Document:

Exhibit 10.17 Security Agreement

    
      
        
          
            
              
                
                  
                    
                      
                        
                          

                        

                        
                          

                        

                        Exhibit
                          10.17 Security Agreement

                        
                          
                            

                               

                              

                              SECURITY
                                AGREEMENT

                               

                              SECURITY
                                AGREEMENT, dated as of June 29, 2006 (this
“Agreement”),
                                among
Chembio
                                Diagnostics, Inc., a Nevada corporation (the
                                “Company”),
                                Chembio
                                Diagnostic Systems, Inc., a Delaware corporation,
                                which is a Subsidiary
                                of the Company (such Subsidiary, the
                                “Guarantor”
                                and
                                together with any other entity that may become a
                                party hereto as provided
                                herein, the “Guarantors”)
                                (the
                                Company and Guarantors are collectively
                                referred to as the “Debtors”)
                                and
                                the holder or holders of the Company’s Secured Debentures due September 27, 2006
                                in the original aggregate principal amount of up
                                to $1,800,000 (the
“Debentures”)
                                signatory hereto, their endorsees, transferees and
                                assigns (each, a
“Secured
                                Party”
and,
                                collectively, the “Secured
                                Parties”).

                              W
                                I T N E S S E T H:

                              

                              WHEREAS,
                                pursuant to the Purchase Agreement (as defined in
                                the Debentures), the Secured
                                Parties have severally agreed to extend the loans
                                to the Company evidenced by
                                the Debentures; 

                               

                              WHEREAS,
                                pursuant to a certain Subsidiary Guarantee
                                dated as of the date hereof (the “Guaranty”),
                                the
                                Guarantors
                                have
                                jointly and severally agreed to guaranty and act
                                as surety for payment of such
                                loans; and

                               

                              WHEREAS,
                                in order to induce the Secured Parties to extend
                                the loans evidenced by the
                                Debentures, each Debtor has agreed to execute and
                                deliver to the Secured Parties
                                this Agreement and to grant each Secured Party, pari passu
                                with
                                each other Secured Party, a security interest in
                                certain property of such Debtor
                                to secure the prompt payment, performance and discharge
                                in full of all of the
                                Company’s obligations under the Debentures and the other
                                Debtors’ obligations
                                under the Guaranty.

                              

                              NOW,
                                THEREFORE, in consideration of the agreements herein
                                contained and for other
                                good and valuable consideration, the receipt and
                                sufficiency of which is hereby
                                acknowledged, the parties hereto hereby agree as
                                follows:

                              

                              1.
                                 Certain
                                Definitions.
                                As used
                                in this Agreement, the following terms shall have
                                the meanings set forth in this
                                Section 1. Terms used but not otherwise defined in
                                this Agreement that are
                                defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial
                                tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general
                                intangibles”, “goods”, “instruments”, “inventory”, “investment property”,
“letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have
                                the respective meanings given such terms in Article
                                9 of the UCC.

                              

                              (a)
                                 “Collateral”
means
                                the collateral in which the Secured Parties are granted
                                a security interest by
                                this Agreement and which shall include the following
                                personal property of the
                                Debtors, whether presently owned or existing 

                              
                                
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                              or
                                hereafter acquired or coming into existence, wherever
                                situated, and all
                                additions and accessions thereto and all substitutions
                                and replacements thereof,
                                and all proceeds, products and accounts thereof,
                                including, without limitation,
                                all proceeds from the sale or transfer of the Collateral
                                and of insurance
                                covering the same and of any tort claims in connection
                                therewith,
                                and all
                                dividends, interest, cash, notes, securities, equity
                                interest or other property
                                at any time and from time to time acquired, receivable
                                or otherwise distributed
                                in respect of, or in exchange for, any or all of
                                the Pledged Securities (as
                                defined below):

                               

                              (i)
                                All
                                goods, including, without limitations, (A) all machinery,
                                equipment, computers,
                                motor vehicles, trucks, tanks, boats, ships, appliances,
                                furniture, special and
                                general tools, fixtures, test and quality control
                                devices and other equipment of
                                every kind and nature and wherever situated, together
                                with all documents of
                                title and documents representing the same, all additions
                                and accessions thereto,
                                replacements therefor, all parts therefor, and all
                                substitutes for any of the
                                foregoing and all other items used and useful in
                                connection with any Debtor’s
                                businesses and all improvements thereto; and (B)
                                all inventory;

                              

                                (ii)
                                   All
                                  contract rights and other general intangibles,
                                  including, without limitation,
                                  all partnership interests, membership interests,
                                  stock or other securities,
rights
                                  under any of the Organizational Documents, agreements
                                  related to the Pledged
                                  Securities, licenses,
                                  distribution and other agreements, computer software
                                  (whether “off-the-shelf”,
                                  licensed from any third party or developed by any
                                  Debtor), computer software
                                  development rights, leases, franchises, customer
                                  lists, quality control
                                  procedures, grants and rights, goodwill, trademarks,
                                  service marks, trade
                                  styles, trade names, patents, patent applications,
                                  copyrights, and income tax
                                  refunds; 

                                 

                              

                              (iii)
                                 All
                                accounts, together with all instruments, all documents
                                of title representing any
                                of the foregoing, all rights in any merchandising,
                                goods, equipment, motor
                                vehicles and trucks which any of the same may represent,
                                and all right, title,
                                security and guaranties with respect to each account,
                                including any right of
                                stoppage in transit; 

                              

                              (iv)
                                 All
                                documents, letter-of-credit rights, instruments and
                                chattel paper;

                              

                              (v) All
                                commercial tort claims;

                              

                              (vi) All
                                deposit accounts and all cash (whether or not deposited
                                in such deposit
                                accounts);

                              

                              (vii) All
                                investment property;

                              

                               (viii) All
                                supporting obligations; and

                              
                                
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                              (ix) All
                                files, records, books of account, business papers,
                                and computer programs;
                                and

                              

                              (x) the
                                products and proceeds of all of the foregoing Collateral
                                set forth in clauses
                                (i)-(ix) above.

                               

                              
                                Without
                                  limiting the generality of the foregoing, the “Collateral”
shall
                                  include all investment property and general intangibles
                                  respecting ownership
                                  and/or other equity interests in each Guarantor,
                                  including, without limitation,
                                  the shares of capital stock and the other equity
                                  interests listed on
Schedule
                                  H
                                  hereto
                                  (as the same may be modified from time to time
                                  pursuant to the terms hereof),
                                  and any other shares of capital stock and/or other
                                  equity interests of any other
                                  direct or indirect subsidiary of any Debtor obtained
                                  in the future, and, in each
                                  case, all certificates representing such shares
                                  and/or equity interests and, in
                                  each case, all rights, options, warrants, stock,
                                  other securities and/or equity
                                  interests that may hereafter be received, receivable
                                  or distributed in respect
                                  of, or exchanged for, any of the foregoing (all
                                  of the foregoing being referred
                                  to herein as the “Pledged
                                  Securities”)
                                  and
                                  all rights arising under or in connection with
                                  the Pledged Securities,
                                  including, but not limited to, all dividends, interest
                                  and cash.

                                 

                              

                              Notwithstanding
                                the foregoing, nothing herein shall be deemed to
                                constitute an assignment of any
                                asset which, in the event of an assignment, becomes
                                void by operation of
                                applicable law or the assignment of which is otherwise
                                prohibited by applicable
                                law (in each case to the extent that such applicable
                                law is not overridden by
                                Sections 9-406, 9-407 and/or 9-408 of the UCC or
                                other similar applicable law);
                                provided, however, that to the extent permitted by
                                applicable law, this
                                Agreement shall create a valid security interest
                                in such asset and, to the
                                extent permitted by applicable law, this Agreement
                                shall create a valid security
                                interest in the proceeds of such asset.

                              

                              (b)
                                 “Intellectual
                                Property”
means
                                the collective reference to all rights, priorities
                                and privileges relating to
                                intellectual property, whether arising under United
                                States, multinational or
                                foreign laws or otherwise, including, without limitation,
                                (i) all copyrights
                                arising under the laws of the United States, any
                                other country or any political
                                subdivision thereof, whether registered or unregistered
                                and whether published or
                                unpublished, all registrations and recordings thereof,
                                and all applications in
                                connection therewith, including, without limitation,
                                all registrations,
                                recordings and applications in the United States
                                Copyright Office, (ii) all
                                letters patent of the United States, any other country
                                or any political
                                subdivision thereof, all reissues and extensions
                                thereof, and all applications
                                for letters patent of the United States or any other
                                country and all divisions,
                                continuations and continuations-in-part thereof,
                                (iii) all trademarks, trade
                                names, corporate names, company names, business names,
                                fictitious business
                                names, 

                              
                                
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                              trade
                                dress, service marks, logos, domain names and other
                                source or business
                                identifiers, and all goodwill associated therewith,
                                now existing or hereafter
                                adopted or acquired, all registrations and recordings
                                thereof, and all
                                applications in connection therewith, whether in
                                the United States Patent and
                                Trademark Office or in any similar office or agency
                                of the United States, any
                                State thereof or any other country or any political
                                subdivision thereof, or
                                otherwise, and all common law rights related thereto,
                                (iv) all trade secrets
                                arising under the laws of the United States, any
                                other country or any political
                                subdivision thereof, (v) all rights to obtain any
                                reissues, renewals or
                                extensions of the foregoing, (vi) all licenses for
                                any of the foregoing, and
                                (vii) all causes of action for infringement of the
                                foregoing. 

                               

                              (c) "Majority
                                in Interest" shall mean, at any time of determination, the
                                majority in
                                interest (based on then-outstanding principal amounts
                                of Debentures at the time
                                of such determination) of the Secured Parties.

                               

                              (d) "Necessary
                                Endorsement" shall mean undated stock powers endorsed in
                                blank or other
                                proper instruments of assignment duly executed and
                                such other instruments or
                                documents as the Agent (as that term is defined below)
                                may reasonably
                                request.

                               

                              (e)
                                 "Obligations" means all of the liabilities and obligations
                                (primary, secondary, direct, contingent, sole, joint
                                or several) due or to
                                become due, or that are now or may be hereafter contracted
                                or acquired, or owing
                                to, of any Debtor to the Secured Parties, including,
                                without limitation, all
                                obligations under this Agreement, the Debentures,
                                the Guaranty and any other
                                instruments, agreements or other documents executed
                                and/or delivered in
                                connection herewith or therewith, in each case, whether
                                now or hereafter
                                existing, voluntary or involuntary, direct or indirect,
                                absolute or contingent,
                                liquidated or unliquidated, whether or not jointly
                                owed with others, and whether
                                or not from time to time decreased or extinguished
                                and later increased, created
                                or incurred, and all or any portion of such obligations
                                or liabilities that are
                                paid, to the extent all or any part of such payment
                                is avoided or recovered
                                directly or indirectly from any of the Secured Parties
                                as a preference,
                                fraudulent transfer or otherwise as such obligations
                                may be amended,
                                supplemented, converted, extended or modified from
                                time to time. Without
                                limiting the generality of the foregoing, the term
“Obligations” shall include,
                                without limitation: (i) principal of, and interest
                                on the Debentures and the
                                loans extended pursuant thereto; (ii) any and all
                                other fees, indemnities,
                                costs, obligations and liabilities of the Debtors
                                from time to time under or in
                                connection with this Agreement, the Debentures, the
                                Guaranty and any other
                                instruments, agreements or other documents executed
                                and/or delivered in
                                connection herewith or therewith; and (iii) all amounts
                                (including but not
                                limited to post-petition interest) in respect of
                                the foregoing that would be
                                payable but for the fact that the obligations to
                                pay such amounts are
                                unenforceable or not allowable due to the existence
                                of a bankruptcy,
                                reorganization or similar proceeding involving any
                                Debtor.

                               

                              
                                
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                              (f)
                                 "Organizational Documents"means with respect to any Debtor, the
                                documents by which such Debtor was organized (such
                                as a certificate of
                                incorporation, certificate of limited partnership
                                or articles of organization,
                                and including, without limitation, any certificates
                                of designation for preferred
                                stock or other forms of preferred equity) and which
                                relate to the internal
                                governance of such Debtor (such as bylaws, a partnership
                                agreement or an
                                operating, limited liability or members agreement)

                               

                              (g)
                                 "UCC" means the Uniform Commercial Code of the
                                State of New York
                                and or any other applicable law of any state or states
                                which has jurisdiction
                                with respect to all, or any portion of, the Collateral
                                or this Agreement, from
                                time to time. It is the intent of the parties that
                                defined terms in the UCC
                                should be construed in their broadest sense so that
                                the term “Collateral” will
                                be construed in its broadest sense. Accordingly if
                                there are, from time to time,
                                changes to defined terms in the UCC that broaden
                                the definitions, they are
                                incorporated herein and if existing definitions in
                                the UCC are broader than the
                                amended definitions, the existing ones shall be controlling.

                              

                              2.
                                 Grant
                                of Security Interest in Collateral.
                                As an
                                inducement for the Secured Parties to extend the
                                loans as evidenced by the
                                Debentures and to secure the complete and timely
                                payment, performance and
                                discharge in full, as the case may be, of all of
                                the Obligations, each Debtor
                                hereby unconditionally and irrevocably pledges, grants
                                and hypothecates to the
                                Secured Parties a continuing security interest in
                                and to, a lien upon and a
                                right of set-off against all of their respective
                                right, title and interest of
                                whatsoever kind and nature in and to, the Collateral
                                (the “Security
                                Interest”).

                               

                                3. Delivery
                                  of Certain Collateral. Contemporaneously or prior to
                                  the
                                  execution of this Agreement, each Debtor shall
                                  deliver or cause to be delivered
                                  to the Agent (a) any and all certificates and other
                                  instruments representing or
                                  evidencing the Pledged Securities, and (b) any
                                  and all certificates and other
                                  instruments or documents representing any of the
                                  other Collateral, in each case,
                                  together with all Necessary Endorsements. The Debtors
                                  are, contemporaneously
                                  with the execution hereof, delivering to Agent,
                                  or have previously delivered to
                                  Agent, a true and correct copy of each Organizational
                                  Document governing any of
                                  the Pledged Securities.

                              

                                 4.  Representations,
                                  Warranties, Covenants and Agreements of the Debtors.
                                  Each Debtor represents and warrants to, and covenants
                                  and agrees with, the
                                  Secured Parties as follows:

                              

                              (a)
                                Each
                                Debtor has the requisite corporate, partnership,
                                limited liability company or
                                other power and authority to enter into this Agreement
                                and otherwise to carry
                                out its obligations hereunder. The execution, delivery
                                and performance by each
                                Debtor of this Agreement and the filings contemplated
                                therein have been duly
                                authorized by all necessary action on the part of
                                such Debtor and no further
                                action is required by such Debtor. This Agreement
                                has been duly executed by

                              
                                
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                              each
                                Debtor. This Agreement constitutes the legal, valid
                                and binding obligation of
                                each Debtor, enforceable against each Debtor in accordance
                                with its terms except
                                as such enforceability may be limited by applicable
                                bankruptcy, insolvency,
                                reorganization and similar laws of general application
                                relating to or affecting
                                the rights and remedies of creditors and by general
                                principles of
                                equity.

                              

                              (b)
                                 The
                                Debtors have no place of business or offices where
                                their respective books of
                                account and records are kept (other than temporarily
                                at the offices of its
                                attorneys or accountants) or places where Collateral
                                is stored or located,
                                except as set forth on Schedule
                                A
                                attached
                                hereto. Except as specifically set forth on Schedule
                                A,
                                each
                                Debtor is the record owner of the real property where
                                such Collateral is
                                located, and there exist no mortgages or other liens
                                on any such real property
                                except for Permitted Liens (as defined in the Debentures).
                                Except as disclosed
                                on Schedule
                                A,
                                none of
                                such Collateral is in the possession of any consignee,
                                bailee, warehouseman,
                                agent or processor.

                              

                              (c)
                                 Except
                                as
                                set forth on Schedule
                                B
                                attached
                                hereto, the Debtors are the sole owner of the Collateral
                                (except for
                                non-exclusive licenses granted by any Debtor in the
                                ordinary course of
                                business), free and clear of any liens, security
                                interests, encumbrances, rights
                                or claims, and are fully authorized to grant the
                                Security Interest. Except as
                                set forth on Schedule
                                B
                                and
Schedule
                                F
                                attached
                                hereto, there is not on file in any governmental
                                or regulatory authority, agency
                                or recording office an effective financing statement,
                                security agreement,
                                license or transfer or any notice of any of the foregoing
                                (other than those that
                                will be filed in favor of the Secured Parties pursuant
                                to this Agreement)
                                covering or affecting any of the Collateral. So long
                                as this Agreement shall be
                                in effect, the Debtors shall not execute and shall
                                not knowingly permit to be on
                                file in any such office or agency any such financing
                                statement or other document
                                or instrument (except to the extent filed or recorded
                                in favor of the Secured
                                Parties pursuant to the terms of this Agreement).

                              

                              (d)
                                 No
                                written claim has been received that any Collateral
                                or Debtor's use of any
                                Collateral violates the rights of any third party.
                                There has been no adverse
                                decision to any Debtor's claim of ownership rights
                                in or exclusive rights to use
                                the Collateral in any jurisdiction or to any Debtor's
                                right to keep and maintain
                                such Collateral in full force and effect, and there
                                is no proceeding involving
                                said rights pending or, to the best knowledge of
                                any Debtor, threatened before
                                any court, judicial body, administrative or regulatory
                                agency, arbitrator or
                                other governmental authority.

                              

                              (e)
                                 Each
                                Debtor shall at all times maintain its books of account
                                and records relating to
                                the Collateral at its principal place of business
                                and its Collateral at the
                                locations set forth on Schedule
                                A
                                attached
                                hereto and may not relocate such books of account
                                and records or tangible
                                Collateral unless it delivers to the Secured Parties
                                at least 30 days prior to
                                such relocation (i) written notice of such relocation
                                and the new location
                                thereof (which must be within the United 

                              
                                
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                              States)
                                and (ii) evidence that appropriate financing statements
                                under the UCC and other
                                necessary documents have been filed and recorded
                                and other steps have been taken
                                to perfect the Security Interest to create in favor
                                of the Secured Parties a
                                valid, perfected and continuing perfected first priority
                                lien in the
                                Collateral.

                               

                              (f)
                                 This Agreement creates in favor of the Secured Parties
                                a valid, security
                                interest in the Collateral, subject only to the liens
                                and licenses set forth on
Schedule B and Schedule F attached hereto, securing the payment
                                and performance of the Obligations. Upon making the
                                filings described in the
                                immediately following paragraph, all security interests
                                created hereunder in any
                                Collateral which may be perfected by filing Uniform
                                Commercial Code financing
                                statements shall have been duly perfected. Except
                                for the filing of the Uniform
                                Commercial Code financing statements referred to
                                in the immediately following
                                paragraph, the recordation of the Intellectual Property
                                Security Agreement (as
                                defined below) with respect to copyrights and copyright
                                applications in the
                                United States Copyright Office referred to in paragraph
                                (m), the execution and
                                delivery of deposit account control agreements satisfying
                                the requirements of
                                Section 9-104(a)(2) of the UCC with respect to each
                                deposit account of the
                                Debtors, and the delivery of the certificates and
                                other instruments provided in
                                Section 3, no action is necessary to create, perfect
                                or protect the security
                                interests created hereunder. Without limiting the
                                generality of the foregoing,
                                except for the filing of said financing statements,
                                the recordation of said
                                Intellectual Property Security Agreement, and the
                                execution and delivery of said
                                deposit account control agreements, no consent of
                                any third parties and no
                                authorization, approval or other action by, and no
                                notice to or filing with, any
                                governmental authority or regulatory body is required
                                for (i) the execution,
                                delivery and performance of this Agreement, (ii)
                                the creation or perfection of
                                the Security Interests created hereunder in the Collateral
                                or (iii) the
                                enforcement of the rights of the Secured Parties
                                hereunder.

                              

                              (g)
                                 Each
                                Debtor hereby authorizes the Secured Parties, or
                                any of them, to file one or
                                more financing statements under the UCC, with respect
                                to the Security Interest
                                with the proper filing and recording agencies in
                                any jurisdiction deemed proper
                                by them.

                              

                               (h)
                                 The
                                execution, delivery and performance of this Agreement
                                by the Debtors does not
                                (i) violate any of the provisions of any Organizational
                                Documents of any Debtor
                                or any judgment, decree, order or award of any court,
                                governmental body or
                                arbitrator or any applicable law, rule or regulation
                                applicable to any Debtor or
                                (ii) conflict with, or constitute a default (or an
                                event that with notice or
                                lapse of time or both would become a default) under,
                                or give to others any
                                rights of termination, amendment, acceleration or
                                cancellation (with or without
                                notice, lapse of time or both) of, any agreement,
                                credit facility, debt or other
                                instrument (evidencing any Debtor's debt or otherwise)
                                or other understanding to
                                which any Debtor is a party or by which any property
                                or asset of any Debtor is
                                bound or affected. Except as set forth on Schedule
                                4(h)
                                attached

                              
                                
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                              hereto,
                                no consent (including, without limitation, from stockholders
                                or creditors of any
                                Debtor) is required for any Debtor to enter into
                                and perform its obligations
                                hereunder.

                               

                               (i)
                                 The
                                capital stock and other equity interests listed on
Schedule
                                H
                                hereto
                                represent all of the capital stock and other equity
                                interests of the Guarantors,
                                and represent all capital stock and other equity
                                interests owned, directly or
                                indirectly, by the Company. All of the Pledged Securities
                                are validly issued,
                                fully paid and nonassessable, and the Company is
                                the legal and beneficial owner
                                of the Pledged Securities, free and clear of any
                                lien, security interest or
                                other encumbrance except for the security interests
                                created by this
                                Agreement.

                               

                              (j)
                                 The
                                ownership and other equity interests in partnerships
                                and limited liability
                                companies (if any)
                                included
                                in the Collateral
                                (the
“Pledged
                                Interests”)
                                by
                                their express terms do not provide that they are
                                securities governed by Article
                                8 of the UCC and are not held in a securities account
                                or by any financial
                                intermediary.

                               

                              (k)
                                 Each
                                Debtor shall at all times maintain the lien and Security
                                Interest provided for
                                hereunder as a valid and perfected lien and security
                                interest in the Collateral
                                in favor of the Secured Parties until this Agreement
                                and the Security Interest
                                hereunder shall be terminated pursuant to Section
                                11 hereof. Each Debtor hereby
                                agrees to defend the same against the claims of any
                                and all persons and
                                entities. Each Debtor shall safeguard and protect
                                all Collateral for the account
                                of the Secured Parties. At the request of the Secured
                                Parties, each Debtor will
                                sign and deliver to the Secured Parties at any time
                                or from time to time one or
                                more financing statements pursuant to the UCC in
                                form reasonably satisfactory to
                                the Secured Parties and will pay the cost of filing
                                the same in all public
                                offices wherever filing is, or is deemed by the Secured
                                Parties to be, necessary
                                or desirable to effect the rights and obligations
                                provided for herein. Without
                                limiting the generality of the foregoing, each Debtor
                                shall pay all fees, taxes
                                and other amounts necessary to maintain the Collateral
                                and the Security Interest
                                hereunder, and each Debtor shall obtain and furnish
                                to the Secured Parties from
                                time to time, upon demand, such releases and/or subordinations
                                of claims and
                                liens which may be required to maintain the priority
                                of the Security Interest
                                hereunder.

                               

                              (l)
                                 No
                                Debtor
                                will transfer, pledge, hypothecate, encumber, license,
                                sell or otherwise dispose
                                of any of the Collateral (except for non-exclusive
                                licenses granted by a Debtor
                                in its ordinary course of business and sales of inventory
                                by a Debtor in its
                                ordinary course of business) without the prior written
                                consent of a Majority
                                in Interest.

                               

                              (m) Each
                                Debtor shall keep and preserve its equipment, inventory
                                and other tangible
                                Collateral in good condition, repair and order and
                                shall not operate

                              
                                
                                  8

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              or
                                locate
                                any such Collateral (or cause to be operated or located)
                                in any area excluded
                                from insurance coverage.

                               

                              (n) Each
                                Debtor shall maintain with financially sound and
                                reputable insurers, insurance
                                with respect to the Collateral against loss or damage
                                of the kinds and in the
                                amounts customarily insured against by entities of
                                established reputation having
                                similar properties similarly situated and in such
                                amounts as are customarily
                                carried under similar circumstances by other such
                                entities and otherwise as is
                                prudent for entities engaged in similar businesses
                                but in any event sufficient
                                to cover the full replacement cost thereof. Each
                                Debtor shall cause each
                                insurance policy issued in connection herewith to
                                provide, and the insurer
                                issuing such policy to certify to the Agent that
                                (a) the Agent will be named as
                                lender loss payee and additional insured under each
                                such insurance policy; (b)
                                if such insurance be proposed to be cancelled or
                                materially changed for any
                                reason whatsoever, such insurer will promptly notify
                                the Agent and such
                                cancellation or change shall not be effective as
                                to the Agent for at least
                                thirty (30) days after receipt by the Agent of such
                                notice, unless the effect of
                                such change is to extend or increase coverage under
                                the policy; and (c) the
                                Agent will have the right (but no obligation) at
                                its election to remedy any
                                default in the payment of premiums within thirty
                                (30) days of notice from the
                                insurer of such default. If no Event of Default (as
                                defined in the Debenture)
                                exists and if the proceeds arising out of any claim
                                or series of related claims
                                do not exceed $100,000, loss payments in each instance
                                will be applied by the
                                applicable Debtor to the repair and/or replacement
                                of property with respect to
                                which the loss was incurred to the extent reasonably
                                feasible, and any loss
                                payments or the balance thereof remaining, to the
                                extent not so applied, shall
                                be payable to the applicable Debtor, provided, however,
                                that payments received
                                by any Debtor after an Event of Default occurs and
                                is continuing or in excess of
                                $100,000 for any occurrence or series of related
                                occurrences shall be paid to
                                the Agent and, if received by such Debtor, shall
                                be held in trust for and
                                immediately paid over to the Agent unless otherwise
                                directed in writing by the
                                Agent. Copies of such policies or the related certificates,
                                in each case, naming
                                the Agent as lender loss payee and additional insured
                                shall be delivered to the
                                Agent at least annually and at the time any new policy
                                of insurance is
                                issued.

                               

                              (o)
                                 Each
                                Debtor shall, within ten (10) days of obtaining knowledge
                                thereof, advise the
                                Secured Parties promptly, in sufficient detail, of
                                any substantial change in the
                                Collateral, and of the occurrence of any event which
                                would have a material
                                adverse effect on the value of the Collateral or
                                on the Secured Parties’
security interest therein.

                               

                              (p)
                                 Each
                                Debtor shall promptly execute and deliver to the
                                Secured Parties such further
                                deeds, mortgages, assignments, security agreements,
                                financing statements or
                                other instruments, documents, certificates and assurances
                                and take such further
                                action as the Secured Parties may from time to time
                                request and may in its sole
                                discretion deem necessary to perfect, protect or
                                enforce its 

                              
                                
                                  9

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              security
                                interest in the Collateral including, without limitation,
                                if applicable, the
                                execution and delivery of a separate security agreement
                                with respect to each
                                Debtor’s Intellectual Property (“Intellectual
                                Property Security Agreement”)
                                in
                                which the Secured Parties have been granted a security
                                interest hereunder,
                                substantially in a form acceptable to the Secured
                                Parties, which Intellectual
                                Property Security Agreement, other than as stated
                                therein, shall be subject to
                                all of the terms and conditions hereof.

                               

                              (q)
                                 Each
                                Debtor shall permit the Secured Parties and their
                                representatives and agents to
                                inspect the Collateral at any time, and to make copies
                                of records pertaining to
                                the Collateral as may be requested by a Secured Party
                                from time to
                                time.

                               

                              (r)
                                 Each
                                Debtor shall take all steps reasonably necessary
                                to diligently pursue and seek
                                to preserve, enforce and collect any rights, claims,
                                causes of action and
                                accounts receivable in respect of the Collateral.

                               

                              (s)
                                 Each
                                Debtor shall promptly notify the Secured Parties
                                in sufficient detail upon
                                becoming aware of any attachment, garnishment, execution
                                or other legal process
                                levied against any Collateral and of any other information
                                received by such
                                Debtor that may materially affect the value of the
                                Collateral, the Security
                                Interest or the rights and remedies of the Secured
                                Parties
                                hereunder.

                               

                              (t)
                                 All
                                information heretofore, herein or hereafter supplied
                                to the Secured Parties by
                                or on behalf of any Debtor with respect to the Collateral
                                is accurate and
                                complete in all material respects as of the date
                                furnished.

                               

                              (u)
                                 The
                                Debtors shall at all times preserve and keep in full
                                force and effect their
                                respective valid existence and good standing and
                                any rights and franchises
                                material to its business.

                               

                              (v)
                                 No
                                Debtor
                                will change its name, type of organization, jurisdiction
                                of organization,
                                organizational identification number (if it has one),
                                legal or corporate
                                structure, or identity, or add any new fictitious
                                name unless it provides at
                                least 30 days prior written notice to the Secured
                                Parties of such change and, at
                                the time of such written notification, such Debtor
                                provides any financing
                                statements or fixture filings necessary to perfect
                                and continue perfected the
                                perfected security Interest granted and evidenced
                                by this
                                Agreement.

                               

                              (w) No
                                Debtor
                                may consign any of its Inventory or sell any of its
                                Inventory on bill and hold,
                                sale or return, sale on approval, or other conditional
                                terms of sale without the
                                consent of a Majority
                                in Interest
                                which
                                shall not be unreasonably withheld, except to the
                                extent such consignment or
                                sale does not exceed 15% of the total value of all
                                of the Company’s finished
                                goods in Inventory.

                               

                              
                                
                                  10

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              (x)
                                 No
                                Debtor
                                may relocate its chief executive office to a new
                                location without providing 30
                                days prior written notification thereof to the Secured
                                Parties and so long as,
                                at the time of such written notification, such Debtor
                                provides any financing
                                statements or fixture filings necessary to perfect
                                and continue perfected the
                                perfected security Interest granted and evidenced
                                by this
                                Agreement.

                               

                              (y) Each
                                Debtor was organized and remains organized solely
                                under the laws of the state
                                set forth next to such Debtor’s name in the first paragraph of this Agreement.
                                Schedule
                                D
                                attached
                                hereto sets forth each Debtor’s organizational identification number or, if any
                                Debtor does not have one, states that one does not
                                exist.

                               

                              (z) 
                                (i) The
                                actual name of each Debtor is the name set forth
                                in the preamble above; (ii) no
                                Debtor has any trade names except as set forth on
Schedule
                                E
                                attached
                                hereto; (iii) no Debtor has used any name other than
                                that stated in the preamble
                                hereto or as set forth on Schedule
                                E
                                for the
                                preceding five years; and (iv) no entity has merged
                                into any Debtor or been
                                acquired by any Debtor within the past five years
                                except as set forth on
Schedule
                                E.

                               

                              (aa) At
                                any
                                time and from time to time that any Collateral consists
                                of instruments,
                                certificated securities or other items that require
                                or permit possession by the
                                secured party to perfect the security interest created
                                hereby, the applicable
                                Debtor shall deliver such Collateral to the Agent.

                               

                              (bb)
                                 Each
                                Debtor, in its capacity as issuer, hereby agrees
                                to comply with any and all
                                orders and instructions of Agent regarding the Pledged
                                Interests consistent with
                                the terms of this Agreement without the further consent
                                of any Debtor as
                                contemplated by Section 8-106 (or any successor section)
                                of the UCC. Further,
                                each Debtor agrees that it shall not enter into a
                                similar agreement (or one that
                                would confer “control” within the meaning of Article 8 of the UCC) with
                                any
                                other person or entity.

                               

                              (cc) Each
                                Debtor shall cause all tangible chattel paper constituting
                                Collateral to be
                                delivered to the Agent, or, if such delivery is not
                                possible, then to cause such
                                tangible chattel paper to contain a legend noting
                                that it is subject to the
                                security interest created by this Agreement. To the
                                extent that any Collateral
                                consists of electronic chattel paper, the applicable
                                Debtor shall cause the
                                underlying chattel paper to be “marked” within the meaning of Section 9-105 of
                                the UCC (or successor section thereto).

                               

                              (dd) If
                                there
                                is any investment property or deposit account included
                                as Collateral that can be
                                perfected by “control” through an account control agreement, the applicable
                                Debtor shall cause such an account control agreement,
                                in form and substance in
                                each case satisfactory to the Secured Parties, to
                                be entered into and delivered
                                to the Secured Parties.

                              

                              
                                
                                  11

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              (ee)
                                 To
                                the
                                extent that any Collateral consists of letter-of-credit
                                rights, the applicable
                                Debtor shall cause the issuer of each underlying
                                letter of credit to consent to
                                an assignment of the proceeds thereof to the Secured
                                Parties.

                               

                              (ff)
                                 To
                                the
                                extent that any Collateral is in the possession of
                                any third party, the
                                applicable Debtor shall join with the Secured Parties
                                in notifying such third
                                party of the Secured Parties’ security interest in such Collateral and shall use
                                its best efforts to obtain an acknowledgement and
                                agreement from such third
                                party with respect to the Collateral, in form and
                                substance satisfactory to the
                                Secured Parties.

                               

                              (gg) If
                                any
                                Debtor shall at any time hold or acquire a commercial
                                tort claim, such Debtor
                                shall promptly notify the Secured Parties in a writing
                                signed by such Debtor of
                                the particulars thereof and grant to the Secured
                                Parties in such writing a
                                security interest therein and in the proceeds thereof,
                                all upon the terms of
                                this Agreement, with such writing to be in form and
                                substance satisfactory to
                                the Secured Parties.

                               

                              (hh)  Each
                                Debtor shall immediately provide written notice to
                                the Secured Parties of any
                                and all accounts which arise out of contracts with
                                any governmental authority
                                and, to the extent necessary to perfect or continue
                                the perfected status of the
                                Security Interest in such accounts and proceeds thereof,
                                shall execute and
                                deliver to the Secured Parties an assignment of claims
                                for such accounts and
                                cooperate with the Secured Parties in taking any
                                other steps required, in their
                                judgment, under the Federal Assignment of Claims
                                Act or any similar federal,
                                state or local statute or rule to perfect or continue
                                the perfected status of
                                the Security Interest in such accounts and proceeds
                                thereof.

                               

                              (ii) Each
                                Debtor shall cause each subsidiary
                                of such
                                Debtor with assets having a fair market value in
                                excess of $50,000 to
                                immediately become a party hereto (an “Additional
                                Debtor”),
                                by
                                executing and delivering an Additional Debtor Joinder
                                in substantially the form
                                of Annex A attached hereto and comply with the provisions
                                hereof applicable to
                                the Debtors. Concurrent therewith, the Additional
                                Debtor shall deliver
                                replacement schedules for, or supplements to all
                                other Schedules to (or referred
                                to in) this Agreement, as applicable, which replacement
                                schedules shall
                                supersede, or supplements shall modify, the Schedules
                                then in effect. The
                                Additional Debtor shall also deliver such opinions
                                of counsel, authorizing
                                resolutions, good standing certificates, incumbency
                                certificates, organizational
                                documents, financing statements and other information
                                and documentation as the
                                Secured Parties may reasonably request. Upon delivery
                                of the foregoing to the
                                Secured Parties, the Additional Debtor shall be and
                                become a party to this
                                Agreement with the same rights and obligations as
                                the Debtors, for all purposes
                                hereof as fully and to the same extent as if it were
                                an original signatory
                                hereto and shall be deemed to have made the representations,
                                warranties and
                                covenants set forth herein as of the date of execution
                                and delivery

                              
                                
                                  12

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              of
                                such
                                Additional Debtor Joinder, and all references herein
                                to the “Debtors” shall be
                                deemed to include each Additional Debtor.

                               

                              (jj)
                                 Each
                                Debtor shall vote the Pledged Securities to comply
                                with the covenants and
                                agreements set forth herein and in the Debentures.

                               

                              (kk) Each
                                Debtor shall register the pledge of the applicable
                                Pledged Securities on the
                                books of such Debtor. Each Debtor shall notify each
                                issuer of Pledged Securities
                                to register the pledge of the applicable Pledged
                                Securities in the name of the
                                Secured Parties on the books of such issuer. Further,
                                except with respect to
                                certificated securities delivered to the Agent, the
                                applicable Debtor shall
                                deliver to Agent an acknowledgement of pledge (which,
                                where appropriate, shall
                                comply with the requirements of the relevant UCC
                                with respect to perfection by
                                registration) signed by the issuer of the applicable
                                Pledged Securities, which
                                acknowledgement shall confirm that: (a) it has registered
                                the pledge on its
                                books and records; and (b) at any time directed by
                                Agent during the continuation
                                of an Event of Default, such issuer will transfer
                                the record ownership of such
                                Pledged Securities into the name of any designee
                                of Agent, will take such steps
                                as may be necessary to effect the transfer, and will
                                comply with all other
                                instructions of Agent regarding such Pledged Securities
                                without the further
                                consent of the applicable Debtor.

                               

                              (ll)
                                In
                                the
                                event that, upon an occurrence of an Event of Default,
                                Agent shall sell all or
                                any of the Pledged Securities to another party or
                                parties (herein called the
“Transferee”)
                                or
                                shall purchase or retain all or any of the Pledged
                                Securities, each Debtor
                                shall, to the extent applicable: (i) deliver to Agent
                                or the Transferee, as the
                                case may be, the articles of incorporation, bylaws,
                                minute books, stock
                                certificate books, corporate seals, deeds, leases,
                                indentures, agreements,
                                evidences of indebtedness, books of account, financial
                                records and all other
                                Organizational Documents and records of the Debtors
                                and their direct and
                                indirect subsidiaries; (ii) use its best efforts
                                to obtain resignations of the
                                persons then serving as officers and directors of
                                the Debtors and their direct
                                and indirect subsidiaries, if so requested; and (iii)
                                use its best efforts to
                                obtain any approvals that are required by any governmental
                                or regulatory body in
                                order to permit the sale of the Pledged Securities
                                to the Transferee or the
                                purchase or retention of the Pledged Securities by
                                Agent and allow the
                                Transferee or Agent to continue the business of the
                                Debtors and their direct and
                                indirect subsidiaries.

                               

                              (mm) Without
                                limiting the generality of the other obligations
                                of the Debtors hereunder, each
                                Debtor shall promptly (i) cause to be registered
                                at the United States Copyright
                                Office all of its material copyrights, (ii) cause
                                the security interest
                                contemplated hereby with respect to all Intellectual
                                Property registered at the
                                United States Copyright Office or United States Patent
                                and Trademark Office to
                                be duly recorded at the applicable office, and (iii)
                                give the Agent notice
                                whenever it acquires (whether absolutely or by license)
                                or creates any
                                additional material Intellectual Property.

                               

                              
                                
                                  13

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              (nn) Each
                                Debtor will from time to time, at the joint and several
                                expense of the Debtors,
                                promptly execute and deliver all such further instruments
                                and documents, and
                                take all such further action as may be necessary
                                or desirable, or as the Secured
                                Parties may reasonably request, in order to perfect
                                and protect any security
                                interest granted or purported to be granted hereby
                                or to enable the Secured
                                Parties to exercise and enforce their rights and
                                remedies hereunder and with
                                respect to any Collateral or to otherwise carry out
                                the purposes of this
                                Agreement.

                               

                              (oo) Schedule
                                F
                                attached
                                hereto lists all of the patents, patent applications,
                                trademarks, trademark
                                applications, registered copyrights, and domain names
                                owned by any of the
                                Debtors as of the date hereof. Schedule
                                F
                                lists
                                all material licenses in favor of any Debtor for
                                the use of any patents,
                                trademarks, copyrights and domain names as of the
                                date hereof. All material
                                patents and trademarks of the Debtors have been duly
                                recorded at the United
                                States Patent and Trademark Office and all material
                                copyrights of the Debtors
                                have been duly recorded at the United States Copyright
                                Office.

                               

                              (pp) Except
                                as
                                set forth on Schedule
                                G
                                attached
                                hereto, none of the account debtors or other persons
                                or entities obligated on
                                any of the Collateral is a governmental authority
                                covered by the Federal
                                Assignment of Claims Act or any similar federal,
                                state or local statute or rule
                                in respect of such Collateral.

                               

                              5. Effect
                                of Pledge on Certain Rights. If
                                any of
                                the Collateral subject to this Agreement consists
                                of nonvoting equity or
                                ownership interests (regardless of class, designation,
                                preference or rights)
                                that may be converted into voting equity or ownership
                                interests upon the
                                occurrence of certain events (including, without
                                limitation, upon the transfer
                                of all or any of the other stock or assets of the
                                issuer), it is agreed that the
                                pledge of such equity or ownership interests pursuant
                                to this Agreement or the
                                enforcement of any of Agent’s rights hereunder shall not be deemed to be the
                                type of event which would trigger such conversion
                                rights notwithstanding any
                                provisions in the Organizational Documents or agreements
                                to which any Debtor is
                                subject or to which any Debtor is party.

                               

                              6.
                                 Defaults.
                                The
                                following events shall be “Events
                                of Default”:

                              

                              (a)
                                The
                                occurrence of an Event of Default (as defined in
                                the Debenture) under the
                                Debenture;

                              

                              (b)
                                Any
                                material representation or warranty of any Debtor
                                in this Agreement shall prove
                                to have been incorrect in any material respect when
                                made;

                              

                              (c)
                                The
                                failure by any Debtor to observe or perform any of
                                its obligations hereunder for
                                five (5) days after delivery to such Debtor of notice
                                of such failure by or on
                                behalf of a Secured Party unless such default is
                                capable of cure but cannot be
                                cured within such time frame and such Debtor is using
                                best efforts to cure same
                                in a timely fashion; or

                              
                                
                                  14

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              

                              (d)
                                If
                                any provision of this Agreement shall at any time
                                for any reason be declared to
                                be null and void, or the validity or enforceability
                                thereof shall be contested
                                by any Debtor, or a proceeding shall be commenced
                                by any Debtor, or by any
                                governmental authority having jurisdiction over any
                                Debtor, seeking to establish
                                the invalidity or unenforceability thereof, or any
                                Debtor shall deny that any
                                Debtor has any liability or obligation purported
                                to be created under this
                                Agreement.

                               

                              7.  Duty
                                To Hold In Trust.
                                

                               

                              (a) Upon
                                the
                                occurrence of any Event of Default and at any time
                                thereafter, each Debtor
                                shall, upon receipt of any revenue, income,
                                dividend, interest
                                or other
                                sums subject to the Security Interest, whether payable
                                pursuant to the
                                Debentures or otherwise, or of any check, draft,
                                note, trade acceptance or other
                                instrument evidencing an obligation to pay any such
                                sum, hold the same in trust
                                for the Secured Parties and shall forthwith endorse
                                and transfer any such sums
                                or instruments, or both, to the Secured Parties,
                                pro-rata in proportion to their
                                initial purchases of Debentures for application to
                                the satisfaction of the
                                Obligations (and if any Debenture is not outstanding,
                                pro-rata in proportion to
                                the initial purchases of the remaining Debentures).

                               

                              (b) If
                                any
                                Debtor shall become entitled to receive or shall
                                receive any securities or other
                                property (including, without limitation, shares of
                                Pledged Securities or
                                instruments representing Pledged Securities acquired
                                after the date hereof, or
                                any options, warrants, rights or other similar property
                                or certificates
                                representing a dividend, or any distribution in connection
                                with any
                                recapitalization, reclassification or increase or
                                reduction of capital, or
                                issued in connection with any reorganization of such
                                Debtor or any of its direct
                                or indirect subsidiaries) in respect of the Pledged
                                Securities (whether as an
                                addition to, in substitution of, or in exchange for,
                                such Pledged Securities or
                                otherwise), such Debtor agrees to (i) accept the
                                same as the agent of the
                                Secured Parties; (ii) hold the same in trust on behalf
                                of and for the benefit of
                                the Secured Parties; and (iii) to deliver any and
                                all certificates or
                                instruments evidencing the same to Agent on or before
                                the close of business on
                                the fifth business day following the receipt thereof
                                by such Debtor, in the
                                exact form received together with the Necessary Endorsements,
                                to be held by
                                Agent subject to the terms of this Agreement as Collateral.

                               

                              8.  Rights
                                and Remedies Upon Default.
                                

                               

                              (a) Upon
                                the
                                occurrence of any Event of Default and at any time
                                thereafter, the Secured
                                Parties, acting through any agent appointed by them
                                for such purpose, shall have
                                the right to exercise all of the remedies conferred
                                hereunder and under the
                                Debentures, and the Secured Parties shall have all
                                the 

                              
                                
                                  15

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              rights
                                and remedies of a secured party under the UCC. Without
                                limitation, the Secured
                                Parties shall have the following rights and powers:

                               

                              (i)
                                The
                                Secured Parties shall have the right to take possession
                                of the Collateral and,
                                for that purpose, enter, with the aid and assistance
                                of any person, any premises
                                where the Collateral, or any part thereof, is or
                                may be placed and remove the
                                same, and each Debtor shall assemble the Collateral
                                and make it available to the
                                Secured Parties at places which the Secured Parties
                                shall reasonably select,
                                whether at such Debtor's premises or elsewhere, and
                                make available to the
                                Secured Parties, without rent, all of such Debtor’s respective premises and
                                facilities for the purpose of the Secured Parties
                                taking possession of, removing
                                or putting the Collateral in saleable or disposable
                                form.

                               

                              (ii) Upon
                                notice to the Debtors by Agent, all rights of each
                                Debtor to exercise the voting
                                and other consensual rights which it would otherwise
                                be entitled to exercise and
                                all rights of each Debtor to receive the dividends
                                and interest which it would
                                otherwise be authorized to receive and retain, shall
                                cease. Upon such notice,
                                Agent shall have the right to receive any interest,
                                cash dividends or other
                                payments on the Collateral and, at the option of
                                Agent, to exercise in such
                                Agent’s discretion all voting rights pertaining thereto.
                                Without limiting the
                                generality of the foregoing, Agent shall have the
                                right (but not the obligation)
                                to exercise all rights with respect to the Collateral
                                as it were the sole and
                                absolute owners thereof, including, without limitation,
                                to vote and/or to
                                exchange, at its sole discretion, any or all of the
                                Collateral in connection
                                with a merger, reorganization, consolidation, recapitalization
                                or other
                                readjustment concerning or involving the Collateral
                                or any Debtor or any of its
                                direct or indirect subsidiaries.

                               

                              (iii)
                                The
                                Secured Parties shall have the right to operate the
                                business of each Debtor
                                using the Collateral and shall have the right to
                                assign, sell, lease or
                                otherwise dispose of and deliver all or any part
                                of the Collateral, at public or
                                private sale or otherwise, either with or without
                                special conditions or
                                stipulations, for cash or on credit or for future
                                delivery, in such parcel or
                                parcels and at such time or times and at such place
                                or places, and upon such
                                terms and conditions as the Secured Parties may deem
                                commercially reasonable,
                                all without (except as shall be required by applicable
                                statute and cannot be
                                waived) advertisement or demand upon or notice to
                                any Debtor or right of
                                redemption of a Debtor, which are hereby expressly
                                waived. Upon each such sale,
                                lease, assignment or other transfer of Collateral,
                                the Secured Parties may,
                                unless prohibited by applicable law which cannot
                                be waived, purchase all or any
                                part of the Collateral being sold, free from and
                                discharged of all trusts,
                                claims, right of redemption and equities of any Debtor,
                                which are hereby waived
                                and released.

                              
                                
                                  16

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                               

                              (iv) The
                                Secured Parties shall have the right (but not the
                                obligation) to notify any
                                account debtors and any obligors under instruments
                                or accounts to make payments
                                directly to the Secured Parties and to enforce the
                                Debtors’ rights against such
                                account debtors and obligors.

                               

                              (v) The
                                Secured Parties may (but are not obligated to) direct
                                any financial intermediary
                                or any other person or entity holding any investment
                                property to transfer the
                                same to the Secured Parties or their designee.

                               

                              (vi) The
                                Secured Parties may (but are not obligated to) transfer
                                any or all Intellectual
                                Property registered in the name of any Debtor at
                                the United States Patent and
                                Trademark Office and/or Copyright Office into the
                                name of the Secured Parties or
                                any designee or any purchaser of any Collateral.

                               

                              (b) The
                                Agent
                                may comply with any applicable law in connection
                                with a disposition of
                                Collateral and such compliance will not be considered
                                adversely to affect the
                                commercial reasonableness of any sale of the Collateral.
                                The Agent may sell the
                                Collateral without giving any warranties and may
                                specifically disclaim such
                                warranties. If the Agent sells any of the Collateral
                                on credit, the Debtors will
                                only be credited with payments actually made by the
                                purchaser. In addition, each
                                Debtor waives any and all rights that it may have
                                to a judicial hearing in
                                advance of the enforcement of any of the Agent’s rights and remedies hereunder,
                                including, without limitation, its right following
                                an Event of Default to take
                                immediate possession of the Collateral and to exercise
                                its rights and remedies
                                with respect thereto.

                               

                              (c) For
                                the
                                purpose of enabling the Agent to further exercise
                                rights and remedies under this
                                Section 8 or elsewhere provided by agreement or applicable
                                law, each Debtor
                                hereby grants to the Agent, for the benefit of the
                                Agent and the Secured
                                Parties, an irrevocable, nonexclusive license (exercisable
                                without payment of
                                royalty or other compensation to such Debtor) to
                                use, license or sublicense
                                following an Event of Default, any Intellectual Property
                                now owned or hereafter
                                acquired by such Debtor, 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 software and
                                programs used for the
                                compilation or printout thereof.

                               

                              9.  Applications
                                of Proceeds.
                                The
                                proceeds of any such sale, lease or other disposition
                                of the Collateral
                                hereunder shall be applied first, to the expenses
                                of retaking, holding, storing,
                                processing and preparing for sale, selling, and the
                                like (including, without
                                limitation, any taxes, fees and other costs incurred
                                in connection therewith) of
                                the Collateral, to the reasonable attorneys’ fees and expenses incurred by the
                                Secured Parties in enforcing their rights hereunder
                                and in connection with
                                collecting, storing and 

                              
                                
                                  17

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              disposing
                                of the Collateral, and then to satisfaction of the
                                Obligations pro rata among
                                the Secured Parties (based on then-outstanding principal
                                amounts of Debentures
                                at the time of any such determination), and to the
                                payment of any other amounts
                                required by applicable law, after which the Secured
                                Parties shall pay to the
                                applicable Debtor any surplus proceeds. If, upon
                                the sale, license or other
                                disposition of the Collateral, the proceeds thereof
                                are insufficient to pay all
                                amounts to which the Secured Parties are legally
                                entitled, the Debtors will be
                                liable for the deficiency, together with interest
                                thereon, at the rate of 10%
                                per annum or the lesser amount permitted by applicable
                                law (the “Default Rate”),
                                and the reasonable fees of any attorneys employed
                                by the Secured Parties to
                                collect such deficiency. To the extent permitted
                                by applicable law, each Debtor
                                waives all claims, damages and demands against the
                                Secured Parties arising out
                                of the repossession, removal, retention or sale of
                                the Collateral, unless due
                                solely to the gross negligence or willful misconduct
                                of the Secured Parties as
                                determined by a final judgment (not subject to further
                                appeal) of a court of
                                competent jurisdiction.

                               

                              10. Securities
                                Law Provision.
                                Each
                                Debtor recognizes that Agent may be limited in its
                                ability to effect a sale to
                                the public of all or part of the Pledged Securities
                                by reason of certain
                                prohibitions in the Securities Act of 1933, as amended,
                                or other federal or
                                state securities laws (collectively, the “Securities
                                Laws”),
                                and
                                may be compelled to resort to one or more sales to
                                a restricted group of
                                purchasers who may be required to agree to acquire
                                the Pledged Securities for
                                their own account, for investment and not with a
                                view to the distribution or
                                resale thereof. Each Debtor agrees that sales so
                                made may be at prices and on
                                terms less favorable than if the Pledged Securities
                                were sold to the public, and
                                that Agent has no obligation to delay the sale of
                                any Pledged Securities for the
                                period of time necessary to register the Pledged
                                Securities for sale to the
                                public under the Securities Laws. Each Debtor shall
                                cooperate with Agent in its
                                attempt to satisfy any requirements under the Securities
                                Laws (including,
                                without limitation, registration thereunder if requested
                                by Agent) applicable to
                                the sale of the Pledged Securities by Agent.

                               

                              11.  Costs
                                and Expenses.
                                Each
                                Debtor agrees to pay all reasonable out-of-pocket
                                fees, costs and expenses
                                incurred in connection with any filing required hereunder,
                                including without
                                limitation, any financing statements pursuant to
                                the UCC, continuation
                                statements, partial releases and/or termination statements
                                related thereto or
                                any expenses of any searches reasonably required
                                by the Secured Parties. The
                                Debtors shall also pay all other claims and charges
                                which in the reasonable
                                opinion of the Secured Parties might prejudice, imperil
                                or otherwise affect the
                                Collateral or the Security Interest therein. The
                                Debtors will also, upon demand,
                                pay to the Secured Parties the amount of any and
                                all reasonable expenses,
                                including the reasonable fees and expenses of its
                                counsel and of any experts and
                                agents, which the Secured Parties may incur in connection
                                with (i) the
                                enforcement of this Agreement, (ii) the custody or
                                preservation of, or the sale
                                of, collection from, or other realization upon, any
                                of the Collateral, or (iii)
                                the exercise or enforcement of any of the rights
                                of the Secured Parties under
                                the Debentures. Until so paid, any fees payable hereunder
                                shall be added to the
                                principal amount of the Debentures and shall bear
                                interest at the Default
                                Rate.

                              

                              
                                
                                  18

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                               

                              12.  Responsibility
                                for Collateral.
                                The
                                Debtors assume all liabilities and responsibility
                                in connection with all
                                Collateral, and the Obligations shall in no way be
                                affected or diminished by
                                reason of the loss, destruction, damage or theft
                                of any of the Collateral or its
                                unavailability for any reason. Without limiting the
                                generality of the foregoing,
                                (a) neither the Agent nor any Secured Party (i) has
                                any duty (either before or
                                after an Event of Default) to collect any amounts
                                in respect of the Collateral
                                or to preserve any rights relating to the Collateral,
                                or (ii) has any obligation
                                to clean-up or otherwise prepare the Collateral for
                                sale, and (b) each Debtor
                                shall remain obligated and liable under each contract
                                or agreement included in
                                the Collateral to be observed or performed by such
                                Debtor thereunder. Neither
                                the Agent nor any Secured Party shall have any obligation
                                or liability under any
                                such contract or agreement by reason of or arising
                                out of this Agreement or the
                                receipt by the Agent or any Secured Party of any
                                payment relating to any of the
                                Collateral, nor shall the Agent or any Secured Party
                                be obligated in any manner
                                to perform any of the obligations of any Debtor under
                                or pursuant to any such
                                contract or agreement, to make inquiry as to the
                                nature or sufficiency of any
                                payment received by the Agent or any Secured Party
                                in respect of the Collateral
                                or as to the sufficiency of any performance by any
                                party under any such contract
                                or agreement, to present or file any claim, to take
                                any action to enforce any
                                performance or to collect the payment of any amounts
                                which may have been
                                assigned to the Agent or to which the Agent or any
                                Secured Party may be entitled
                                at any time or times.

                               

                              13.  Security
                                Interest Absolute.
                                All
                                rights of the Secured Parties and all obligations
                                of the Debtors hereunder,
                                shall be absolute and unconditional, irrespective
                                of: (a) any lack of validity
                                or enforceability of this Agreement, the Debentures
                                or any agreement entered
                                into in connection with the foregoing, or any portion
                                hereof or thereof; (b) any
                                change in the time, manner or place of payment or
                                performance of, or in any
                                other term of, all or any of the Obligations, or
                                any other amendment or waiver
                                of or any consent to any departure from the Debentures
                                or any other agreement
                                entered into in connection with the foregoing; (c)
                                any exchange, release or
                                nonperfection of any of the Collateral, or any release
                                or amendment or waiver of
                                or consent to departure from any other collateral
                                for, or any guaranty, or any
                                other security, for all or any of the Obligations;
                                (d) any action by the Secured
                                Parties to obtain, adjust, settle and cancel in its
                                sole discretion any
                                insurance claims or matters made or arising in connection
                                with the Collateral;
                                or (e) any other circumstance which might otherwise
                                constitute any legal or
                                equitable defense available to a Debtor, or a discharge
                                of all or any part of
                                the Security Interest granted hereby. Until the Obligations
                                shall have been paid
                                and performed in full, the rights of the Secured
                                Parties shall continue even if
                                the Obligations are barred for any reason, including,
                                without limitation, the
                                running of the statute of limitations or bankruptcy.
                                Each Debtor expressly
                                waives presentment, protest, notice of protest, demand,
                                notice of nonpayment and
                                demand for performance. In the event that at any
                                time any transfer of any
                                Collateral or any payment received by the Secured
                                Parties hereunder shall be
                                deemed by final order of a court of competent jurisdiction
                                to have been a
                                voidable preference or fraudulent conveyance under
                                the bankruptcy or insolvency
                                laws of the United States, or shall be deemed to
                                be otherwise due to any party
                                other than the Secured Parties, then, in any such
                                event, each Debtor’s
                                obligations hereunder shall 

                              
                                
                                  19

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              survive
                                cancellation of this Agreement, and shall not be
                                discharged or satisfied by any
                                prior payment thereof and/or cancellation of this
                                Agreement, but shall remain a
                                valid and binding obligation enforceable in accordance
                                with the terms and
                                provisions hereof. Each Debtor waives all right to
                                require the Secured Parties
                                to proceed against any other person or entity
                                or
to
                                apply
                                any Collateral which the Secured Parties may hold
                                at any time, or to marshal
                                assets, or to pursue any other remedy. Each Debtor
                                waives any defense arising by
                                reason of the application of the statute of limitations
                                to any obligation
                                secured hereby.

                               

                              14.
                                 Term
                                of Agreement.
                                This
                                Agreement and the Security Interest shall terminate
                                on the date on which all
                                payments under the Debentures have been indefeasibly
                                paid in full and all other
                                Obligations have been paid or discharged; provided,
                                however, that all
                                indemnities of the Debtors contained in this Agreement
                                (including, without
                                limitation, Annex B hereto) shall survive and remain
                                operative and in full force
                                and effect regardless of the termination of this
                                Agreement.

                               

                              15.
                                 Power
                                of Attorney; Further Assurances.

                               

                              (a)
                                 Each
                                Debtor authorizes the Secured Parties, and does hereby
                                make, constitute and
                                appoint the Secured Parties and their respective
                                officers, agents, successors or
                                assigns with full power of substitution, as such
                                Debtor’s true and lawful
                                attorney-in-fact, with power, in the name of the
                                various Secured Parties or such
                                Debtor, to, after the occurrence and during the continuance
                                of an Event of
                                Default, (i) endorse any note, checks, drafts, money
                                orders or other instruments
                                of payment (including payments payable under or in
                                respect of any policy of
                                insurance) in respect of the Collateral that may
                                come into possession of the
                                Secured Parties; (ii) to sign and endorse any financing
                                statement pursuant to
                                the UCC or any invoice, freight or express bill,
                                bill of lading, storage or
                                warehouse receipts, drafts against debtors, assignments,
                                verifications and
                                notices in connection with accounts, and other documents
                                relating to the
                                Collateral; (iii) to pay or discharge taxes, liens,
                                security interests or other
                                encumbrances at any time levied or placed on or threatened
                                against the
                                Collateral; (iv) to demand, collect, receipt for,
                                compromise, settle and sue for
                                monies due in respect of the Collateral; (v) to transfer
                                any Intellectual
                                Property or provide licenses respecting any Intellectual
                                Property; and (vi)
                                generally, at the option of the Secured Parties,
                                and at the expense of the
                                Debtors, at any time, or from time to time, to execute
                                and deliver any and all
                                documents and instruments and to do all acts and
                                things which the Secured
                                Parties deem necessary to protect, preserve and realize
                                upon the Collateral and
                                the Security Interest granted therein in order to
                                effect the intent of this
                                Agreement and the Debentures all as fully and effectually
                                as the Debtors might
                                or could do; and each Debtor hereby ratifies all
                                that said attorney shall
                                lawfully do or cause to be done by virtue hereof.
                                This power of attorney is
                                coupled with an interest and shall be irrevocable
                                for the term of this Agreement
                                and thereafter as long as any of the Obligations
                                shall be outstanding.
The
                                designation set forth herein shall be deemed to amend
                                and supersede any
                                inconsistent provision in the Organizational Documents
                                or other documents or
                                agreements to which any Debtor is subject or to which
                                any Debtor is a party.

                              
                                
                                  20

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              Without
                                limiting the generality of the foregoing, after the
                                occurrence and during the
                                continuance of an Event of Default, each Secured
                                Party is specifically
                                authorized to execute and file any applications for
                                or instruments of transfer
                                and assignment of any patents, trademarks, copyrights
                                or other Intellectual
                                Property with the United States Patent and Trademark
                                Office and the United
                                States Copyright Office.

                              

                              (b)
                                 On
                                a
                                continuing basis, each Debtor will make, execute,
                                acknowledge, deliver, file and
                                record, as the case may be, with the proper filing
                                and recording agencies in any
                                jurisdiction, including, without limitation, the
                                jurisdictions indicated on
Schedule
                                C
                                attached
                                hereto, all such instruments, and take all such action
                                as may reasonably be
                                deemed necessary or advisable, or as reasonably requested
                                by the Secured
                                Parties, to perfect the Security Interest granted
                                hereunder and otherwise to
                                carry out the intent and purposes of this Agreement,
                                or for assuring and
                                confirming to the Secured Parties the grant or perfection
                                of a perfected
                                security interest in all the Collateral under the
                                UCC.

                              

                              (c)
                                 Each
                                Debtor hereby irrevocably appoints the Secured Parties
                                as such Debtor’s
                                attorney-in-fact, with full authority in the place
                                and instead of such Debtor
                                and in the name of such Debtor, from time to time
                                in the Secured Parties’
discretion, to take any action and to execute any
                                instrument which the Secured
                                Parties may deem necessary or advisable to accomplish
                                the purposes of this
                                Agreement, including the filing, in its sole discretion,
                                of one or more
                                financing or continuation statements and amendments
                                thereto, relative to any of
                                the Collateral without the signature of such Debtor
                                where permitted by law,
                                which financing statements may (but need not) describe
                                the Collateral as “all
                                assets” or “all personal property” or words of like import, and ratifies all
                                such actions taken by the Secured Parties. This power
                                of attorney is coupled
                                with an interest and shall be irrevocable for the
                                term of this Agreement and
                                thereafter as long as any of the Obligations shall
                                be outstanding.

                               

                              16.  Notices.
                                All
                                notices, requests, demands and other communications
                                hereunder shall be subject
                                to the notice provision of the Purchase Agreement
                                (as such term is defined in
                                the Debentures).

                               

                              17.  Other
                                Security.
                                To the
                                extent that the Obligations are now or hereafter
                                secured by property other than
                                the Collateral or by the guarantee, endorsement or
                                property of any other person,
                                firm, corporation or other entity, then the Secured
                                Parties shall have the
                                right, in its sole discretion, to pursue, relinquish,
                                subordinate, modify or
                                take any other action with respect thereto, without
                                in any way modifying or
                                affecting any of the Secured Parties’ rights and remedies
                                hereunder.

                               

                              18.  Appointment
                                of Agent.
                                The
                                Secured Parties hereby appoint Alpha Capital AG to
                                act as their agent
                                (“Alpha”
or
                                “Agent”)
                                for
                                purposes of exercising any and all rights and remedies
                                of the Secured Parties
                                hereunder. Such appointment shall continue until
                                revoked in writing by a
Majority
                                in Interest, at which time a Majority in Interest 

                              
                                
                                  21

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                               

                              shall
                                appoint a new Agent, provided that Alpha may not
                                be removed as Agent unless
                                Alpha shall then hold less than $50,000 in principal
                                amount of
                                Debentures;
                                provided,
                                further,
                                that
                                such removal may occur only if each of the other
                                Secured Parties shall then hold
                                not less than $500,000 in principal amount of Debentures.
The
                                Agent
                                shall have the rights, responsibilities and immunities
                                set forth in Annex
                                B
                                hereto.

                               

                              19.  Miscellaneous.

                              

                              (a)
                                 No
                                course
                                of dealing between the Debtors and the Secured Parties,
                                nor any failure to
                                exercise, nor any delay in exercising, on the part
                                of the Secured Parties, any
                                right, power or privilege hereunder or under the
                                Debentures shall operate as a
                                waiver thereof; nor shall any single or partial exercise
                                of any right, power or
                                privilege hereunder or thereunder preclude any other
                                or further exercise thereof
                                or the exercise of any other right, power or privilege.

                              

                              (b)
                                 All
                                of
                                the rights and remedies of the Secured Parties with
                                respect to the Collateral,
                                whether established hereby or by the Debentures or
                                by any other agreements,
                                instruments or documents or by law shall be cumulative
                                and may be exercised
                                singly or concurrently.

                              

                              (c)
                                 This
                                Agreement constitutes the entire agreement of the
                                parties with respect to the
                                subject matter hereof and is intended to supersede
                                all prior negotiations,
                                understandings and agreements with respect thereto.
                                Except as specifically set
                                forth in this Agreement, no provision of this Agreement
                                may be modified or
                                amended except by a written agreement specifically
                                referring to this Agreement
                                and signed by the parties hereto.

                              

                              (d)
                                 In
                                the
                                event any provision of this Agreement is held to
                                be invalid, prohibited or
                                unenforceable in any jurisdiction for any reason,
                                unless such provision is
                                narrowed by judicial construction, this Agreement
                                shall, as to such
                                jurisdiction, be construed as if such invalid, prohibited
                                or unenforceable
                                provision had been more narrowly drawn so as not
                                to be invalid, prohibited or
                                unenforceable. If, notwithstanding the foregoing,
                                any provision of this
                                Agreement is held to be invalid, prohibited or unenforceable
                                in any
                                jurisdiction, such provision, as to such jurisdiction,
                                shall be ineffective to
                                the extent of such invalidity, prohibition or unenforceability
                                without
                                invalidating the remaining portion of such provision
                                or the other provisions of
                                this Agreement and without affecting the validity
                                or enforceability of such
                                provision or the other provisions of this Agreement
                                in any other
                                jurisdiction.

                              

                              (e)
                                 No
                                waiver
                                of any breach or default or any right under this
                                Agreement shall be considered
                                valid unless in writing and signed by the party giving
                                such waiver, and no such
                                waiver shall be deemed a waiver of any subsequent
                                breach or default or right,
                                whether of the same or similar nature or otherwise.

                              

                              
                                
                                  22

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              (f)
                                This
                                Agreement shall be binding upon and inure to the
                                benefit of each party hereto
                                and its successors and assigns.

                              

                              (g)
                                 Each
                                party shall take such further action and execute
                                and deliver such further
                                documents as may be necessary or appropriate in order
                                to carry out the
                                provisions and purposes of this Agreement.

                              

                              (h)
                                All
                                questions concerning the construction, validity,
                                enforcement and interpretation
                                of this Agreement shall be governed by and construed
                                and enforced in accordance
                                with the internal laws of the State of New York,
                                without regard to the
                                principles of conflicts of law thereof. Each Debtor
                                agrees that all proceedings
                                concerning the interpretations, enforcement and defense
                                of the transactions
                                contemplated by this Agreement and the Debentures
                                (whether brought against a
                                party hereto or its respective affiliates, directors,
                                officers, shareholders,
                                partners, members, employees or agents) shall be
                                commenced exclusively in the
                                state and federal courts sitting in the City of New
                                York, Borough of Manhattan.
                                Each Debtor hereby irrevocably submits to the exclusive
                                jurisdiction of the
                                state and federal courts sitting in the City of New
                                York, Borough of Manhattan
                                for the adjudication of any dispute hereunder or
                                in connection herewith or with
                                any transaction contemplated hereby or discussed
                                herein, and hereby irrevocably
                                waives, and agrees not to assert in any proceeding,
                                any claim that it is not
                                personally subject to the jurisdiction of any such
                                court, that such proceeding
                                is improper. Each party hereto hereby irrevocably
                                waives personal service of
                                process and consents to process being served in any
                                such proceeding by mailing a
                                copy thereof via registered or certified mail or
                                overnight delivery (with
                                evidence of delivery) to such party at the address
                                in effect for notices to it
                                under this Agreement and agrees that such service
                                shall constitute good and
                                sufficient service of process and notice thereof.
                                Nothing contained herein shall
                                be deemed to limit in any way any right to serve
                                process in any manner permitted
                                by law. Each party hereto hereby irrevocably waives,
                                to the fullest extent
                                permitted by applicable law, any and all right to
                                trial by jury in any legal
                                proceeding arising out of or relating to this Agreement
                                or the transactions
                                contemplated hereby. If any party shall commence
                                a proceeding to enforce any
                                provisions of this Agreement, then the prevailing
                                party in such proceeding shall
                                be reimbursed by the other party for its reasonable
                                attorney’s fees and other
                                costs and expenses incurred with the investigation,
                                preparation and prosecution
                                of such proceeding.

                              

                              (i)
                                 This
                                Agreement may be executed in any number of counterparts,
                                each of which when so
                                executed shall be deemed to be an original and, all
                                of which taken together
                                shall constitute one and the same Agreement. In the
                                event that any signature is
                                delivered by facsimile transmission, such signature
                                shall create a valid binding
                                obligation of the party executing (or on whose behalf
                                such signature is
                                executed) the same with the same force and effect
                                as if such facsimile signature
                                were the original thereof.

                              

                              
                                
                                  23

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              (j) All
                                Debtors shall jointly and severally be liable for
                                the obligations of each Debtor
                                to the Secured Parties hereunder.

                              

                              (k) Each
                                Debtor shall indemnify, reimburse and hold harmless
                                the Secured Parties and
                                their respective partners, members, shareholders,
                                officers, directors, employees
                                and agents (collectively, “Indemnitees”)
                                from
                                and against any and all losses, claims, liabilities,
                                damages, penalties, suits,
                                costs and expenses, of any kind or nature, (including
                                fees relating to the cost
                                of investigating and defending any of the foregoing)
                                imposed on, incurred by or
                                asserted against such Indemnitee in any way related
                                to or arising from or
                                alleged to arise from this Agreement or the Collateral,
                                except any such losses,
                                claims, liabilities, damages, penalties, suits, costs
                                and expenses which result
                                from the gross negligence or willful misconduct of
                                the Indemnitee as determined
                                by a final, nonappealable decision of a court of
                                competent jurisdiction. This
                                indemnification provision is in addition to, and
                                not in limitation of, any other
                                indemnification provision in the Debentures, the
                                Purchase Agreement (as such
                                term is defined in the Debentures) or any other agreement,
                                instrument or other
                                document executed or delivered in connection herewith
                                or therewith.

                               

                              (l) Nothing
                                in this Agreement shall be construed to subject Agent
                                or any Secured Party to
                                liability as a partner in any Debtor or any if its
                                direct or indirect
                                subsidiaries that is a partnership or as a member
                                in any Debtor or any of its
                                direct or indirect subsidiaries that is a limited
                                liability company, nor shall
                                Agent or any Secured Party be deemed to have assumed
                                any obligations under any
                                partnership agreement or limited liability company
                                agreement, as applicable, of
                                any such Debtor or any if its direct or indirect
                                subsidiaries or otherwise,
                                unless and until any such Secured Party exercises
                                its right to be substituted
                                for such Debtor as a partner or member, as applicable,
                                pursuant
                                hereto.

                               

                              (m)
                                 To
                                the
                                extent that the grant of the security interest in
                                the Collateral and the
                                enforcement of the terms hereof require the consent,
                                approval or action of any
                                partner or member, as applicable, of any Debtor or
                                any direct or indirect
                                subsidiary of any Debtor or compliance with any provisions
                                of any of the
                                Organizational Documents, the Debtors hereby grant
                                such consent and approval and
                                waive any such noncompliance with the terms of said
                                documents.

                              

                              [SIGNATURE
                                PAGES FOLLOW]

                              
                                
                                  24

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              

                              

                              IN
                                WITNESS WHEREOF, the parties hereto have caused this
                                Security
                                Agreement to be duly executed on the day and year
                                first above
                                written.

                              

                              

                              
                                	
                                        CHEMBIO
                                          DIAGONISTICS, INC.

                                      
	
                                        By:__________________________________________

                                        Name:
                                          Lawrence A. Siebert

                                        Title:
                                          President

                                      
	 
	
                                        CHEMBIO
                                          DIAGNOSTICS SYSTEMS, INC.

                                         

                                      
	
                                        By:__________________________________________

                                        Name:

                                        Title:

                                      
	 

                              

                              

                               

                              

                              

                              [SIGNATURE
                                PAGE OF HOLDERS FOLLOWS]

                              
                                
                                  25

                                

                                
                                  
                                  

                                  
                                    

                                  

                                

                                
                                  
                                  

                                

                              

                              [SIGNATURE
                                PAGE OF HOLDERS TO CEMI SA]

                               

                              Name
                                of
                                Investing Entity: __________________________

                              Signature
                                of Authorized Signatory of Investing entity:
                                _________________________

                              Name
                                of
                                Authorized Signatory: _________________________

                              Title
                                of
                                Authorized Signatory: __________________________

                               

                              [SIGNATURE
                                PAGE OF HOLDERS FOLLOWS]Exhibit 10.18 Subsidary Guarantee

    
      
        
          
            
              
                
                  

                

                
                  

                

                Exhibit
                  10.18 Subsidary Guarantee

                

                  EXHIBIT
                    F

                  

                  SUBSIDIARY
                    GUARANTEE

                  

                  SUBSIDIARY
                    GUARANTEE, dated as of June 29, 2006 (this “Guarantee”),
                    made
                    by Chembio Diagnostic Systems, Inc. (the “Guarantor”
and
                    together with any other entity that may become a party hereto
                    as provided
                    herein, the “Guarantors”),
                    in
                    favor of the purchasers signatory (the "Purchasers")
                    to
                    that certain Securities Purchase Agreement, dated as of the date
                    hereof, between
                    Chembio Diagnostics, Inc., a Nevada corporation (the “Company”)
                    and
                    the Purchasers. 

                   

                  

                  W
                    I T N E S S E T H:

                  

                  WHEREAS,
                    pursuant to that certain Securities Purchase Agreement, dated
                    as of the date
                    hereof, by and between the Company and the Purchasers (the “Purchase
                    Agreement”),
                    the
                    Company has agreed to sell and issue to the Purchasers, and the
                    Purchasers have
                    agreed to purchase from the Company the Company’s Senior Secured Debentures, due
                    September 27,
                    2006
(the
                    “Debentures”),
                    subject to the terms and conditions set forth therein; and

                  

                  WHEREAS,
                    each Guarantor will directly benefit from the extension of credit
                    to the Company
                    represented by the issuance of the Debentures; and 

                   

                  NOW,
                    THEREFORE, in consideration of the premises and to induce the
                    Purchasers to
                    enter into the Purchase Agreement and to carry out the transactions
                    contemplated
                    thereby, each Guarantor hereby agrees with the Purchasers as
                    follows:

                   

                  1. Definitions.
                    Unless
                    otherwise defined herein, terms defined in the Purchase Agreement
                    and used
                    herein shall have the meanings given to them in the Purchase
                    Agreement. The
                    words “hereof,” “herein,” “hereto” and “hereunder” and words of similar import
                    when used in this Guarantee shall refer to this Guarantee as
                    a whole and not to
                    any particular provision of this Guarantee, and Section and Schedule
                    references
                    are to this Guarantee unless otherwise specified. The meanings
                    given to terms
                    defined herein shall be equally applicable to both the singular
                    and plural forms
                    of such terms. The following terms shall have the following
                    meanings:

                  

                  “Guarantee”
means
                    this Subsidiary Guarantee, as the same may be amended, supplemented
                    or otherwise
                    modified from time to time.

                  

                  “Obligations”
means
                    the collective reference to all liabilities and obligations (primary,
                    secondary,
                    direct, contingent, sole, joint or several) due or to become
                    due, or that are
                    now or may be hereafter contracted or acquired, or owing to,
                    of the Company to
                    the Purchaser, including, without limitation, obligations and
                    undertakings of
                    the Company of whatever nature, monetary or otherwise, under
                    the Debentures, the
                    Purchase Agreement, the Security Agreement, the Warrants, the
                    Registration
                    Rights Agreement or any other future agreement or 

                  
                    
                      1

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  obligations
                    undertaken by the Company to the Purchasers, together with all
                    reasonable
                    attorneys’ fees, disbursements and all other costs and expenses of collection
                    incurred by Purchasers in enforcing any of such Obligations and/or
                    this
                    Guarantee. 

                   

                  2. Guarantee.

                  

                  (a) Guarantee.

                   

                  
                    	 	
                            (i)

                          	
                            The
                              Guarantors hereby, jointly and severally, unconditionally
                              and irrevocably,
                              guarantee to the Purchasers and their respective successors,
                              indorsees,
                              transferees and assigns, the prompt and complete payment
                              and performance
                              by the Company when due (whether at the stated maturity,
                              by acceleration
                              or otherwise) of the Obligations. 

                          

                  

                   

                  
                    	 	
                            (ii)

                          	
                            Anything
                              herein or in any other Transaction Document to the
                              contrary
                              notwithstanding, the maximum liability of each Guarantor
                              hereunder and
                              under the other Transaction Documents shall in no event
                              exceed the amount
                              which can be guaranteed by such Guarantor under applicable
                              federal and
                              state laws, including laws relating to the insolvency
                              of debtors,
                              fraudulent conveyance or transfer or laws affecting
                              the rights of
                              creditors generally (after giving effect to the right
                              of contribution
                              established in Section 2(b)). 

                          

                  

                  

                  
                    	 	
                            (iii)

                          	
                            Each
                              Guarantor agrees that the Obligations may at any time
                              and from time to
                              time exceed the amount of the liability of such Guarantor
                              hereunder
                              without impairing the guarantee contained in this Section
                              2 or affecting
                              the rights and remedies of the Purchasers
                              hereunder.

                          

                  

                  

                  
                    	 	
                            (iv)

                          	
                            The
                              guarantee contained in this Section 2 shall remain
                              in full force and
                              effect until all the Obligations and the obligations
                              of each Guarantor
                              under the guarantee contained in this Section 2 shall
                              have been satisfied
                              by payment in full. 

                          

                  

                  

                  
                    	 	
                            (v)

                          	
                            No
                              payment made by the Company, any of the Guarantors,
                              any other guarantor or
                              any other Person or received or collected by the Purchasers
                              from the
                              Company, any of the Guarantors, any other guarantor
                              or any other Person by
                              virtue of any action or proceeding or any set-off or
                              appropriation or
                              application at any time or from time to time in reduction
                              of or in payment
                              of the Obligations shall 

                          

                  

                  
                    
                      2

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  be
                    deemed
                    to modify, reduce, release or otherwise affect the liability
                    of any Guarantor
                    hereunder which shall, notwithstanding any such payment (other
                    than any payment
                    made by such Guarantor in respect of the Obligations or any payment
                    received or
                    collected from such Guarantor in respect of the Obligations),
                    remain liable for
                    the Obligations up to the maximum liability of such Guarantor
                    hereunder until
                    the Obligations are paid in full.

                  

                  
                    	 	
                            (vi)

                          	
                            Notwithstanding
                              anything to the contrary in this Agreement, with respect
                              to any defaulted
                              non-monetary Obligations the specific performance of
                              which by the
                              Guarantors is not reasonably possible (e.g. the issuance
                              of the Company's
                              Common Stock), the Guarantors shall only be liable
                              for making the
                              Purchasers whole on a monetary basis for the Company's
                              failure to perform
                              such Obligations in accordance with the Transaction
                              Documents.
                              

                          

                  

                  

                  (b) Right
                    of Contribution.
                    Each
                    Guarantor hereby agrees that to the extent that a Guarantor shall
                    have paid more
                    than its proportionate share of any payment made hereunder, such
                    Guarantor shall
                    be entitled to seek and receive contribution from and against
                    any other
                    Guarantor hereunder which has not paid its proportionate share
                    of such payment.
                    Each Guarantor's right of contribution shall be subject to the
                    terms and
                    conditions of Section 2(c). The provisions of this Section 2(b)
                    shall in no
                    respect limit the obligations and liabilities of any Guarantor
                    to the
                    Purchasers, and each Guarantor shall remain liable to the Purchasers
                    for the
                    full amount guaranteed by such Guarantor hereunder.

                   

                  (c) No
                    Subrogation.
                    Notwithstanding any payment made by any Guarantor hereunder or
                    any set-off or
                    application of funds of any Guarantor by the Purchasers, no Guarantor
                    shall be
                    entitled to be subrogated to any of the rights of the Purchasers
                    against the
                    Company or any other Guarantor or any collateral security or
                    guarantee or right
                    of offset held by the Purchasers for the payment of the Obligations,
                    nor shall
                    any Guarantor seek or be entitled to seek any contribution or
                    reimbursement from
                    the Company or any other Guarantor in respect of payments made
                    by such Guarantor
                    hereunder, until all amounts owing to the Purchasers by the Company
                    on account
                    of the Obligations are paid in full. If any amount shall be paid
                    to any
                    Guarantor on account of such subrogation rights at any time when
                    all of the
                    Obligations shall not have been paid in full, such amount shall
                    be held by such
                    Guarantor in trust for the Purchasers, segregated from other
                    funds of such
                    Guarantor, and shall, forthwith upon receipt by such Guarantor,
                    be turned over
                    to the Purchasers in the exact form received by such Guarantor
                    (duly indorsed by
                    such Guarantor to the Purchasers, if required), to be applied
                    against the
                    Obligations, whether matured or unmatured, in such order as the
                    Purchasers may
                    determine.

                   

                  
                    
                      3

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  (d) Amendments,
                    Etc. With Respect to the Obligations.
                    Each
                    Guarantor shall remain obligated hereunder notwithstanding that,
                    without any
                    reservation of rights against any Guarantor and without notice
                    to or further
                    assent by any Guarantor, any demand for payment of any of the
                    Obligations made
                    by the Purchasers may be rescinded by the Purchasers and any
                    of the Obligations
                    continued, and the Obligations, or the liability of any other
                    Person upon or for
                    any part thereof, or any collateral security or guarantee therefor
                    or right of
                    offset with respect thereto, may, from time to time, in whole
                    or in part, be
                    renewed, extended, amended, modified, accelerated, compromised,
                    waived,
                    surrendered or released by the Purchasers, and the Purchase Agreement
                    and the
                    other Transaction Documents and any other documents executed
                    and delivered in
                    connection therewith may be amended, modified, supplemented or
                    terminated, in
                    whole or in part, as the Purchasers may deem advisable from time
                    to time, and
                    any collateral security, guarantee or right of offset at any
                    time held by the
                    Purchasers for the payment of the Obligations may be sold, exchanged,
                    waived,
                    surrendered or released. The Purchasers shall have no obligation
                    to protect,
                    secure, perfect or insure any Lien at any time held by them as
                    security for the
                    Obligations or for the guarantee contained in this Section 2
                    or any property
                    subject thereto. 

                   

                  (e) Guarantee
                    Absolute and Unconditional.
                    Each
                    Guarantor waives any and all notice of the creation, renewal,
                    extension or
                    accrual of any of the Obligations and notice of or proof of reliance
                    by the
                    Purchasers upon the guarantee contained in this Section 2 or
                    acceptance of the
                    guarantee contained in this Section 2; the Obligations, and any
                    of them, shall
                    conclusively be deemed to have been created, contracted or incurred,
                    or renewed,
                    extended, amended or waived, in reliance upon the guarantee contained
                    in this
                    Section 2; and all dealings between the Company and any of the
                    Guarantors, on
                    the one hand, and the Purchasers, on the other hand, likewise
                    shall be
                    conclusively presumed to have been had or consummated in reliance
                    upon the
                    guarantee contained in this Section 2. Each Guarantor waives
                    to the extent
                    permitted by law diligence, 

                  presentment,
                    protest, demand for payment and notice of default or nonpayment
                    to or upon the
                    Company or any of the Guarantors with respect to the Obligations.
                    Each Guarantor
                    understands and agrees that the guarantee contained in this Section
                    2 shall be
                    construed as a continuing, absolute and unconditional guarantee
                    of payment
                    without regard to (a) the validity or enforceability of the Purchase
                    Agreement
                    or any other Transaction Document, any of the Obligations or
                    any other
                    collateral security therefor or guarantee or right of offset
                    with respect
                    thereto at any time or from time to time held by the Purchasers,
                    (b) any
                    defense, set-off or counterclaim (other than a defense of payment
                    or performance
                    or fraud or misconduct by Purchasers) which may at any time be
                    available to or
                    be asserted by the Company or any other Person against the Purchasers,
                    or (c)
                    any other circumstance whatsoever (with or without notice to
                    or knowledge of the
                    Company or such Guarantor) which constitutes, or might be construed
                    to
                    constitute, an equitable or legal discharge of the Company for
                    the Obligations,
                    or of such Guarantor under the guarantee contained in this Section
                    2, in
                    bankruptcy or in any other instance. When making any demand hereunder
                    or
                    otherwise 

                  
                    
                      4

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  pursuing
                    its rights and remedies hereunder against any Guarantor, the
                    Purchasers may, but
                    shall be under no obligation to, make a similar demand on or
                    otherwise pursue
                    such rights and remedies as they may have against the Company,
                    any other
                    Guarantor or any other Person or against any collateral security
                    or guarantee
                    for the Obligations or any right of offset with respect thereto,
                    and any failure
                    by the Purchasers to make any such demand, to pursue such other
                    rights or
                    remedies or to collect any payments from the Company, any other
                    Guarantor or any
                    other Person or to realize upon any such collateral security
                    or guarantee or to
                    exercise any such right of offset, or any release of the Company,
                    any other
                    Guarantor or any other Person or any such collateral security,
                    guarantee or
                    right of offset, shall not relieve any Guarantor of any obligation
                    or liability
                    hereunder, and shall not impair or affect the rights and remedies,
                    whether
                    express, implied or available as a matter of law, of the Purchasers
                    against any
                    Guarantor. For the purposes hereof, "demand" shall include the
                    commencement and
                    continuance of any legal proceedings.

                   

                  (f) Reinstatement.
                    The
                    guarantee contained in this Section 2 shall continue to be effective,
                    or be
                    reinstated, as the case may be, if at any time payment, or any
                    part thereof, of
                    any of the Obligations is rescinded or must otherwise be restored
                    or returned by
                    the Purchasers upon the insolvency, bankruptcy, dissolution,
                    liquidation or
                    reorganization of the Company or any Guarantor, or upon or as
                    a result of the
                    appointment of a receiver, intervenor or conservator of, or trustee
                    or similar
                    officer for, the Company or any Guarantor or any substantial
                    part of its
                    property, or otherwise, all as though such payments had not been
                    made.

                  

                  (g) Payments.
                    Each
                    Guarantor hereby guarantees that payments hereunder will be paid
                    to the
                    Purchasers without set-off or counterclaim in U.S. dollars at
                    the address set
                    forth or referred to in the Purchase Agreement.

                  

                  3. Representations
                    and Warranties.
                    Each
                    Guarantor hereby makes the following representations and warranties
                    to
                    Purchasers as of the date hereof:

                   

                  (a) Organization
                    and Qualification.
                    The
                    Guarantor is a corporation, duly incorporated, validly existing
                    and in good
                    standing under the laws of the applicable jurisdiction set forth
                    on Schedule 1,
                    with the requisite corporate power and authority to own and use
                    its properties
                    and assets and to carry on its business as currently conducted.
                    The Guarantor
                    has no subsidiaries other than those identified as such on the
                    Disclosure
                    Schedules to the Purchase Agreement. The Guarantor is duly qualified
                    to do
                    business and is in good standing as a foreign corporation in
                    each jurisdiction
                    in which the nature of the business conducted or property owned
                    by it makes such
                    qualification necessary, except where the failure to be so qualified
                    or in good
                    standing, as the case may be, could not, individually or in the
                    aggregate, (x)
                    adversely affect the legality, validity or enforceability of
                    any of this
                    Guaranty in any material respect, (y) have a material adverse
                    effect on the
                    results of operations, assets, prospects, or financial condition
                    of the
                    Guarantor 

                  
                    
                      5

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  or
                    (z)
                    adversely impair in any material respect the Guarantor's ability
                    to perform
                    fully on a timely basis its obligations under this Guaranty (a
                    "Material
                    Adverse Effect").

                   

                  (b) Authorization;
                    Enforcement.
                    The
                    Guarantor has the requisite corporate power and authority to
                    enter into and to
                    consummate the transactions contemplated by this Guaranty, and
                    otherwise to
                    carry out its obligations hereunder. The execution and delivery
                    of this Guaranty
                    by the Guarantor and the consummation by it of the transactions
                    contemplated
                    hereby have been duly authorized by all requisite corporate action
                    on the part
                    of the Guarantor. This Guaranty has been duly executed and delivered
                    by the
                    Guarantor and constitutes the valid and binding obligation of
                    the Guarantor
                    enforceable against the Guarantor in accordance with its terms,
                    except as such
                    enforceability may be limited by applicable bankruptcy, insolvency,
                    reorganization, moratorium, liquidation or similar laws relating
                    to, or
                    affecting generally the enforcement of, creditors' rights and
                    remedies or by
                    other equitable principles of general application.

                  

                  (c) No
                    Conflicts.
                    The
                    execution, delivery and performance of this Guaranty by the Guarantor
                    and the
                    consummation by the Guarantor of the transactions contemplated
                    thereby do not
                    and will not (i) conflict with or violate any provision of its
                    Certificate of
                    Incorporation or By-laws or (ii) conflict with, constitute a
                    default (or an
                    event which with notice or lapse of time or both would become
                    a default) under,
                    or give to others any rights of termination, amendment, acceleration
                    or
                    cancellation of, any agreement, indenture or instrument to which
                    the Guarantor
                    is a party, or (iii) result in a violation of any law, rule,
                    regulation, order,
                    judgment, injunction, decree or other restriction of any court
                    or governmental
                    authority to which the Guarantor is subject (including Federal
                    and state
                    securities laws and regulations), or by which any material property
                    or asset of
                    the Guarantor is bound or affected, except in the case of each
                    of clauses (ii)
                    and (iii), such conflicts, defaults, terminations, amendments,
                    accelerations,
                    cancellations and violations as could not, individually or in
                    the aggregate,
                    have or result in a Material Adverse Effect. The business of
                    the Guarantor is
                    not being conducted in violation of any law, ordinance or regulation
                    of any
                    governmental authority, except for violations which, individually
                    or in the
                    aggregate, do not have a Material Adverse Effect.

                   

                  (d) Consents
                    and Approvals.
                    The
                    Guarantor is not required to obtain any consent, waiver, authorization
                    or order
                    of, or make any filing or registration with, any court or other
                    federal, state,
                    local, foreign or other governmental authority or other person
                    in connection
                    with the execution, delivery and performance by the Guarantor
                    of this
                    Guaranty.

                  

                  (e) Purchase
                    Agreement.
                    The
                    representations and warranties of the Company set forth in the
                    Purchase
                    Agreement as they relate to such Guarantor, each of which is
                    hereby incorporated
                    herein by reference, are true and correct as 

                  
                    
                      6

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  of
                    each
                    time such representations are deemed to be made pursuant to such
                    Purchase
                    Agreement, and the Purchasers shall be entitled to rely on each
                    of them as if
                    they were fully set forth herein, provided, that each reference
                    in each such
                    representation and warranty to the Company's knowledge shall,
                    for the purposes
                    of this Section 3, be deemed to be a reference to such Guarantor's
                    knowledge.

                  

                  (f) Foreign
                    Law.
                    Each
                    Guarantor has consulted with appropriate foreign legal counsel
                    with respect to
                    any of the above representations for which non-U.S. law is applicable.
                    Such
                    foreign counsel have advised each applicable Guarantor that such
                    counsel knows
                    of no reason why any of the above representations would not be
                    true and
                    accurate. Such foreign counsel were provided with copies of this
                    Subsidiary
                    Guarantee and the Transaction Documents prior to rendering their
                    advice.

                  

                  4. Covenants.
                    

                  

                  (a) Each
                    Guarantor covenants and agrees with the Purchasers that, from
                    and after the date
                    of this Guarantee until the Obligations shall have been paid
                    in full, such
                    Guarantor shall take, and/or shall refrain from taking, as the
                    case may be, each
                    commercially reasonable action that is necessary to be taken
                    or not taken, as
                    the case may be, so that no Event of Default is caused by the
                    failure to take
                    such action or to refrain from taking such action by such Guarantor.
                    

                   

                  (b) So
                    long
                    as any of the Obligations are outstanding, each Guarantor will
                    not directly or
                    indirectly on or after the date of this Guarantee:

                   

                  i. except
                    with the prior written consent of the Agent (as defined in the
                    Security
                    Agreement), enter into, create, incur, assume or suffer to exist
                    any
                    indebtedness for borrowed money of any kind, including but not
                    limited to, a
                    guarantee, on or with respect to any of its property or assets
                    now owned or
                    hereafter acquired or any interest therein or any income or profits
                    therefrom
                    that is
                    senior
                    to, or pari passu with, in any respect, such Guarantor’s obligations
                    hereunder;

                  

                  ii. enter
                    into, create, incur, assume or suffer to exist any liens of any
                    kind, on or with
                    respect to any of its property or assets now owned or hereafter
                    acquired or any
                    interest therein or any income or profits therefrom that is senior
                    to, in any
                    respect, such Guarantor’s obligations hereunder;

                  

                  iii. amend
                    its
                    certificate of incorporation, bylaws or other charter documents
                    so as to
                    adversely affect any rights of the Holder hereunder;

                  

                  
                    
                      7

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  iv. repay,
                    repurchase or offer to repay, repurchase or otherwise acquire
                    more than a de
                    minimis number of shares of its Common Stock or Common Stock
                    Equivalents;

                  

                  v. enter
                    into any agreement with respect to any of the foregoing;
                    or

                  

                  vi. pay
                    cash
                    dividends on any equity securities of the Company.

                  

                  5. Miscellaneous.

                  

                  (a) Amendments
                    in Writing.
                    None of
                    the terms or provisions of this Guarantee may be waived, amended,
                    supplemented
                    or otherwise modified except in writing by the Purchasers.

                   

                  (b) Notices.
                    All
                    notices, requests and demands to or upon the Purchasers or any
                    Guarantor
                    hereunder shall be effected in the manner provided for in the
                    Purchase
                    Agreement, provided that any such notice, request or demand to
                    or upon any
                    Guarantor shall be addressed to such Guarantor at its notice
                    address set forth
                    on Schedule
                    5(b).

                  

                  (c) No
                    Waiver By Course Of Conduct; Cumulative Remedies.
                    The
                    Purchasers shall not by any act (except by a written instrument
                    pursuant to
                    Section 5(a)), delay, indulgence, omission or otherwise be deemed
                    to have waived
                    any right or remedy hereunder or to have acquiesced in any default
                    under the
                    Transaction Documents or Event of Default. No failure to exercise,
                    nor any delay
                    in exercising, on the part of the Purchasers, any right, power
                    or privilege
                    hereunder shall operate as a waiver thereof. No single or partial
                    exercise of
                    any right, power or privilege hereunder shall preclude any other
                    or further
                    exercise thereof or the exercise of any other right, power or
                    privilege. A
                    waiver by the Purchasers of any right or remedy hereunder on
                    any one occasion
                    shall not be construed as a bar to any right or remedy which
                    the Purchasers
                    would otherwise have on any future occasion. The rights and remedies
                    herein
                    provided are cumulative, may be exercised singly or concurrently
                    and are not
                    exclusive of any other rights or remedies provided by law.

                  

                  (d) Enforcement
                    Expenses; Indemnification.

                  

                  
                    	 	
                            (i)

                          	
                            Each
                              Guarantor agrees to pay, or reimburse the Purchasers
                              for, all its costs
                              and expenses incurred in collecting against such Guarantor
                              under the
                              guarantee contained in Section 2 or otherwise enforcing
                              or preserving any
                              rights under this Guarantee and the other Transaction
                              Documents to which
                              such Guarantor is a party, including, without limitation,
                              the
                              

                          

                  

                  
                    
                      8

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  reasonable
                    fees and disbursements of counsel to the Purchasers.

                   

                  
                    	 	
                            (ii)

                          	
                            Each
                              Guarantor agrees to pay, and to save the Purchasers
                              harmless from, any and
                              all liabilities with respect to, or resulting from
                              any delay in paying,
                              any and all stamp, excise, sales or other taxes which
                              may be payable or
                              determined to be payable in connection with any of
                              the transactions
                              contemplated by this Guarantee.

                          

                  

                  

                  
                    	 	
                            (iii)

                          	
                            Each
                              Guarantor agrees to pay, and to save the Purchasers
                              harmless from, any and
                              all liabilities, obligations, losses, damages, penalties,
                              actions,
                              judgments, suits, costs, expenses or disbursements
                              of any kind or nature
                              whatsoever with respect to the execution, delivery,
                              enforcement,
                              performance and administration of this Guarantee to
                              the extent the Company
                              would be required to do so pursuant to the Purchase
                              Agreement.

                          

                  

                  

                  
                    	 	
                            (iv)

                          	
                            The
                              agreements in this Section shall survive repayment
                              of the Obligations and
                              all other amounts payable under the Purchase Agreement
                              and the other
                              Transaction Documents. 

                          

                  

                  

                  (e) Successor
                    and Assigns.
                    This
                    Guarantee shall be binding upon the successors and assigns of
                    each Guarantor and
                    shall inure to the benefit of the Purchasers and their respective
                    successors and
                    assigns; provided that no Guarantor may assign, transfer or delegate
                    any of its
                    rights or obligations under this Guarantee without the prior
                    written consent of
                    the Purchasers.

                   

                  (f) Set-Off.
                    Each
                    Guarantor hereby irrevocably authorizes the Purchasers at any
                    time and from time
                    to time while an Event of Default under any of the Transaction
                    Documents shall
                    have occurred and be continuing, without notice to such Guarantor
                    or any other
                    Guarantor, any such notice being expressly waived by each Guarantor,
                    to set-off
                    and appropriate and apply any and all deposits, credits, indebtedness
                    or claims,
                    in any currency, in each case whether direct or indirect, absolute
                    or
                    contingent, matured or unmatured, at any time held or owing by
                    the Purchasers to
                    or for the credit or the account of such Guarantor, or any part
                    thereof in such
                    amounts as the Purchasers may elect, against and on account of
                    the obligations
                    and liabilities of such Guarantor to the Purchasers hereunder
                    and claims of
                    every nature and description of the Purchasers against such Guarantor,
                    in any
                    currency, whether arising hereunder, under the Purchase Agreement,
                    any other
                    Transaction Document or otherwise, as the Purchasers may elect,
                    whether or not
                    the Purchasers have made any demand for payment and although
                    such obligations,
                    liabilities and claims may be contingent or unmatured. The Purchasers
                    shall
                    notify such Guarantor promptly of any such set-off and the application
                    made by
                    the Purchasers of the proceeds thereof, provided that the 

                  
                    
                      9

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  failure
                    to give such notice shall not affect the validity of such set-off
                    and
                    application. The rights of the Purchasers under this Section
                    are in addition to
                    other rights and remedies(including, without limitation, other
                    rights of
                    set-off) which the Purchasers may have.

                   

                  (g) Counterparts.
                    This
                    Guarantee may be executed by one or more of the parties to this
                    Guarantee on any
                    number of separate counterparts (including by telecopy), and
                    all of said
                    counterparts taken together shall be deemed to constitute one
                    and the same
                    instrument. 

                  

                  (h) Severability.
                    Any
                    provision of this Guarantee which is prohibited or unenforceable
                    in any
                    jurisdiction shall, as to such jurisdiction, be ineffective to
                    the extent of
                    such prohibition or unenforceability without invalidating the
                    remaining
                    provisions hereof, and any such prohibition or unenforceability
                    in any
                    jurisdiction shall not invalidate or render unenforceable such
                    provision in any
                    other jurisdiction. 

                  

                  (i) Section
                    Headings.
                    The
                    Section headings used in this Guarantee are for convenience of
                    reference only
                    and are not to affect the construction hereof or be taken into
                    consideration in
                    the interpretation hereof.

                  

                  (j) Integration.
                    This
                    Guarantee and the other Transaction Documents represent the agreement
                    of the
                    Guarantors and the Purchasers with respect to the subject matter
                    hereof and
                    thereof, and there are no promises, undertakings, representations
                    or warranties
                    by the Purchasers relative to subject matter hereof and thereof
                    not expressly
                    set forth or referred to herein or in the other Transaction
                    Documents.

                  

                  (k) Governing
                    Law.
                    THIS
                    GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
                    IN ACCORDANCE
                    WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY
                    PRINCIPLES OF
                    CONFLICTS OF LAWS. 

                  

                  (l) Submission
                    to Jurisdictional; Waiver.
                    Each
                    Guarantor hereby

                  irrevocably
                    and unconditionally:

                  

                  
                    	 	
                            (i)

                          	
                            submits
                              for itself and its property in any legal action or
                              proceeding relating to
                              this Guarantee and the other Transaction Documents
                              to which it is a party,
                              or for recognition and enforcement of any judgment
                              in respect thereof, to
                              the non-exclusive general jurisdiction of the Courts
                              of the State of New
                              York, located in New York County, New York, the courts
                              of the United
                              States of America for the Southern District of New
                              York, and appellate
                              courts from any thereof; 

                          

                  

                   

                  
                    
                      10

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  
                    	 	
                            (ii)

                          	
                            consents
                              that any such action or proceeding may be brought in
                              such courts and
                              waives any objection that it may now or hereafter have
                              to the venue of any
                              such action or proceeding in any such court or that
                              such action or
                              proceeding was brought in an inconvenient court and
                              agrees not to plead or
                              claim the same; 

                          

                  

                  

                  
                    	 	
                            (iii)

                          	
                            agrees
                              that service of process in any such action or proceeding
                              may be effected
                              by mailing a copy thereof by registered or certified
                              mail (or any
                              substantially similar form of mail), postage prepaid,
                              to such Guarantor at
                              its address referred to in the Purchase Agreement or
                              at such other address
                              of which the Purchasers shall have been notified pursuant
                              thereto;

                          

                  

                  

                  
                    	 	
                            (iv)

                          	
                            agrees
                              that nothing herein shall affect the right to effect
                              service of process in
                              any other manner permitted by law or shall limit the
                              right to sue in any
                              other jurisdiction; and 

                          

                  

                  

                  
                    	 	
                            (v)

                          	
                            waives,
                              to the maximum extent not prohibited by law, any right
                              it may have to
                              claim or recover in any legal action or proceeding
                              referred to in this
                              Section any special, exemplary, punitive or consequential
                              damages.
                              

                          

                  

                  

                  (m) Acknowledgements.
                    Each
                    Guarantor hereby acknowledges that:

                  

                  
                    	 	
                            (i)

                          	
                            it
                              has been advised by counsel in the negotiation, execution
                              and delivery of
                              this Guarantee and the other Transaction Documents
                              to which it is a party;
                              

                          

                  

                   

                  
                    	 	
                            (ii)

                          	
                            the
                              Purchasers have no fiduciary relationship with or duty
                              to any Guarantor
                              arising out of or in connection with this Guarantee
                              or any of the other
                              Transaction Documents, and the relationship between
                              the Guarantors, on the
                              one hand, and the Purchasers, on the other hand, in
                              connection herewith or
                              therewith is solely that of debtor and creditor; and
                              

                          

                  

                  

                  
                    	 	
                            (iii)

                          	
                            no
                              joint venture is created hereby or by the other Transaction
                              Documents or
                              otherwise exists by virtue of the transactions contemplated
                              hereby among
                              the Guarantors and the Purchasers. 

                          

                  

                  

                  (n) Additional
                    Guarantors.
                    The
                    Company shall cause each of its subsidiaries formed or acquired
                    on or subsequent
                    to the date hereof to become a 

                  
                    
                      11

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                  Guarantor
                    for all purposes of this Guarantee by executing and delivering
                    an Assumption
                    Agreement in the form of Annex 1 hereto.

                   

                  (o) Release
                    of Guarantors.
                    Subject
                    to Section 2.6, each Guarantor will be released from all liability
                    hereunder
                    concurrently with the repayment in full of all amounts owed under
                    the Purchase
                    Agreement, the Debentures and the other Transaction Documents.

                  

                  (p) Seniority.
                    The
                    Obligations of each of the Guarantors hereunder rank senior in
                    priority to any
                    other Indebtedness (as defined in the Purchase Agreement) of
                    such Guarantor.

                  

                  (q) Waiver
                    of Jury Trial.
                    EACH
                    GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, THE PURCHASERS,
                    HEREBY
                    IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
                    ACTION OR
                    PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM
                    THEREIN.

                  
                    
                      12

                      

                      
                      

                    

                    
                      
                      

                      
                        

                      

                    

                    
                      
                      

                    

                  

                   

                  IN
                    WITNESS WHEREOF, each of the undersigned has caused this Guarantee

                  to
                    be
                    duly executed and delivered as of the date first above written.

                  

                   CHEMBIO
                    DIAGNOSTIC SYSTEMS, INC.

                  

                  By:
                    _________________________________

                  Name:
                    

                  Title:

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