “off the shelf” or standard
products.

 

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

 

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

 

(k)                                  Compliance
with Other Instruments.  Neither it
nor any of its Subsidiaries is in violation or default of (x) any term of its
Charter or Bylaws, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by

 

18

 

which it is bound or of any judgment, decree, order or writ, which
violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.  The execution,
delivery and performance of and compliance with this Agreement and the
Ancillary Agreements to which it is a party, and the issuance of the Notes and
the other Securities each pursuant hereto and thereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term
or provision, or result in the creation of any Lien upon any of its or any of
its Subsidiary’s properties or assets or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to it or any of its Subsidiaries, their businesses or
operations or any of their assets or properties.

 

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

 

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

 

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

 

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

 

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

 

(n)                                 Employees.  Except as set forth on Schedule 12(n),
neither it nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees.  There is no
labor union organizing activity pending or, to its knowledge, threatened with
respect to it or any of its Subsidiaries. 
Except as disclosed in the Exchange Act Filings or on Schedule 12(n),
neither it nor any of its Subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement.  To its knowledge,

 

19

 

none of its or any of its Subsidiaries’ employees, nor any consultant
with whom it or any of its Subsidiaries has contracted, is in violation of any
term of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, it or any of its Subsidiaries because of the nature of the
business to be conducted by it or any of its Subsidiaries; and to its knowledge
the continued employment by it and its Subsidiaries of their present employees,
and the performance of its and its Subsidiaries contracts with its independent
contractors, will not result in any such violation.  Neither it nor any of its Subsidiaries is
aware that any of its or any of its Subsidiaries’ employees is obligated under
any contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency that would interfere with their duties to it or any of
its Subsidiaries.  Neither it nor any of
its Subsidiaries has received any notice alleging that any such violation has
occurred.  Except for employees who have
a current effective employment agreement with it or any of its Subsidiaries,
none of its or any of its Subsidiaries’ employees has been granted the right to
continued employment by it or any of its Subsidiaries or to any material
compensation following termination of employment with it or any of its
Subsidiaries.  Except as set forth on Schedule 12(n),
neither it nor any of its Subsidiaries is aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with it
or any of its Subsidiaries, as applicable, nor does it or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.

 

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

 

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

 

20

 

(q)                                 Environmental
and Safety Laws.  Neither it nor any
of its Subsidiaries is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
to its knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation.  Except as set forth on Schedule 12(q)
and/or in connection with the transport and/or storage in accordance, in each
case, with applicable law of Hazardous Materials solely in connection with its
freight forwarding and added value logistics services business, no Hazardous
Materials (as defined below) are used or have been used, stored, or disposed of
by it or any of its Subsidiaries or, to its knowledge, by any other Person on
any property owned, leased or used by it or any of its Subsidiaries.  For the purposes of the preceding sentence, “Hazardous
Materials” shall mean:

 

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

 

(ii)                                  any
petroleum products or nuclear materials.

 

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

 

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

 

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

 

(u)                                 SEC
Reports and Financial Statements.  Except
as set forth on Schedule 12(u), it and each of its Subsidiaries has
filed all proxy statements, reports and other documents required to be filed by
it under the Exchange Act.  The Parent
has furnished Laurus

 

21

 

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

 

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

 

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

 

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

 

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

 

(z)                                   Patriot
Act.  It certifies that, to the best
of its knowledge, neither it nor any of its Subsidiaries has been designated,
nor is or shall be owned or controlled, by a “suspected terrorist” as defined
in Executive Order 13224.  It hereby
acknowledges that Laurus seeks to

 

22

 

comply with all applicable laws concerning money laundering and related
activities.  In furtherance of those
efforts, it hereby represents, warrants and covenants that:  (i) none of the cash or property that it
or any of its Subsidiaries will pay or will contribute to Laurus has been or
shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by it or any
of its Subsidiaries to Laurus, to the extent that they are within its or any
such Subsidiary’s control shall cause Laurus to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001.  It shall promptly notify Laurus if any of the
representations, warranties and covenants in this Section 12(z) ceases to
be true and accurate regarding it or any of its Subsidiaries.  It shall provide Laurus with any additional
information regarding it and each Subsidiary thereof that Laurus deems
necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities.  It understands and agrees that if at any time
it is discovered that any of the foregoing representations, warranties and
covenants are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, Laurus may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of
Laurus’ investment in it.  It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the
best interests of Laurus in light of relevant rules and regulations under
the laws set forth in subsection (ii) above.

 

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

 

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

 

23

 

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

 

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

 

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

 

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

 

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

 

(e)                                  Use
of Funds.  It shall only use the
proceeds of the Loans for general corporate purposes in accordance with the
terms of this Agreement including the repayment of the Companies’ existing
indebtedness Zohar II 2005-1 Limited and Patriarch Partners Agency Services,
LLC, its agent.

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

(h)                                 Insurance.  It shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral.  It and each of its Subsidiaries shall keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as it and its Subsidiaries; and it and its Subsidiaries shall maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
which it and/or such Subsidiary thereof reasonably believes is customary for
companies in similar business similarly situated as it and its Subsidiaries and
to the extent available on commercially reasonable terms.  It and each of its Subsidiaries will jointly
and severally bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to Laurus as security for its obligations
hereunder and under the Ancillary Agreements. 
At its own cost and expense in amounts and with carriers reasonably
acceptable to Laurus, it and each of its Subsidiaries shall (i) keep all
their insurable properties and properties in which they have an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to it or the respective Subsidiary’s including business interruption insurance;
(ii) maintain crime insurance in such amounts as is customary in the case
of companies engaged in businesses similar to it and its Subsidiaries’ insuring
against larceny, embezzlement or other criminal misappropriation of insured’s
officers and employees who may either singly or jointly with others at any time
have access to its or any of its Subsidiaries assets or funds either directly
or through governmental authority to draw upon such funds or to direct
generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which it or any of its Subsidiaries is engaged in
business; and (v) furnish Laurus with (x) copies of all policies and
evidence of the maintenance of such policies at least

 

25

 

thirty (30) days before any expiration date, (y) excepting its and its
Subsidiaries’ workers’ compensation policy, endorsements to such policies
naming Laurus as “co-insured” or “additional insured” and appropriate loss
payable endorsements in form and substance satisfactory to Laurus, naming
Laurus as lenders loss payee, and (z) evidence that as to Laurus the insurance
coverage shall not be impaired or invalidated by any act or neglect of any
Company or any of its Subsidiaries and the insurer will provide Laurus with at
least thirty (30) days notice prior to cancellation.  It shall instruct the insurance carriers that
in the event of any loss thereunder, the carriers shall make payment for such
loss to Laurus and not to any Company or any of its Subsidiaries and Laurus
jointly.  If any insurance losses are
paid by check, draft or other instrument payable to any Company and/or any of
its Subsidiaries and Laurus jointly, Laurus may endorse, as applicable, such
Company’s and/or any of its Subsidiaries’ name thereon and do such other things
as Laurus may deem advisable to reduce the same to cash.  Laurus is hereby authorized to adjust and
compromise claims.  All loss recoveries received
by Laurus upon any such insurance may be applied to the Obligations, in such
order as Laurus in its sole discretion shall determine or shall otherwise be
delivered to Company Agent for the benefit of the applicable Company and/or its
Subsidiaries.  Any surplus shall be paid
by Laurus to Company Agent for the benefit of the applicable Company and/or its
Subsidiaries, or applied as may be otherwise required by law.  Any deficiency thereon shall be paid, as
applicable, by Companies and their Subsidiaries to Laurus, on demand.

 

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

 

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

 

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

 

(l)                                     Required
Approvals.  It shall not, and shall
not permit any of its Subsidiaries to, without the prior written consent of
Laurus, (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt, earn out obligations of the Companies set forth on Schedule 13(l),
earn out obligations of the Companies incurred after the date hereof pursuant
to acquisitions by the Companies approved, in each case, in writing by Laurus
and Subordinated Debt) whether secured or unsecured other than each Company’s
indebtedness to Laurus and as set forth on Schedule 13(l)(i) attached
hereto and made a part hereof; (ii) cancel any debt owing to it in excess
of $50,000 in the aggregate during any 12 month period; (iii) except as
set forth in

 

26

 

Schedule 13(l)(iii), assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by it or its
Subsidiaries for deposit or collection or similar transactions in the ordinary
course of business; (iv) except as set forth in Schedule 13(1)(iv),
directly or indirectly declare, pay or make any cash dividend or distribution
on any class of its Stock or apply any of its funds, property or assets to the
purchase, redemption or other retirement of any of its or its Subsidiaries’
Stock outstanding on the date hereof, or issue any preferred stock (other than
preferred stock, including convertible preferred stock, which does not permit
the payment of cash dividends or permits the payment of dividends in kind); (v) except
as set forth in Schedule 13(l)(v) purchase or hold beneficially any
Stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including any partnership or joint venture,
except (x) travel advances, (y) loans to its and its Subsidiaries’ officers and
employees not exceeding at any one time an aggregate of $10,000, and (z) loans
to its existing Subsidiaries so long as such Subsidiaries are designated as
either a co-borrower hereunder or has entered into such guaranty and security
documentation required by Laurus, including, without limitation, to grant to
Laurus a first priority perfected security interest in substantially all of
such Subsidiary’s assets to secure the Obligations; (vi) create or permit
to exist any Subsidiary, other than any Subsidiary in existence on the date
hereof and listed in Schedule 12(b) unless such new Subsidiary
is a wholly-owned Subsidiary and is designated by Laurus as either a
co-borrower or guarantor hereunder and such Subsidiary shall have entered into
all such documentation required by Laurus, including, without limitation, to
grant to Laurus a first priority perfected security interest in substantially
all of such Subsidiary’s assets to secure the Obligations; (vii) directly
or indirectly, prepay any indebtedness (other than to Laurus and in the
ordinary course of business consistent with past practice), or, except as set
forth in Schedule 12(c), repurchase, redeem, retire or otherwise
acquire any indebtedness (other than to Laurus and in the ordinary course of
business consistent with past practice) 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, in the case of a merger or
consolidation, (1) such Company is the surviving entity of such merger or
consolidation or the Company of which such Company is a subsidiary controls the
surviving entity after the consummation of such merger or consolidation, (2) no
Event of Default shall exist immediately prior to and after giving effect to
such merger or consolidation, (3) such Company shall have provided Laurus
copies of all documentation relating to such merger or consolidation and (4) such
Company shall have provided Laurus with at least thirty (30) days’ prior
written notice of such merger or consolidation; (ix) materially change the
nature of the business in which it is presently engaged; (x) become subject to
(including, without limitation, by way of amendment to or modification of) any
agreement or instrument which by its terms would (under any circumstances)
restrict its or any of its Subsidiaries’ right to perform the provisions of
this Agreement or any of the Ancillary Agreements; (xi) change its fiscal year
or make any changes in accounting treatment and reporting practices without
prior written notice to Laurus except as required by GAAP or in the tax
reporting treatment or except as required by law; (xii) enter into any
transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; (xiii) bill Accounts under any name except the
present name of such Company, as such name may be amended in accordance with
the provisions of Section 13(o) hereof; or (xiv) sell, lease,
transfer

 

27

 

or otherwise dispose of any of its properties or assets, or any of the
properties or assets of its Subsidiaries, except for (1) the sale of
Inventory in the ordinary course of business and (2) the disposition or
transfer in the ordinary course of business during any fiscal year of obsolete
and worn-out Equipment and only to the extent that (x) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus’ first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (y) following the occurrence of an Event of
Default which continues to exist, the proceeds of which are remitted to Laurus
to be held as cash collateral for the Obligations.  Notwithstanding anything to the contrary
contained in this Section 13(l), Laurus’ approval shall not be required
with respect to any transfer by any Company of cash to any Foreign Subsidiary
of not more than $50,000 in the aggregate per Business Day, provided that (x)
such transfers are made in the ordinary course of business consistent with its
business practices and (y) such transfers are made by a Company to a Foreign
Subsidiary for the direct purpose of reimbursing and/or paying such Foreign
Subsidiary for (I) the cost of shipping expenses and (II) airline carrier
expenses, in each case, incurred by such Foreign Subsidiary for the benefit of
such Company.  Company Agent shall
provide Laurus a report not later than the fifth Business Day of each month
detailing all such cash transfers made by the Companies for the immediately
preceding month.

 

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

 

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

 

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

 

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

 

(n)                                 Opinion.  On the Closing Date, it shall deliver to
Laurus an opinion reasonably acceptable to Laurus from each Company’s legal
counsel.  Each Company will provide, at
the Companies’ joint and several expense, such other legal opinions in the future
as are reasonably necessary for the conversion of the Notes and the exercise of
the Warrants.

 

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

 

(p)                                 Compliance
with Laws.  The operation of each of
its and each of its Subsidiaries’ business is and shall continue to be in
compliance in all material respects with all applicable federal, state and
local laws, rules and ordinances, including to all laws, rules,
regulations and orders relating to taxes, payment and withholding of payroll
taxes, employer and

 

28

 

employee contributions and similar items, securities, employee
retirement and welfare benefits, employee health and safety and environmental
matters.

 

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

 

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

 

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

 

(t)                                    Authorization
and Reservation of Shares.  The
Parent shall at all times have authorized and reserved a sufficient number of
shares of Common Stock to provide for the conversion of the Notes and exercise
of the Warrants.

 

(u)                                 Financing
Right of First Refusal.

 

(i)                                     It
hereby grants to Laurus a right of first refusal to provide any Additional
Financing (as defined below) to be issued by any Company and/or any of its
Subsidiaries (the “Additional Financing Parties”), subject to the
following terms and conditions.  From and
after the date hereof, prior to the incurrence of any additional indebtedness
which is convertible in whole or in part into any equity interests of the
Additional Financing Parties (an “Additional Financing”), Company Agent
shall notify Laurus of such Additional Financing.  In connection therewith, Company Agent shall
submit a fully executed term sheet (a “Proposed Term Sheet”) to Laurus
setting forth the terms, conditions and pricing of any such Additional
Financing (such financing to be negotiated on “arm’s length” terms and the
terms thereof to be negotiated in good faith) proposed to be entered into by
the Additional Financing Parties.  Laurus
shall have the right, but not the obligation, to deliver to Company Agent its
own proposed term

 

29

 

sheet (the “Laurus
Term Sheet”) setting forth the terms and conditions upon which Laurus would
be willing to provide such Additional Financing to the Additional Financing
Parties.  The Laurus Term Sheet shall
contain terms no less favorable to the Additional Financing Parties than those
outlined in Proposed Term Sheet.  Laurus
shall deliver to Company Agent the Laurus Term Sheet within ten Business Days
of receipt of each such Proposed Term Sheet. 
If the provisions of the Laurus Term Sheet are at least as favorable to
the Additional Financing Parties as the provisions of the Proposed Term Sheet,
the Additional Financing Parties shall enter into and consummate the Additional
Financing transaction outlined in the Laurus Term Sheet.

 

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

 

(v)           Prohibition
of Amendments to Subordinated Debt Documentation.  It shall not, without the prior written
consent of Laurus, amend, modify or in any way alter the terms of any of the
Subordinated Debt Documentation.

 

(w)          Prohibition
of Grant of Collateral for Subordinated Debt Documentation.  It shall not, without the prior written
consent of Laurus, grant or permit any of its Subsidiaries to grant to any
Person any Collateral of such Company or any collateral of any of its
Subsidiaries as security for any obligation arising under the Subordinated Debt
Documentation.

 

(x)            Prohibitions
of Payment Under Subordinated Debt Documentation.  Neither it nor any of its Subsidiaries shall,
without the prior written consent of Laurus, make any payments in respect of
the indebtedness evidenced by the Subordinated Debt Documentation, other than
as expressly permitted by the terms thereof.

 

14.           Further Assurances.  At any time and from time to time, upon the
written request of Laurus and at the sole expense of Companies, each Company
shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Laurus may 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, and/or (c) to
enable Laurus to exercise all or any of the rights and powers herein granted or
any Ancillary Agreement.

 

15.           Representations,
Warranties and Covenants of Laurus.  Laurus hereby
represents, warrants and covenants to each Company as follows:

 

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

 

30

 

equity that restrict the
availability of equitable and legal remedies. 
The entering into by Laurus of this Agreement and the Ancillary
Agreements does not conflict with the terms of any agreement to which Laurus is
a party.  Laurus has taken all action
necessary for the due authorization, execution and delivery by Laurus of this
Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

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

 

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

 

(j)            Board
Rights.  Laurus hereby agrees to
waive any right it may have to nominate or designate a representative to serve
as a member of the Parent’s Board of Directors. 
In the event Laurus shall then hold any voting equity in the Parent,
Laurus hereby agrees to vote in accordance with the recommendations of the
Parent’s Board of Directors and that it shall not seek to have any of its
representatives hold management positions with the Parent.

 

16.           Power of Attorney.  Each Company hereby appoints Laurus, or any
other Person whom Laurus may designate as such Company’s attorney, with power
to:  (i) endorse such Company’s name
on any checks, notes, acceptances, money orders, drafts or other forms of
payment or security that may come into Laurus’ possession in connection with
proceeds of Collateral; (ii) sign such Company’s name on any invoice or
bill of lading relating to any Accounts, drafts against Account Debtors,
schedules and assignments of Accounts, notices of assignment, financing
statements and other public records, verifications of Account and notices

 

32

 

to or from Account Debtors in connection with its rights as a
secured lender under this Agreement and the Ancillary Agreements; (iii) verify
the validity, amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and during the continuation
of an Event of Default, notify the post office authorities to change the
address for delivery of such Company’s mail to an address designated by Laurus,
and to receive, open and dispose of all mail addressed to such Company.  Each Company hereby ratifies and approves all
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 and for so
long as it is continuing, Laurus may terminate its obligation to fund under
this Agreement and the Ancillary Agreements. 
Such termination shall not affect any of Laurus’ rights hereunder or any
Ancillary Agreement and the provisions hereof and thereof shall continue to be
fully operative until all transactions entered into, rights or interests
created and the Obligations have been irrevocably disposed of, concluded or
liquidated.  Notwithstanding the
foregoing, Laurus shall release its security interests at any time after
fifteen (15) days notice upon indefeasible payment to it of all Obligations if
each Company shall have (i) provided Laurus with an executed release of
any and all claims which such Company may have or thereafter have under this
Agreement and all Ancillary Agreements and (ii) paid to Laurus an early
payment fee in an amount equal to (1) three percent (3%) of the Capital
Availability Amount if such payment occurs prior to the first anniversary of
the Closing Date, (2) two percent (2%) of the Capital Availability Amount
if such payment occurs on or after the first anniversary of the Closing Date
and prior to the second anniversary of the Closing Date and (3) one
percent (1%) of the Capital Availability Amount if such termination occurs
thereafter during the Term; such fee being intended to compensate Laurus for
its costs and expenses incurred in initially approving this Agreement or
extending same. Such early payment fee shall be due and payable jointly and
severally by the Companies to Laurus upon termination by acceleration of this
Agreement by Laurus due to the occurrence and continuance of an Event of Default.

 

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

 

33

 

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

 

(a)           failure
to make payment of any of the Obligations when required hereunder, and, in any
such case, such failure shall continue for a period of five (5) days
following the date upon which any such payment was due;

 

(b)           failure
by any Company to pay any taxes when due unless (x) such taxes are (i) state
or local taxes (other than state income taxes or state franchise taxes), (ii) immaterial
as reasonably determined by Laurus and (iii) the non-payment of which
shall not result in the imposition of a Lien on any assets of any Company (and
to the extent that such a Lien is imposed, such Lien is removed within 30 days
after such imposition) or (y) such taxes are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
provided on such Company’s books;

 

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

 

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

 

(e)           the
occurrence of any default (or similar term) in the observance or performance of
any other agreement or condition relating to any indebtedness or contingent
obligation of any Company or any of its Subsidiaries which individually or in
the aggregate exceeds $200,000 (including, without limitation, the indebtedness
evidenced by the Subordinated Debt Documentation) beyond the period of grace
(if any), the effect of which default is to cause, or permit the holder or
holders of such indebtedness or beneficiary or beneficiaries of such contingent
obligation to cause, such indebtedness to become due prior to its stated
maturity or such contingent obligation to become payable;

 

(f)            attachments
or levies in excess of $50,000 in the aggregate are made upon any Company’s
assets or a judgment is rendered against any Company’s property involving a
liability of more than $50,000 which shall not have been vacated, discharged,
stayed or bonded within forty-five (45) days from the entry thereof;

 

(g)           any
change in any Company’s or any of its Subsidiary’s condition or affairs
(financial or otherwise) which in Laurus’ reasonable, good faith opinion, could
more likely than not be expected to have or has had a Material Adverse Effect;

 

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

 

(i)            any Company or any of its Subsidiaries shall (i) apply
for, consent to or suffer to exist the appointment of, or the taking of
possession by, a receiver, custodian, trustee or

 

34

 

liquidator of itself or
of all or a substantial part of its property, (ii) make a general
assignment for the benefit of creditors, (iii) commence a voluntary case
under the federal bankruptcy laws (as now or hereafter in effect), (iv) be
adjudicated a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) acquiesce
to without challenge within ten (10) days of the filing thereof, or
failure to have dismissed within forty-five (45) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (vii) take
any action for the purpose of effecting any of the foregoing;

 

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

 

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

 

(l)            any
“Person” or “group” (as such terms are defined in Sections 13(d) and 14(d) of
the Exchange Act, as in effect on the date hereof) is or becomes the “beneficial
owner” (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),
directly or indirectly, of 35% or more on a fully diluted basis of the then
outstanding voting equity interest of any Company (other than a “Person” or “group”
that beneficially owns 35% or more of such outstanding voting equity interests
of the respective Company on the date hereof) or (ii) the Board of
Directors of the Parent shall cease to consist of a majority of the Parent’s
board of directors on the date hereof (or directors appointed by a majority of the
board of directors in effect immediately prior to such appointment);

 

(m)          the
indictment or threatened indictment of any Company or any of its Subsidiaries
or any executive officer of any Company or any of its Subsidiaries under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceeding against any Company or any of its Subsidiaries or any
executive officer of any Company or any of its Subsidiaries pursuant to which
statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Company or any of its Subsidiaries; provided, however any such threatened
indictment or threatened commencement of civil or criminal proceeding shall not
constitute an Event of Default unless Laurus has in good faith determined that
such occurrence could more likely than not be expected to have or has had a
Material Adverse Effect;

 

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

 

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

 

(p)           any Company, any Guarantor or any of their respective
Subsidiaries attempts to terminate, challenges the validity of, or its
liability under this Agreement or any

 

35

 

Ancillary Agreement, or
any proceeding shall be brought to challenge the validity, binding effect of
any Ancillary Agreement or any Ancillary Agreement ceases to be a valid,
binding and enforceable obligation of such Company, such Guarantor or any of
their respective Subsidiaries (to the extent such Persons are a party thereto);

 

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

 

(r)            the
Parent’s failure to deliver Common Stock to Laurus pursuant to and in the form
required by the Notes and this Agreement, if such failure to deliver Common
Stock shall not be cured within two (2) Business Days or any Company is
required pursuant to the terms of this Agreement or any Ancillary Agreement to
issue a replacement Note to Laurus and such Company shall fail to deliver such
replacement Note within seven (7) Business Days; or

 

(s)           any
Company, or any of its Subsidiaries shall take or participate in any action
which would be prohibited under the provisions of any of the Subordinated Debt
Documentation or make any payment on the indebtedness evidenced by the
Subordinated Debt Documentation to a Person that was not entitled to receive
such payments under the subordination provisions of applicable Subordinated
Debt Documentation.

 

20.           Remedies. 
Following the occurrence of an Event of Default, Laurus shall have the
right to demand repayment in full of all Obligations, whether or not otherwise
due.  Until all Obligations have been
fully and indefeasibly satisfied, Laurus shall retain its Lien in all
Collateral.  Laurus shall have, in
addition to all other rights provided herein and in each Ancillary Agreement,
the rights and remedies of a secured party under the UCC, and under other
applicable law, all other legal and equitable rights to which Laurus may be
entitled, including the right to take immediate possession of the Collateral,
to require each Company to assemble the Collateral, at Companies’ joint and
several expense, and to make it available to Laurus at a place designated by
Laurus which is reasonably convenient to both parties and to enter any of the
premises of any Company or wherever the Collateral shall be located, with or
without force or process of law, and to keep and store the same on said
premises until sold (and if said premises be the property of any Company, such
Company agrees not to charge Laurus for storage thereof), and the right to
apply for the appointment of a receiver for such Company’s property.  Further, Laurus may, at any time or times
after the occurrence of an Event of Default, sell and deliver all Collateral
held by or for Laurus at public or private sale for cash, upon credit or
otherwise, at such prices and upon such terms as Laurus, in Laurus’ sole
discretion, deems advisable or Laurus may otherwise recover upon the Collateral
in any commercially reasonable manner as Laurus, in its sole discretion, deems
advisable.  The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to Company Agent
at Company Agent’s address as shown in Laurus’ records, at least ten (10) days
before the time of the event of which notice is being given.  Laurus may be the purchaser at any sale, if
it is public.  In connection with the
exercise of the foregoing remedies, Laurus is granted permission to use all of
each Company’s Intellectual Property. 
The proceeds of sale shall be applied first to all costs and expenses of
sale, including

 

36

 

attorneys’ fees, and
second to the payment (in whatever order Laurus elects) of all
Obligations.  After the indefeasible
payment and satisfaction in full of all of the Obligations, and after the
payment by Laurus of any other amount required by any provision of law,
including Section 9-608(a)(1) of the UCC (but only after Laurus has
received what Laurus considers reasonable proof of a subordinate party’s security
interest), the surplus, if any, shall be paid to Company Agent (for the benefit
of the applicable Companies) or its representatives or to whosoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction
may direct.  The Companies shall remain
jointly and severally liable to Laurus for any deficiency.  In addition, the Companies shall jointly and
severally pay Laurus a liquidation fee (“Liquidation Fee”) in the amount
of five percent (5%) of the actual amount collected in respect of each Account
outstanding at any time during a Liquidation Period”.  For purposes hereof, “Liquidation Period”
means a period:  (i) beginning on
the earliest date of (x) an event referred to in Section 19(i) or
19(j), or (y) the cessation of any Company’s business; and (ii) ending on
the date on which Laurus has actually received all Obligations due and owing it
under this Agreement and the Ancillary Agreements.  The Liquidation Fee shall be paid on the date
on which Laurus collects the applicable Account by deduction from the proceeds
thereof.  Each Company and Laurus
acknowledge that the actual damages that would be incurred by Laurus after the
occurrence of an Event of Default would be difficult to quantify and that such
Company and Laurus have agreed that the fees and obligations set forth in this Section and
in this Agreement would constitute fair and appropriate liquidated damages in
the event of any such termination.

 

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

 

22.           Expenses. 
The Companies shall jointly and severally pay all of Laurus’
out-of-pocket costs and expenses, including reasonable fees and disbursements
of in-house or outside counsel and appraisers, in connection with the
preparation, execution and delivery of this Agreement and the Ancillary
Agreements, and in connection with the prosecution or defense of any action,
contest, dispute, suit or proceeding concerning any matter in any way arising
out of, related to or connected with this Agreement or any Ancillary
Agreement.  The Companies shall also
jointly and severally pay all of Laurus’ reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) the preparation, execution and
delivery of any waiver, any amendment thereto or consent proposed or executed
in connection with the transactions contemplated by this Agreement or the
Ancillary Agreements, (b) Laurus’ obtaining performance of the Obligations
under this Agreement and any

 

37

 

Ancillary Agreements, including, but not limited to, the
enforcement or defense of Laurus’ security interests, assignments of rights and
Liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral, (d) any appraisals or re-appraisals of any property (real or
personal) pledged to Laurus by any Company or any of its Subsidiaries as
Collateral for, or any other Person as security for, the Obligations hereunder
and (e) any consultations in connection with any of the foregoing.  The Companies shall also jointly and
severally pay Laurus’ customary bank charges for all bank services (including
wire transfers) performed or caused to be performed by Laurus for any Company
or any of its Subsidiaries at any Company’s or such Subsidiary’s request or in
connection with any Company’s loan account with Laurus.  All such costs and expenses together with all
filing, recording and search fees, taxes and interest payable by the Companies
to Laurus shall be payable on demand and shall be secured by the
Collateral.  If any tax by any Governmental
Authority is or may be imposed on or as a result of any transaction between any
Company and/or any Subsidiary thereof, on the one hand, and Laurus on the other
hand, which Laurus is or may be required to withhold or pay (other than any tax
which would not be imposed if Laurus was domiciled in the United States and
other than taxes measured by its revenues, income, gross receipts or franchise
taxes, business privilege taxes or other similar taxes), the Companies hereby
jointly and severally indemnify and hold Laurus harmless in respect of such
taxes, and the Companies will repay to Laurus the amount of any such taxes
which shall be charged to the Companies’ account; and until the Companies shall
furnish Laurus with indemnity therefor (or supply Laurus with evidence
satisfactory to it that due provision for the payment thereof has been made),
Laurus may hold without interest any balance standing to each Company’s credit
and Laurus shall retain its Liens in any and all Collateral.

 

23.           Assignment By
Laurus.  Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
(other than the current lender under any of the Existing Indebtedness) having
the capital and other financial resources sufficient to perform Laurus’
obligations hereunder and any such assignee shall succeed to all of Laurus’
rights with respect thereto; provided that Laurus shall not be permitted to
effect any such assignment to a competitor of any Company unless an Event of
Default has occurred and is continuing. 
Upon such assignment, Laurus shall be released from all responsibility
for the Collateral to the extent same is assigned to any transferee.  Laurus may from time to time sell or
otherwise grant participations in any of the Obligations and the holder of any
such participation shall, subject to the terms of any agreement between Laurus
and such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant; provided that the granting of any such participation shall
not relieve Laurus from any of its obligations hereunder and that the Companies
may continue to look solely to Laurus for the performance thereof.  Each Company agrees that each such holder may
exercise any and all rights of banker’s lien, set-off and counterclaim for any
amounts due from the Companies with respect to its participation in the
Obligations as fully as though such Company were directly indebted to such
holder in the amount of such participation.

 

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

 

38

 

remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.

 

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

 

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

 

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

 

28.           Borrowing Agency Provisions.

 

(a)           Each
Company hereby irrevocably designates Company Agent to be its attorney and
agent and in such capacity to borrow, sign and endorse notes, and execute and
deliver all instruments, documents, writings and further assurances now or
hereafter required

 

39

 

hereunder,
on behalf of such Company, and hereby authorizes Laurus to pay over or credit
all loan proceeds hereunder in accordance with the request of Company Agent.

 

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

 

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

 

(d)           Each
Company expressly agrees not to exercise any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Company may now or hereafter have against the other or other Person
directly or contingently liable for the Obligations, or against or with respect
to any other Company’s property (including, without limitation, any property
which is Collateral for the Obligations), arising from the existence or
performance of this Agreement, until all Obligations have been indefeasibly
paid in full and this Agreement has been irrevocably terminated.

 

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

 

29.           Notices. 
Any notice or request hereunder may be given to any Company, Company
Agent or Laurus at the respective addresses set forth below or as may hereafter
be

 

40

 

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

  
	
   

  	
   

  	
  Facsimile:

  	
  (212) 541-5800

  
	
   

  	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Loeb & Loeb LLP

  
	
   

  	
   

  	
  345 Park Avenue

  
	
   

  	
   

  	
  New York, New York 10154

  
	
   

  	
   

  	
  Attention:

  	
  Scott J. Giordano, Esq.

  
	
   

  	
   

  	
  Telephone:

  	
  (212) 407-4104

  
	
   

  	
   

  	
  Facsimile:

  	
  (212) 407-4950

  
	
   

  	
   

  	
   

  	
   

  
	
  If to any Company, or

  	
   

  	
  Stonepath Group, Inc.

  
	
  Company Agent:

  	
   

  	
  1930 Sixth Avenue S., Suite 401

  
	
   

  	
   

  	
  Seattle, Washington 98134

  
	
   

  	
   

  	
  Attention:

  	
  Christopher Foster

  
	
   

  	
   

  	
  Telephone:

  	
  (206) 624-4354

  
	
   

  	
   

  	
  Facsimile:

  	
  (206) 624-2116

  
	
   

  	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Buchanan Ingersoll PC

  
	
   

  	
   

  	
  1835 Market Street, 14th
  Floor

  
	
   

  	
   

  	
  Philadelphia,
  Pennsylvania 19103

  
	
   

  	
   

  	
  Attention:

  	
  Brian S. North, Esq.

  
	
   

  	
   

  	
  Telephone:

  	
  (215) 665-3828

  
	
   

  	
   

  	
  Facsimile:

  	
  (215) 665-8760

  

 

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

 

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

 

(a)           THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE AND

 

41

 

PERFORMED IN SUCH
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

(b)           EACH
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY, ON THE ONE HAND,
AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND
EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK;
AND FURTHER  PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF LAURUS. 
EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.  EACH COMPANY HEREBY WAIVES PERSONAL SERVICE
OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT
AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT AT THE ADDRESS
SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF COMPANY AGENT’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

 

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

 

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

 

42

 

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

 

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

 

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

 

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

 

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

 

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

 

38.           Publicity. 
Each Company hereby authorizes Laurus to make appropriate announcements
after the Closing Date of the financial arrangement entered into by and among

 

43

 

each Company and
Laurus, including, without limitation, announcements which are commonly known
as tombstones, in such publications and to such selected parties as Laurus
shall in its sole and absolute discretion deem appropriate, or as required by
applicable law.

 

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

 

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

 

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

 

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

 

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

 

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

 

44

 

STONEPATH GROUP, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”

 

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

 

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

 

 

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

 

45

 

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

 

	
   

  	
   

  	
  STONEPATH
  GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STONEPATH
  LOGISTICS DOMESTIC

  SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STONEPATH
  LOGISTICS INTERNATIONAL

  SERVICES, INC., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STONEPATH
  OFFSHORE HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  M.G.R.,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

[Additional
Signature Pages to Follow]

 

46

 

	
   

  	
   

  	
  DISTRIBUTION
  SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STONEPATH
  LOGISTICS GOVERNMENT SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  UNITED
  AMERICAN ACQUISITIONS AND MANAGEMENT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STONEPATH
  LOGISTICS INTERNATIONAL SERVICES, INC., a Washington
  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

[Signature Page to
Security Agreement;

Additional Signature
Page to Follow]

 

47

 

	
   

  	
   

  	
  GLOBAL
  CONTAINER LINE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

[Signature Page to Security Agreement]

 

48

 

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 ninety percent
(90%) of the net face amount of Eligible Accounts subject to adjustment in
accordance with Section 2(a).

 

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

 

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

 

“Available Minimum Borrowing” has the meaning
given such term in Section 2(a)(i).

 

49

 

“Balance Sheet Date” has the meaning given such
term in Section 12(f)(ii).

 

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

 

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

 

“Capital Availability Amount” means
$25,000,000.

 

“Charter” has the meaning given such term in Section 12(c)(iv).

 

“Chattel Paper” means all “chattel paper,” as
such term is defined in the UCC, including electronic chattel paper, now owned
or hereafter acquired by any Person.

 

“Closing Date” means the date on which any
Company shall first receive proceeds of the initial Loans or the date hereof,
if no Loan is made under the facility on the date hereof.

 

“Code” has the meaning given such term in Section 15(i).

 

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

 

(a)           all
Inventory;

 

(b)           all
Equipment;

 

(c)           all
Fixtures;

 

(d)           all General
Intangibles;

 

(e)           all
Accounts;

 

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

 

(g)           all
Investment Property;

 

(h)           all Stock of
Domestic Subsidiaries;

 

(i)            all Chattel
Paper;

 

50

 

(j)            all
Letter-of-Credit Rights;

 

(k)           all
Instruments;

 

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

 

(m)          all Books and
Records;

 

(n)           all
Intellectual Property;

 

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

 

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

 

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

 

“Common Stock” means the shares of stock
representing the Parent’s common equity interests.

 

“Company Agent” means the Parent.

 

“Contract Rate” has the meaning given such term
in the respective Note.

 

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

 

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

 

“Dilution” means any reduction in the value of
an Account at any time, including, without limitation, a reduction caused by
return of goods, dispute with respect to services, discounts, allowances,
rebills, credits and/or any other non-cash offsets asserted or assertable by
any Account Debtor of the Company

 

“Disclosure Controls” has the meaning given
such term in Section 12(f)(iv).

 

“Documents” means all “documents”, as such term
is defined in the UCC, now owned or hereafter acquired by any Person, wherever
located, including all bills of lading, dock

 

51

 

warrants, dock receipts,
warehouse receipts, and other documents of title, whether negotiable or
non-negotiable.

 

“Domestic Subsidiary” means any Subsidiary of
any Company that is not a Foreign Subsidiary.

 

“Eligible Accounts” means each Account of each
Company 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 such
Company to Laurus with respect thereto; (e) Laurus is, and continues to
be, satisfied with the credit standing of the Account Debtor in relation to the
amount of credit extended; (f) there are no facts existing or threatened
which are likely to result in any adverse change in an Account Debtor’s
financial condition; (g) is documented by an invoice in a form approved by
Laurus and shall not be unpaid more than 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 an
Account; (j) the Account Debtor is located in the United States; provided,
however, Laurus may, from time to time, deem certain Accounts as
Eligible Accounts notwithstanding that such Account is due from an Account
Debtor located outside of the United States so long as such Account is covered
by credit insurance which is in form and substance acceptable to Laurus in its
sole and absolute discretion and the proceeds of which have been assigned to Laurus
as Collateral for the Obligations pursuant to such documentation acceptable in
form and substance to Laurus in its sole discretion; (k) Laurus has a first
priority perfected Lien in such Account and such Account is not subject to any
Lien other than Permitted Liens; (l) does not arise out of transactions
with any employee, officer, director, stockholder or Affiliate of any Company;
(m) is payable to such Company; (n) does not arise out of a bill and hold sale
prior to shipment and does not arise out of a sale to any Person to which such
Company is indebted (excluding claims, allowances and credits arising in the
ordinary course of business consistent with past practice provided, that, the
amount of any such claims, allowances and credits shall be deducted from the
amount of such Eligible Accounts; (o) is net of any returns, discounts, claims,
credits and allowances; (p) if the Account arises out of contracts between such
Company, on the one hand, and the United States, on the other hand, any state,
or any department, agency or instrumentality of any of them, such Company has
so notified Laurus, in writing, prior to the eligibility of such Account, and
there has been compliance with any governmental notice or approval
requirements, including compliance with the Federal Assignment of Claims Act;
(q) is a good and valid account representing an undisputed bona fide
indebtedness incurred by the Account Debtor therein named, for a fixed sum as
set forth in the invoice relating thereto with respect to an unconditional sale
and delivery upon the stated terms of goods sold by such Company or work, labor
and/or services rendered by such Company; (r) does not arise out of progress
billings prior to completion of the order; (s) the total unpaid Accounts from
such Account Debtor does not exceed twenty-five percent (25%) of all Eligible
Accounts; (t) such Company’s right to payment is absolute and not contingent
upon the fulfillment of any condition whatsoever; (u) such

 

52

 

Company is able to bring suit and enforce its remedies against the
Account Debtor through judicial process; (v) does not represent interest
payments, late or finance charges owing to such Company, and (w) is otherwise
satisfactory to Laurus as determined by Laurus in the exercise of its sole
discretion exercised in good faith.  In
the event any Company requests that Laurus include within Eligible Accounts
certain Accounts of one or more of such Company’s acquisition targets, Laurus
shall at the time of such request consider such inclusion, but any such
inclusion shall be at the sole option of Laurus and shall at all times be
subject to the execution and delivery to Laurus of all such documentation
(including, without limitation, guaranty and security documentation) as Laurus
may require in its sole discretion.

 

“Eligible Subsidiary” means each Subsidiary of
the Parent set forth on Exhibit A hereto, as the same may be
updated from time to time with Laurus’ written consent.

 

“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” has the meaning given such term in Section 12(bb).

 

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

 

“Exchange Act” means the Securities Exchange
Act of 1934, as amended.

 

“Exchange Act Filings” means the Parent’s
filings under the Exchange Act made prior to the date of this Agreement.

 

“Existing Indebtedness” means the indebtedness
outstanding under the Loan and Security Agreement dated as of May 15, 2002
by and among Zohar II-2005-1, Limited (assignee of LaSalle Business Credit, Inc.),
Patriarch Partners Agency Services, LLC, the Companies, and the Subsidiaries,
as amended by the First Amendment through the Tenth Amendment, which
indebtedness shall be discharged with the proceeds of the Loans.

 

“Financial Reporting Controls” has the meaning
given such term in Section 12(f)(v).

 

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

 

“Foreign Subsidiary” means any Subsidiary of
any Company organized under the laws of a jurisdiction other than the United
States or any of its territories or possessions or any political subdivision
thereof.

 

“Formula Amount” has the meaning given such
term in Section 2(a)(i).

 

53

 

“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.

 

“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.

 

“Guarantor” means Net Value, Inc., a
Delaware corporation, Stonepath Operations, Inc., a Delaware corporation,
CD Transfer Technology, LLC, a Delaware limited liability company, Air Plus
Limited de Puerto Rico, Inc., a company organized under the laws of Puerto
Rico, and any other 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 the Companies.

 

“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

 

54

 

and all promissory notes and other
evidences of indebtedness, other than instruments that constitute, or are a
part of a group of writings that constitute, Chattel Paper.

 

“Intellectual Property” means any and all
patents, trademarks, service marks, trade names, copyrights, trade secrets,
Licenses, information and other proprietary rights and processes.

 

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

 

“Investment Property” means all “investment
property”, as such term is defined in the UCC, now owned or hereafter acquired
by any Person, wherever located, but does not include any capital stock of a
Foreign Subsidiary.

 

“Letter-of-Credit Rights” means “letter-of-credit
rights” as such term is defined in the UCC, now owned or hereafter acquired by
any Person, including rights to payment or performance under a letter of
credit, whether or not such Person, as beneficiary, has demanded or is entitled
to demand payment or performance.

 

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

 

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

 

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

 

“Lockboxes” has the meaning given such term in Section 8(a).

 

“Material Adverse Effect” means a material
adverse effect on (a) the business, assets, liabilities, condition
(financial or otherwise), properties, or operations of any Company or any of
its Subsidiaries (taken individually and as a whole), (b) any Company’s or
any of its Subsidiary’s ability to pay or perform the Obligations in accordance
with the terms hereof or any Ancillary Agreement, (c) the value of the
Collateral, the Liens on the Collateral or the priority of

 

55

 

any such Lien or (d) the
practical realization of the benefits of Laurus’ rights and remedies under this
Agreement and the Ancillary Agreements.

 

“Minimum Borrowing Amount” means $10,000,000.

 

“Minimum Borrowing Notes” means that certain
Secured Convertible Minimum Borrowing Note dated as of the Closing Date made by
the Companies in favor Laurus evidencing the Minimum Borrowing Amount and each
subsequent Secured Convertible Minimum Borrowing Note made by the Companies in
favor of Laurus evidencing the Minimum Borrowing Amount, as each of the same
may be amended, supplemented, restated and/or otherwise modified from time to
time.  For the avoidance of doubt, no
more than one Minimum Borrowing Note shall be outstanding at any one time and
the outstanding principal balance of any Minimum Borrowing Note shall be
reduced below the Minimum Borrowing Amount by means of conversion of the Minimum
Borrowing Note, the repayment from time to time of all or a portion of the
Loans evidenced by the Minimum Borrowing Note, and otherwise pursuant to the
express provisions of this Agreement and the Minimum Borrowing Note.

 

“Next Unissued Serialized Note” has the meaning
given such term in Section 2(a)(i).

 

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

 

“Note Shares” has the meaning given such term
in Section 12(a).

 

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

 

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

 

56

 

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

 

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

 

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

 

“Proceeds” means “proceeds”, as such term is
defined in the UCC and, in any event, shall include:  (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to any Company or any other
Person from time to time with respect to any Collateral; (b) any and all
payments (in any form whatsoever) made or due and payable to any Company from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any Collateral by any governmental body, governmental
authority, bureau or agency (or any person acting under color of governmental
authority); (c) any claim of any Company against third parties (i) for
past, present or future infringement of any Intellectual Property or (ii) for
past, present or future infringement or dilution of any trademark or trademark
license or for injury to the goodwill associated with any trademark, trademark
registration or trademark licensed under any trademark License; (d) any
recoveries by any Company against third parties with respect to any litigation
or dispute concerning any Collateral, including claims arising out of the loss
or nonconformity of, interference with the use of, defects in, or infringement
of rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts, rights to payment or other
property acquired upon the sale, lease, license, exchange or other disposition
of Collateral and all rights arising out of Collateral.

 

57

 

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

 

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

 

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

 

“Revolving Note” means that certain Secured
Revolving Note dated as of the Closing Date made by the Companies in favor of
Laurus in the original principal amount of $25,000,000, as the same may be
amended, supplemented, restated and/or otherwise modified from time to time.

 

“SEC” means the Securities and Exchange
Commission.

 

“SEC Reports” has the meaning given such term
in Section 12(u).

 

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

 

“Securities Act” has the meaning given such
term in Section 12(r).

 

“Security Documents” means all security
agreements (including, without limitation, the Guarantor Security Agreements)
and, mortgages, cash collateral deposit letters, pledges and other agreements
which are executed by any Company, any Guarantor or any of their respective
Subsidiaries in favor of Laurus.

 

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

 

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

 

58

 

“Subordinated Debt” means indebtedness for
borrowed money of any Company which is governed by Subordinated Debt
Documentation.

 

“Subordinated Debt Documentation” means all
documents, instruments and agreements evidencing indebtedness for borrowed
money of any Company which has been subordinated in right of payment to the
Obligations in a manner satisfactory to Laurus in its sole discretion.

 

“Subsidiary” means, with respect to any Person,
(i) any other Person whose shares of stock or other ownership interests
having ordinary voting power (other than stock or other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the directors or other governing body of such other Person, are
owned, directly or indirectly, by such Person or (ii) any other Person in
which such Person owns, directly or indirectly, more than 50% of the equity
interests at such time.  The term Subsidiary, when used in this Agreement (other than in the
definitions of Domestic Subsidiary and Foreign Subsidiary), shall not include
any Foreign Subsidiary.

 

“Supporting Obligations” means all “supporting
obligations” as such term is defined in the UCC.

 

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

 

“Transferable Amount” has the meaning given
such term in Section 2(a)(i).

 

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

 

“Warrant Shares” has the meaning given such
term in Section 12(a).

 

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

 

59

 

Exhibit A

 

Eligible Subsidiaries

 

Stonepath Logistics Domestic Services, Inc., a
Delaware corporation

 

Stonepath Logistics International Services, Inc.,
a Delaware corporation

 

Stonepath Offshore Holdings, Inc., a Delaware
corporation

 

M.G.R., Inc., a Minnesota corporation

 

Distribution Services, Inc., a Minnesota
corporation

 

Stonepath Logistics Government Services, Inc., a
Virginia corporation

 

United American Acquisitions and Management, Inc.,
a Michigan corporation

 

Stonepath Logistics International Services, Inc.,
a Washington corporation

 

Global Container Line, Inc., a Washington
corporation

 

60

 

Exhibit B

 

Borrowing Base Certificate

 

[To be inserted]

 

61

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