Document:

Exhibit 10.1

    
      

    

    EXHIBIT
      10.1

    
 

    EXTENSION
      OF STOCK OPTION AGREEMENTS

     

    This
      extension of previously issued stock option grants (this "Agreement") is entered
      into on this 2nd day of May, 2006, by and between Rexahn Pharmaceuticals, Inc.,
      a Delaware corporation (the "Company"), and John Holaday, the undersigned
      director (the "Director") of the Company.

     

    WHEREAS,
      the Director was previously granted stock options pursuant to Stock Option
      Grant
      Agreements, dated August 5, 2003, April 20, 2004 and September 12, 2005, by
      and
      between the Company and the Director, as amended by the consent letter dated
      December 8, 2005 (collectively, the "Option Agreements"; and the stock options
      granted pursuant to the Option Agreements are hereinafter referred to as the
      "Options"); and

     

    WHEREAS,
      the Director and the Company now wish, among other things, to extend the
      exercise period of those Options in connection with the Director’s resignation
      as a director of the Company; and

     

    WHEREAS,
      the Director and the Company are cognizant of the new rules governing stock
      options under Internal Revenue Code Section 409A (together with any proposed
      and
      final regulations and other guidance issued thereunder by the Internal Revenue
      Service, "Section 409A") and that the Options, may be subject to Section 409A;
      

     

    NOW,
      THEREFORE, in consideration of the above premises, the mutual covenants
      contained herein, and other good and valuable consideration, the receipt of
      which is hereby acknowledged, the parties hereto, intending to be legally bound,
      hereby agree as follows:

     

    1.     Non-Statutory
      Stock Options.
      The
      Director understands, acknowledges, and accepts that the Options are treated,
      including for tax purposes, as non-statutory stock options.

     

    2.     Vesting.
      Notwithstanding anything to the contrary in the Option Agreements, immediately
      upon the Director's termination of service as a director of the Company, all
      of
      the Options, to the extent not already exercisable, will become
      exercisable.

     

    3.     Exercise
      Period.
      The
      parties hereto agree that the time periods during which the Director may
      exercise his vested Options are extended until the 10th anniversary of the
      Grant
      Date (as defined in the Option Agreements) of the respective
      Options.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.     Section
      409A Matters.
      Nothing
      in this Agreement or any other agreement between the parties hereto is to be
      construed by the Director or any other person as a guaranty or assurance of
      any
      sort by the Company that the Options were and/or continue to be exempt from
      the
      requirements of Section 409A. The Director acknowledges that it is his
      responsibility, in conjunction with his tax advisors, to consider the effect
      of
      this Agreement on his individual tax situation, that the Company makes no
      representations with regard thereto (other than notifying the Director that
      the
      Options may be subject to Section 409A as a result of this Agreement) and that
      the Company may comply with its obligations under Section 409A, including its
      reporting and disclosure obligations with respect to the Director and the
      Options. The Director represents and warrants that he has carefully read and
      fully understand the terms of this Agreement and has had the advice and
      assistance of counsel with respect thereto and agrees that he will indemnify
      and
      hold harmless the Company to the extent of any losses, liabilities, claims,
      damages, fines, taxes, penalties, costs and expenses incurred or suffered by
      the
      Company arising out of its compliance with Section 409A with respect to the
      Options.

     

    5.     Continued
      Validity of the Option Agreements.
      The
      Option Agreements will remain in full force and effect, will continue to bind
      the parties hereto, and will continue to govern the terms and conditions of
      the
      Options except as those provisions are modified and superseded by this
      Agreement. To the extent that the terms of this Agreement conflict or are
      inconsistent with the terms of the Option Agreements, the terms of this
      Agreement will govern.

     

    6.     Entire
      Agreement.
      This
      Agreement, the Option Agreements, and the Stock Option Plan under which the
      Option Agreements was issued, constitute the entire agreement between the
      parties hereto respecting the Options (the "Entire Agreement"). There being
      no
      representations, warranties, or commitments between the parties hereto except
      as
      set forth in the Entire Agreement, the Entire Agreement replaces and supersedes
      any other agreement or arrangement, oral or written, between the Director and
      the Company respecting the Options.

     

    7.     Governing
      Law.
      Notwithstanding anything to the contrary contained in the Option Agreements,
      this Agreement and the Option Agreements shall be governed by and construed
      in
      accordance with the laws of the State of Delaware without giving effect to
      the
      conflict of laws principle thereof.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this document as of the date
      first set forth above.

     

    
      	
              REXAHN
                PHARMACEUTICALS, INC.

            	 	
              JOHN
                HOLADAY

            	 
	 	 	 	 
	
              By:

            	
              /s/
                Tae H. Jeong

            	 	
              /s/
                John Holaday

            	 
	
              Name:

            	
              Ted
                Jeong

            	 	 	 
	
              Title:

            	
              CFO

            	 	 	 

    

     

     

    3AMENDED AND RESTATED SECURITY AGREEMENT

      This Amended and Restated Security  Agreement is made as of May 2, 2006 by
and among LAURUS MASTER FUND,  LTD., a Cayman  Islands  corporation  ("Laurus"),
PACIFIC CMA, INC., a Delaware corporation ("the Parent"),  and each party listed
on Exhibit A attached hereto (each an "Eligible  Subsidiary"  and  collectively,
the "Eligible  Subsidiaries")  the Parent and each Eligible  Subsidiary,  each a
"Company" and collectively, the "Companies").

                                   BACKGROUND

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

      Laurus  made such  advances  available  to the  Company  pursuant  to that
certain Security  Agreement by and among Laurus and the Companies dated July 29,
2005 (the "Original Security Agreement");

      Laurus  desires  to  return  the Notes  issued  pursuant  to the  Original
Security  Agreement to the Companies for  cancellation  and the Companies desire
said  return  in  consideration  for a  Secured  Convertible  Note  , a  Secured
Non-Convertible  Revolving Note and a Warrant to purchase  350,000 shares of the
Parent's Common Stock; and

      Laurus has agreed to issue a  Convertible  Note,  a  Revolving  Note and a
Warrant on the terms and conditions set forth in this Agreement; and

      Laurus and the Companies also desire to amend certain  terms,  conditions,
schedules,  addenda,  annexes  and  exhibits  thereto  and  other  documents  as
hereinafter set forth;

                                    AGREEMENT

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

      1. General Definitions and Terms; Rules of Construction.

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

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

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

<PAGE>

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

      2. Loan Facility.

      (a) Loans. (i) Subject to the terms and conditions set forth herein and in
the Ancillary Agreements,  Laurus may make loans (the "Loans") to Companies from
time to time during the Term which,  in the  aggregate at any time  outstanding,
will not exceed the lesser of (x) (I) the Capital Availability Amount minus (II)
such  reserves  as Laurus  may  reasonably  in its good  faith  judgment  and in
accordance with reasonable and commercially  acceptable  business practices deem
proper and necessary from time to time (the  "Reserves") and (y) an amount equal
to (I) the Accounts Availability minus (II) the Reserves.  The amount derived at
any time from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to as
the "Formula  Amount." The Companies shall,  jointly and severally,  execute and
deliver to Laurus on the Closing Date the Revolving Note and a Convertible  Note
evidencing  the Loans  funded on the Closing  Date.  The  Companies  hereby each
acknowledge and agree that Laurus' obligation to purchase the Revolving Note and
the Convertible  Note from the Companies on the Closing Date shall be contingent
upon the  satisfaction  (or waiver by Laurus) of the items and matters set forth
in the closing checklist  provided by Laurus to the Companies on or prior to the
Closing Date..

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

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

                                       2

<PAGE>

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

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

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

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

      (viii) If any Eligible  Account is not paid by the Account  Debtor  within
ninety (90) days after the date that such  Eligible  Account was  invoiced or if
any Account  Debtor  asserts a  deduction,  dispute,  contingency,  set-off,  or
counterclaim with respect to any Eligible Account, (a "Delinquent Account"), the
Companies shall jointly and severally (I) reimburse Laurus for the amount of the
Loans made with respect to such Delinquent  Account plus an adjustment fee in an
amount equal to thirty-five  hundredths of one percent (0.35%) of the gross face
amount of such  Eligible  Account or (II)  immediately  replace such  Delinquent
Account with an otherwise  Eligible  Account;  provided that, to the extent that
the aggregate  amount of  outstanding  Loans does not exceed the Formula  Amount
after  giving  effect to a  Delinquent  Account,  the  actions  set forth in the
preceding clauses (I) and (II) shall not be required to be taken.

                                       3
<PAGE>

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

            (c) Convertible Note. After a registration statement registering the
      Registrable  Securities (as defined in the Registration  Rights Agreement)
      has been declared  effective by the SEC,  conversions  of the  Convertible
      Note  into  the  Common  Stock  may  be  initiated  as  set  forth  in the
      Convertible Note.

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

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

                                       4
<PAGE>

      5. Interest and Payments.

            (a) Interest.

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

                  (ii)  Interest and payments  shall be computed on the basis of
actual days elapsed in a year of 360 days. At Laurus' option,  Laurus may charge
the Companies' account for said interest. (iii) Effective upon the occurrence of
any  Event  of  Default  and  for so long  as any  Event  of  Default  shall  be
continuing,  the Contract Rate shall  automatically be increased as set forth in
the Notes  (such  increased  rate,  the  "Default  Rate"),  and all  outstanding
Obligations,  including unpaid interest,  shall continue to accrue interest from
the  date of such  Event of  Default  at the  Default  Rate  applicable  to such
Obligations.  (iv) In no event shall the aggregate  interest  payable  hereunder
exceed the maximum rate permitted under any applicable law or regulation,  as in
effect from time to time (the  "Maximum  Legal  Rate"),  and if any provision of
this Agreement or any Ancillary Agreement is in contravention of any such law or
regulation,  interest payable under this Agreement and each Ancillary  Agreement
shall be computed on the basis of the Maximum  Legal Rate (so that such interest
will not exceed the Maximum Legal Rate).

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

            (b) Payments; Certain Closing Conditions.

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

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

                                       5
<PAGE>

                  (iii) Financial Information Default. Without affecting Laurus'
other  rights  and  remedies,  in the event any  Company  fails to  deliver  the
financial  information  required by Section 11 on or before the date required by
this  Agreement,  the  Companies  shall  jointly  and  severally  pay  Laurus an
aggregate  fee in the amount of $200.00 per week (or portion  thereof)  for each
such failure  until such failure is cured to Laurus'  satisfaction  or waived in
writing by Laurus.  All  amounts  that are  incurred  pursuant  to this  Section
5(b)(iii) shall be due and payable by the Companies monthly,  in arrears, on the
first  business of each calendar  month and upon  expiration of the Term, if not
previously paid.

                  (iv)  Expenses.  The  Companies  shall  jointly and  severally
reimburse Laurus for its expenses (including reasonable legal fees and expenses)
incurred in connection  with the  preparation  and negotiation of this Agreement
and the Ancillary  Agreements,  and expenses incurred in connection with Laurus'
due  diligence  review of each  Company  and its  Subsidiaries  and all  related
matters. Amounts required to be paid under this Section 5(b)(iv) will be paid on
the Closing Date and shall be $45,000 for all such expenses  referred to in this
Section 5(b)(iv).

      6. Security Interest.

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

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

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

                                       6
<PAGE>

      7.  Representations,  Warranties and Covenants  Concerning the Collateral.
Each  Company  represents,  warrants  (each of which  such  representations  and
warranties  shall be deemed  repeated upon the making of each request for a Loan
and made as of the time of each and  every  Loan  hereunder)  and  covenants  as
follows:  (a) all of the  Collateral  (i) is owned  by it free and  clear of all
Liens (including any claims of  infringement)  except those in Laurus' favor and
Permitted  Liens  and  (ii) is not  subject  to any  agreement  prohibiting  the
granting of a Lien or requiring notice of or consent to the granting of a Lien.

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

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

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

            (e) it shall not dispose of any of the  Collateral  whether by sale,
      lease or otherwise except for the sale of Inventory in the ordinary course
      of business and for the  disposition or transfer in the ordinary course of
      business during any fiscal year of obsolete and worn-out  Equipment having
      an aggregate  fair market value of not more than  $100,000 and only to the
      extent that (i) the proceeds of any such  disposition  are used to acquire
      replacement  Equipment which is subject to Laurus' first priority security
      interest or are used to repay Loans or to pay general corporate  expenses,
      or (ii) following the occurrence of an Event of Default which continues to
      exist  the  proceeds  of which are  remitted  to Laurus to be held as cash
      collateral for the Obligations.  Notwithstanding  anything to the contrary
      contained in this Section 7(e) or  elsewhere,  the  Companies may transfer
      cash to any of their  Subsidiaries in jurisdictions  outside of the United
      States  (collectively,  the  "Non-US  Subsidiaries"  and  each,  a "Non-US
      Subsidiary"),  provided  that (x) such  transfers are made in the ordinary
      course of business and consistent with its business practices and (y) such
      transfers  are made by a Company  to a Non-US  Subsidiary  for the  direct
      purpose of reimbursing  and/or paying such Non-US  Subsidiary for the cost
      of (I) shipping expenses and (II) airline carrier expenses,  in each case,
      incurred by such Non-US Subsidiary for the benefit of such Company.

                                       7
<PAGE>

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

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

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

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

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

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

                                       8
<PAGE>

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

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

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

            (o) it  shall  maintain  and  keep the  tangible  Collateral  at the
      addresses  listed in Schedule  12(aa),  provided,  that it may change such
      locations  or open a new  location,  provided  that it provides  Laurus at
      least  thirty  (30)  days  prior  written  notice of such  changes  or new
      location and (ii) prior to such change or opening of a new location  where
      Collateral  having  a value  of more  than  $50,000  will be  located,  it
      executes  and  delivers  to  Laurus  such  agreements   deemed  reasonably
      necessary or prudent by Laurus,  including landlord agreements,  mortgagee
      agreements   and  warehouse   agreements,   each  in  form  and  substance
      satisfactory  to  Laurus,  to  adequately  protect  and  maintain  Laurus'
      security interest in such Collateral.

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

                                       9
<PAGE>

      8. Payment of Accounts.

            (a) Each  Company  will  irrevocably  direct all of its  present and
      future  Account  Debtors  and other  Persons  obligated  to make  payments
      constituting  Collateral to make such  payments  directly to the lockboxes
      maintained by such Company (the  "Lockboxes")  with J.P. Morgan Chase Bank
      in New York and  Chicago,  and Wells  Fargo Bank in Los  Angeles,  or such
      other  financial  institutions  accepted  by Laurus in  writing  as may be
      selected by such Company (the  "Lockbox  Banks")  pursuant to the terms of
      the certain  agreements  among one or more  Companies,  Laurus  and/or the
      Lockbox  Banks.  On or prior to the Closing  Date,  each Company shall and
      shall  cause  the  Lockbox  Bank to  enter  into  all  such  documentation
      acceptable to Laurus  pursuant to which,  among other things,  the Lockbox
      Bank  agrees to: (a) sweep the  Lockbox on a daily  basis and  deposit all
      checks received therein to an account  designated by Laurus in writing and
      (b)  comply  only  with the  instructions  or other  directions  of Laurus
      concerning the Lockbox. All of each Company's invoices, account statements
      and other written or oral communications directing, instructing, demanding
      or  requesting  payment of any Account of any Company or any other  amount
      constituting  Collateral shall  conspicuously  direct that all payments be
      made to the Lockbox or such other address as Laurus may direct in writing,
      and the  Companies  agree to use their best  efforts to cause the  Account
      Debtors  to  mail   payments  to  the   applicable   Lockbox   Bank.   If,
      notwithstanding the instructions to Account Debtors,  any Company receives
      any payments, such Company shall deposit such payments with the applicable
      Lockbox Bank within one (1) Business Day after  receipt by the  applicable
      Company. Until so deposited,  such Company shall hold all such payments in
      trust for and as the  property  of Laurus  and  shall not  commingle  such
      payments with any of its other funds or property.

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

      9. Collection and Maintenance of Collateral.

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

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

            (c) As Laurus  receives the proceeds of Accounts of any Company,  it
      shall (i) apply such proceeds,  as required,  to amounts outstanding under
      the Notes, and (ii) use commercially  reasonable efforts to remit all such
      remaining  proceeds (net of interest,  fees and other amounts then due and
      owing to Laurus  hereunder)  to  Company  Agent  (for the  benefit  of the
      applicable Companies) automatically on a daily basis.  Notwithstanding the
      foregoing, following the occurrence and during the continuance of an Event
      of  Default,  Laurus,  at its option,  may (a) apply such  proceeds to the
      Obligations  in such  order  as  Laurus  shall  elect,  (b)  hold all such
      proceeds as cash  collateral for the  Obligations  and each Company hereby
      grants to Laurus a security  interest in such cash  collateral  amounts as
      security  for  the  Obligations  and/or  (c)  do  any  combination  of the
      foregoing.

                                       10
<PAGE>

      10. Inspections and Appraisals. At all times during normal business hours,
and on at least  twenty-four  hours prior  notice  (which  notice  shall only be
necessary  so long as no Event  of  Default  has  occurred  and is  continuing),
Laurus,  and/or any agent of Laurus  shall have the right to (a) have access to,
visit, inspect,  review,  evaluate and make physical verification and appraisals
of each Company's properties and the Collateral, (b) inspect, audit and copy (or
take  originals if necessary)  and make extracts from each  Company's  Books and
Records,  including  management  letters  prepared by the  Accountants,  and (c)
discuss with each  Company's  directors,  principal  officers,  and  independent
accountants, each Company's business, assets, liabilities,  financial condition,
results of  operations  and  business  prospects.  Each  Company will deliver to
Laurus any  instrument  necessary for Laurus to obtain  records from any service
bureau  maintaining  records  for  such  Company.  If  any  internally  prepared
financial   information,   including   that  required   under  this  Section  is
unsatisfactory in any manner to Laurus,  Laurus may request that the Accountants
review the same.

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

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

            (b) As soon as  available  and in any event  within  fifty (50) days
      after the end of each fiscal quarter of the an unaudited/internal  balance
      sheet and statements of income,  retained  earnings and cash flows of each
      Company  as at the end of and for  such  quarter  and for the year to date
      period then ended,  prepared on a consolidating and consolidated  basis to
      include each Company, in reasonable detail and stating in comparative form
      the figures for the  corresponding  date and periods in the previous year,
      all prepared in accordance with GAAP, subject to year-end  adjustments and
      accompanied by a certificate of the Parent's  President,  Chief  Executive
      Officer  or Chief  Financial  Officer,  stating  (i) that  such  financial
      statements have been prepared in accordance with GAAP, subject to year-end
      audit  adjustments,  and (ii) whether or not such officer has knowledge of
      the  occurrence  of  any  Default  or  Event  of  Default   hereunder  not
      theretofore reported and remedied and, if so, stating in reasonable detail
      the facts with respect thereto;

                                       11
<PAGE>

            (c) As soon as available  and in any event within  fifteen (15) days
      after the end of each calendar  month for each  Company,  (i) an unaudited
      profit and loss  statement  for each  Company,  (ii) a  schedule  of aging
      accounts  receivable  for each  Company  and (iii) a schedule  of accounts
      payable for each Company,  in each case substantially in the form attached
      as Exhibit 11(c) hereto and  accompanied  by a certificate of the Parent's
      President,  Chief Executive  Officer or Chief Financial  Officer,  stating
      whether or not such officer has knowledge of the occurrence of any Default
      or Event of Default  hereunder not theretofore  reported and remedied and,
      if so, stating in reasonable detail the facts with respect thereto;

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

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

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

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

                                       12
<PAGE>

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

            (c) Capitalization; Voting Rights.

            (i) The  authorized  capital  stock  of the  Parent,  as of the date
hereof consists of 110,000,000 shares, of which 100,000,000 are shares of Common
Stock,  par value  $0.01 per  share,  27,184,488  shares of which are issued and
outstanding,  and 10,000,000 are shares of preferred  stock, par value $.001 per
share. Additionally,  10,000 shares of such preferred stock have been designated
as 6% Series A  Convertible  Preferred  Stock of which  4,150 of such shares are
issued and outstanding. The authorized,  issued and outstanding capital stock of
each Eligible Subsidiary of each Company is set forth on Schedule 12(c).

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

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

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

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

                                       13
<PAGE>

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

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

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

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

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

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

            (ii) Since  December 31, 2005 (the "Balance  Sheet Date") neither it
nor any of its  Subsidiaries  has:  (i)  declared  or  paid  any  dividends,  or
authorized or made any distribution  upon or with respect to any class or series
of its capital stock;  (ii) incurred any  indebtedness for money borrowed or any
other  liabilities  (other than ordinary  course  obligations)  individually  in
excess  of  $100,000  or,  in  the  case  of  indebtedness   and/or  liabilities
individually  less than $75,000,  in excess of $150,000 in the aggregate;  (iii)
made any loans or advances to any Person not in excess,  individually  or in the
aggregate,  of $150,000,  other than ordinary  advances for travel expenses;  or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its Inventory in the ordinary course of business.

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

                                       14
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

                                       15
<PAGE>

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

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

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

            (h) Changes.  Since the Balance  Sheet Date,  except as disclosed in
      any of the Parent's SEC Reports or Exchange Act Filings or in any Schedule
      to this  Agreement or to any of the  Ancillary  Agreements,  there has not
      been:

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

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

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

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

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

                                       16
<PAGE>

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

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

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

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

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

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

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

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

            (xiv) any arrangement or commitment by it or any of its Subsidiaries
to do any of the acts described in subsection

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

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

            (j) Intellectual Property.

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

                                       17
<PAGE>

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

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

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

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

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

                                       18
<PAGE>

            (i) that any of its returns,  federal,  state or other, have been or
are being audited as of the date hereof; or (ii) of any adjustment,  deficiency,
assessment or court decision in respect of its federal, state or other taxes.

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

            (n)  Employees.  Except as set forth on Schedule  12(n) or in any of
      the Parent's  SEC Reports or Exchange  Act Filings,  neither it nor any of
      its Subsidiaries have any collective bargaining agreements with any of its
      employees.  There is no labor union organizing activity pending or, to its
      knowledge,  threatened  with  respect  to it or any  of its  Subsidiaries.
      Except as disclosed in the Parent's SEC Reports or Exchange Act Filings or
      on Schedule 12(n), neither it nor any of its Subsidiaries is a party to or
      bound  by  any   currently   effective   employment   contract,   deferred
      compensation arrangement, bonus plan, incentive plan, profit sharing plan,
      retirement  agreement  or other  employee  compensation  plan or agreement
      which, in any such case, provides for compensation in excess of $75,000 in
      any  calendar  year.  To  its  knowledge,  none  of  its  or  any  of  its
      Subsidiaries'  employees,  nor any  consultant  with whom it or any of its
      Subsidiaries has contracted, is in violation of any term of any employment
      contract,   proprietary  information  agreement  or  any  other  agreement
      relating  to the right of any such  individual  to be  employed  by, or to
      contract with, it or any of its Subsidiaries  because of the nature of the
      business  to be  conducted  by it or any of its  Subsidiaries;  and to its
      knowledge the continued  employment  by it and its  Subsidiaries  of their
      present  employees,  and  the  performance  of its  and  its  Subsidiaries
      contracts with its  independent  contractors,  will not result in any such
      violation. Neither it nor any of its Subsidiaries is aware that any of its
      or any of its  Subsidiaries'  employees  is  obligated  under any contract
      (including  licenses,  covenants  or  commitments  of any nature) or other
      agreement,  or  subject to any  judgment,  decree or order of any court or
      administrative  agency that would interfere with their duties to it or any
      of its  Subsidiaries.  Neither it nor any of its Subsidiaries has received
      any notice  alleging  that any such  violation  has  occurred.  Except for
      employees who have a current effective employment agreement with it or any
      of its Subsidiaries, none of its or any of its Subsidiaries' employees has
      been  granted  the  right  to  continued  employment  by it or  any of its
      Subsidiaries  or to any material  compensation  following  termination  of
      employment  with it or any of its  Subsidiaries.  Except  as set  forth on
      Schedule 12(n),  neither it nor any of its  Subsidiaries is aware that any
      officer,  key employee or group of employees intends to terminate his, her
      or their employment with it or any of its Subsidiaries, as applicable, nor
      does it or any of its Subsidiaries  have a present  intention to terminate
      the employment of any officer, key employee or group of employees.

                                       19
<PAGE>

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

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

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

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

            (ii) any petroleum products or nuclear materials.

                                       20
<PAGE>

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

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

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

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

                                       21
<PAGE>

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

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

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

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

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

                                       22
<PAGE>

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

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

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

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

                                       23
<PAGE>

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

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

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

            (e) Use of Funds. It shall use the proceeds of the Loans for general
      working capital purposes only.

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

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

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

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

                                       24
<PAGE>

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

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

            (h) Insurance.  It shall bear the full risk of loss from any loss of
      any nature  whatsoever with respect to the  Collateral.  It shall keep its
      assets which are of an insurable  character  insured by financially  sound
      and reputable insurers against loss or damage by fire, explosion and other
      risks  customarily  insured  against  by  companies  in  similar  business
      similarly  situated as it; and it shall maintain,  with financially  sound
      and  reputable  insurers,  insurance  against  other hazards and risks and
      liability to persons and property to the extent and in the manner which it
      reasonably  believes  is  customary  for  companies  in  similar  business
      similarly  situated  as it and to the  extent  available  on  commercially
      reasonable  terms.  It will jointly and severally with the other Companies
      bear the full risk of loss  from any loss of any  nature  whatsoever  with
      respect to the assets  pledged to Laurus as security  for its  obligations
      hereunder and under the Ancillary Agreements.  At its own cost and expense
      in amounts and with carriers reasonably acceptable to Laurus, it shall (i)
      keep  all its  insurable  properties  and  properties  in  which it has an
      interest insured against the hazards of fire,  flood,  sprinkler  leakage,
      those  hazards  covered  by  extended  coverage  insurance  and such other
      hazards,  and for such  amounts,  as is customary in the case of companies
      engaged  in  businesses  similar  to it  including  business  interruption
      insurance;  (ii)  maintain a bond in such  amounts as is  customary in the
      case of companies  engaged in  businesses  similar to it against  larceny,
      embezzlement or other criminal  misappropriation of insured's officers and
      employees  who may either  singly or jointly  with others at any time have
      access to its or any of its  assets or funds  either  directly  or through
      governmental  authority to draw upon such funds or to direct generally the
      disposition of such assets;  (iii) maintain  public and product  liability
      insurance  against claims for personal  injury,  death or property  damage
      suffered  by others;  (iv)  maintain  all such  worker's  compensation  or
      similar  insurance  as may be  required  under  the  laws of any  state or
      jurisdiction  in which it is engaged in business;  and (v) furnish  Laurus
      with (x) copies of all policies and  evidence of the  maintenance  of such
      policies  at least  thirty  (30) days  before  any  expiration  date,  (y)
      excepting its workers' compensation policy,  endorsements to such policies

                                       25
<PAGE>

      naming Laurus as "co-insured" or "additional insured" and appropriate loss
      payable endorsements in form and substance  satisfactory to Laurus, naming
      Laurus as  lenders  loss  payee,  and (z)  evidence  that as to Laurus the
      insurance  coverage  shall not be  impaired or  invalidated  by any act or
      neglect of any Company and the insurer will  provide  Laurus with at least
      thirty (30) days  notice  prior to  cancellation.  It shall  instruct  the
      insurance carriers that in the event of any loss thereunder,  the carriers
      shall  make  payment  for such loss to Laurus and not to any  Company  and
      Laurus jointly.  If any insurance losses are paid by check, draft or other
      instrument payable to any Company and Laurus jointly,  Laurus may endorse,
      as  applicable,  such  Company's  name thereon and do such other things as
      Laurus may deem  advisable  to reduce  the same to cash.  Laurus is hereby
      authorized to adjust and compromise claims.  All loss recoveries  received
      by Laurus upon any such  insurance in excess of $100,000 in the  aggregate
      after the date hereof may be applied to the Obligations,  in such order as
      Laurus  in its sole  discretion  shall  determine  or shall  otherwise  be
      delivered  to  Company  Agent for the  benefit of the  applicable  Company
      and/or its Subsidiaries.  Any surplus  (including any amount that does not
      exceed  the  $100,000  threshold  set forth in the  immediately  preceding
      sentence)  shall be paid by Laurus to the Company Agent for the benefit of
      the  applicable  Company,  so long as such  surplus is  reinvested  by the
      applicable  Company  in same  or  similar  assets,  or  applied  as may be
      otherwise  required  by law.  Any  deficiency  thereon  shall be paid,  as
      applicable, by the Companies to Laurus, on demand.

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

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

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

                                       26
<PAGE>

            (l)  Required  Approvals.  It shall not,  without the prior  written
      consent  of  Laurus,  (i)  create,  incur,  assume  or suffer to exist any
      indebtedness  (exclusive of trade debt) whether secured or unsecured other
      than each  Company's  indebtedness  to Laurus and as set forth on Schedule
      13(l)(i)  attached  hereto and made a part hereof,  or disclosed in any of
      the Parent's  SEC Reports or Exchange  Act  Filings;  (ii) cancel any debt
      owing to it in excess of  $100,000  in the  aggregate  during any 12 month
      period; (iii) assume,  guarantee,  endorse or otherwise become directly or
      contingently  liable  in  connection  with any  obligations  of any  other
      Person,  except the  endorsement  of negotiable  instruments  by it or its
      Subsidiaries  for deposit or  collection  or similar  transactions  in the
      ordinary course of business;  (iv) directly or indirectly declare,  pay or
      make any dividend or  distribution  on any class of its Stock  (except for
      the payment of dividends,  in shares of the Parent's  Common  Stock,  with
      respect to the  Parent's 6%  Convertible  Series A Preferred  Stock issued
      prior to the date hereof) or apply any of its funds, property or assets to
      the  purchase,  redemption  or  other  retirement  of  any  of  its or its
      Subsidiaries' Stock outstanding on the date hereof, or issue any preferred
      stock; (v) purchase or hold  beneficially any Stock or other securities or
      evidences  of  indebtedness  of,  make or  permit  to exist  any  loans or
      advances to, or make any investment or acquire any interest whatsoever in,
      any other Person,  including any partnership or joint venture,  except (x)
      travel  advances,  (y)  loans to its and its  Subsidiaries'  officers  and
      employees not exceeding at any one time an aggregate of $100,000,  and (z)
      loans  to its  existing  Subsidiaries  so long as  such  Subsidiaries  are
      designated  as either a  co-borrower  hereunder  or has entered  into such
      guaranty and security documentation required by Laurus, including, without
      limitation,  to  grant  to  Laurus  a first  priority  perfected  security
      interest in substantially  all of such  Subsidiary's  assets to secure the
      Obligations;  (vi) create or permit to exist any  Subsidiary  organized in
      the United  States of America,  other than any  Subsidiary in existence on
      the date hereof and listed in Schedule 12(b) unless such new Subsidiary is
      a  wholly-owned  Subsidiary  and is  designated  by  Laurus  as  either  a
      co-borrower or guarantor  hereunder and such Subsidiary shall have entered
      into  all  such  documentation  required  by  Laurus,  including,  without
      limitation,  to  grant  to  Laurus  a first  priority  perfected  security
      interest in substantially  all of such  Subsidiary's  assets to secure the
      Obligations;  (vii) directly or indirectly, prepay any indebtedness (other
      than to Laurus and in the ordinary  course of  business),  or  repurchase,
      redeem, retire or otherwise acquire any indebtedness (other than to Laurus
      and in the ordinary course of business) except to make scheduled  payments
      of  principal  and  interest  thereof;   (viii)  enter  into  any  merger,
      consolidation  or other  reorganization  with or into any other  Person or
      acquire  all or a portion  of the  assets or Stock of any Person or permit
      any other  Person to  consolidate  with or merge with it,  unless (1) such
      Company is the surviving  entity of such merger or  consolidation,  (2) no
      Event of Default shall exist  immediately prior to and after giving effect
      to such merger or  consolidation,  (3) such  Company  shall have  provided
      Laurus   copies  of  all   documentation   relating   to  such  merger  or
      consolidation  and (4) such  Company  shall have  provided  Laurus with at
      least  thirty  (30)  days'  prior   written   notice  of  such  merger  or
      consolidation;  (ix) materially change the nature of the business in which
      it is  presently  engaged;  (x)  become  subject  to  (including,  without
      limitation,  by way of amendment to or  modification  of) any agreement or
      instrument which by its terms would (under any circumstances) restrict its
      right to perform the  provisions of this Agreement or any of the Ancillary
      Agreements;  (xi) change its fiscal year or make any changes in accounting
      treatment and reporting  practices  without prior written notice to Laurus
      except as required by GAAP or in the tax reporting  treatment or except as
      required  by law;  (xii)  enter into any  transaction  with any  employee,
      director or Affiliate,  involving compensation or other payments by any of
      the Companies to such  employee,  director or  Affiliate,  in an aggregate
      amount after the date hereof in excess of $100,000, except in the ordinary

                                       27
<PAGE>

      course on  arms-length  terms;  (xiii) bill Accounts under any name except
      the  present  name of such  Company;  or (xiv)  sell,  lease,  transfer or
      otherwise  dispose  of any of its  properties  or  assets,  except for (1)
      sales,  leases,  transfer  or  dispositions  by any  Company  to any other
      Company,  (2) the sale of Inventory in the ordinary course of business and
      (3) the  disposition or transfer in the ordinary course of business during
      any fiscal year of obsolete and worn-out  Equipment and only to the extent
      that  (x) the  proceeds  of any  such  disposition  are  used  to  acquire
      replacement  Equipment which is subject to Laurus' first priority security
      interest or are used to repay Loans or to pay general corporate  expenses,
      or (y) following the occurrence of an Event of Default which  continues to
      exist,  the  proceeds  of which are  remitted to Laurus to be held as cash
      collateral for the Obligations.  Notwithstanding  anything to the contrary
      contained in this Section  12(l),  Laurus'  approval shall not be required
      with  respect to any transfer of cash to any Non-US  Subsidiary,  provided
      that (x) such  transfers  are made in the ordinary  course of business and
      consistent with its business  practices and (y) such transfers are made by
      a Company to a Non-US  Subsidiary for the direct  purposing of reimbursing
      and/or paying such Non-US Subsidiary for (I) the cost of shipping expenses
      and (II) airline carrier expenses,  in each case,  incurred by such Non-US
      Subsidiary for the benefit of such Company.

            (m)  Reissuance  of  Securities.  Subject to compliance by Laurus or
      such other holder with all laws, rules and regulations, and the receipt by
      the  Parent of all  documents  reasonably  requested  by the  Parent,  and
      executed by Laurus or such other holder (in each case solely to the extent
      such documents are required by law in connection with the issuance of such
      securities),  the  Parent  shall  reissue  certificates  representing  the
      Securities  without the legends set forth in Section 40 below at such time
      as:

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

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

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

            (n)  Opinion.  On the Closing  Date,  it shall  deliver to Laurus an
      opinion, in the form of Schedule 13(n) annexed hereto, from each Company's
      legal  counsel.  Each Company will provide,  at the  Companies'  joint and
      several expense, such other legal opinions in the future as are reasonably
      necessary for the conversion of the  Convertible  Note and the exercise of
      the Warrants.

            (o) Legal Name,  etc. It shall not,  without  providing  Laurus with
      twenty (20) days prior written  notice,  change (i) its name as it appears
      in the official filings in the state of its organization, (ii) the type of
      legal entity it is, (iii) its organization  identification number, if any,
      issued by its state of organization, (iv) its state of organization or (v)
      amend its certificate of  incorporation,  by-laws or other  organizational
      document.

                                       28
<PAGE>

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

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

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

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

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

                                       29
<PAGE>

            (u) Financing Right of First Refusal.

            (i) It hereby  grants to Laurus a right of first  refusal to provide
any  Additional  Financing (as defined below) to be issued by any Company and/or
any of its Subsidiaries  (the "Additional  Financing  Parties"),  subject to the
following  terms and  conditions.  From and after the date hereof,  prior to the
incurrence  of any  additional  indebtedness  and/or the sale or issuance of any
equity   interests  of  the  Additional   Financing   Parties  (an   "Additional
Financing"),  Company Agent shall notify Laurus of such Additional Financing. In
connection  therewith,  Company Agent shall submit a fully negotiated term sheet
(a "Proposed  Term Sheet") to Laurus  setting  forth the terms,  conditions  and
pricing of any such  Additional  Financing  (such  financing to be negotiated on
"arm's  length"  terms and the terms  thereof to be  negotiated  in good  faith)
proposed to be entered into by the Additional  Financing  Parties.  Laurus shall
have the right,  but not the  obligation,  to  deliver to Company  Agent its own
proposed  term sheet  (the  "Laurus  Term  Sheet")  setting  forth the terms and
conditions  upon  which  Laurus  would be willing  to  provide  such  Additional
Financing  to the  Additional  Financing  Parties.  The Laurus  Term Sheet shall
contain  terms  (including  the  timing  of the  Additional  Financing)  no less
favorable to the  Additional  Financing  Parties than those outlined in Proposed
Term Sheet.  Laurus shall  deliver to Company Agent the Laurus Term Sheet within
five (5)  Business  Days of receipt of each such  Proposed  Term  Sheet.  If the
provisions of the Laurus Term Sheet are at least as favorable to the  Additional
Financing  Parties as the provisions of the Proposed Term Sheet,  the Additional
Financing  Parties  shall enter into and  consummate  the  Additional  Financing
transaction outlined in the Laurus Term Sheet.  Notwithstanding  anything to the
contrary contained herein, financing obtained by any of the Additional Financing
Parties through the sale or issuance of equity  interests and/or debt securities
(excluding  debt  securities  convertible  into equity  interests) of any of the
Additional  Financing Parties to any of the entities listed on Schedule 13(u)(i)
attached hereto or any of their affiliates,  shall be exempt from the definition
of  Additional  Financing  solely for the purpose of this  Section  13(u)(i) and
shall not be subject to the right of first refusal provisions contained herein.

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

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

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

            (x) Prohibitions of Payment Under  Subordinated Debt  Documentation.
      It shall not,  without  the prior  written  consent  of  Laurus,  make any
      payments in respect of the indebtedness evidenced by the Subordinated Debt
      Documentation, other than as expressly permitted by the terms thereof.

                                       30
<PAGE>

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

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

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

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

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

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

                                       31
<PAGE>

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

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

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

            (h)  Patriot  Act.  Laurus  certifies  that,  to the best of Laurus'
      knowledge, Laurus has not been designated, and is not owned or controlled,
      by a "suspected  terrorist"  as defined in Executive  Order 13224.  Laurus
      seeks to comply with all applicable laws concerning  money  laundering and
      related  activities.  In  furtherance  of  those  efforts,  Laurus  hereby
      represents,  warrants and covenants that: (i) none of the cash or property
      that Laurus will use to make the Loans has been or shall be derived  from,
      or related to, any activity  that is deemed  criminal  under United States
      law;  and (ii) no  disbursement  by Laurus to any  Company  to the  extent
      within  Laurus'  control,  shall cause  Laurus to be in  violation  of the
      United  States Bank  Secrecy Act, the United  States  International  Money
      Laundering  Control Act of 1986 or the United States  International  Money
      Laundering  Abatement and  Anti-Terrorist  Financing  Act of 2001.  Laurus
      shall  promptly  notify the Company Agent if any of these  representations
      ceases to be true and accurate regarding Laurus.  Laurus agrees to provide
      the Company any additional  information  regarding Laurus that the Company
      deems  necessary or convenient to ensure  compliance  with all  applicable
      laws  concerning   money   laundering  and  similar   activities.   Laurus
      understands  and agrees that if at any time it is  discovered  that any of
      the foregoing  representations are incorrect,  or if otherwise required by
      applicable  law  or  regulation   related  to  money  laundering   similar
      activities,  Laurus may undertake appropriate actions to ensure compliance
      with   applicable  law  or  regulation,   including  but  not  limited  to
      segregation and/or redemption of Laurus' investment in the Parent.  Laurus
      further  understands that the Parent may release  information about Laurus
      and,  if  applicable,   any  underlying   beneficial   owners,  to  proper
      authorities if the Parent,  in its sole discretion,  determines that it is
      in the  best  interests  of the  Parent  in light of  relevant  rules  and
      regulations  under the laws set forth in subsection (ii) above;  provided,
      however, that Parent shall only release such confidential information that
      it has been advised by counsel is necessary to comply with the requests of
      any such authorities.

                                       32
<PAGE>

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

      16. Power of Attorney.  Each Company hereby appoints Laurus,  or any other
Person whom Laurus may designate as such Company's  attorney,  with power to, in
the event of the  occurrence of an Event of Default which remains  uncured after
any  applicable  cure periods:  (i) endorse such  Company's  name on any checks,
notes,  acceptances,  money orders, drafts or other forms of payment or security
that may come into  Laurus'  possession;  (ii) sign such  Company's  name on any
invoice or bill of lading  relating  to any  Accounts,  drafts  against  Account
Debtors, schedules and assignments of Accounts, notices of assignment, financing
statements and other public records,  verifications of Account and notices to or
from  Account  Debtors;  (iii) verify the  validity,  amount or any other matter
relating to any Account by mail, telephone,  telegraph or otherwise with Account
Debtors; (iv) do all things necessary to carry out this Agreement, any Ancillary
Agreement  and all related  documents;  and (v) on or after the  occurrence  and
during  the  continuation  of an  Event  of  Default,  notify  the  post  office
authorities  to change the address for  delivery  of such  Company's  mail to an
address  designated  by Laurus,  and to  receive,  open and  dispose of all mail
addressed to such Company.  Provided that Laurus  complies with all of the terms
and conditions described,  each Company hereby ratifies and approves all acts of
the attorney.  Neither  Laurus,  nor the attorney will be liable for any acts or
omissions  or for any error of  judgment  or mistake of fact or law,  except for
gross  negligence  or willful  misconduct.  This power,  being  coupled  with an
interest, is irrevocable so long as Laurus has a security interest and until the
Obligations have been fully satisfied.

      17.  Term of  Agreement.  Laurus'  agreement  to  make  Loans  and  extend
financial  accommodations  under  and in  accordance  with  the  terms  of  this
Agreement or any  Ancillary  Agreement  shall  continue in full force and effect
until the expiration of the Term. At Laurus'  election  following the occurrence
of an Event of Default, Laurus may terminate this Agreement.  The termination of
the Agreement shall not affect any of Laurus' rights  hereunder or any Ancillary
Agreement  and the  provisions  hereof and  thereof  shall  continue to be fully
operative until all transactions  entered into,  rights or interests created and
the  Obligations  have been  irrevocably  disposed of,  concluded or liquidated.
Notwithstanding  the foregoing,  Laurus shall release its security  interests at
any time after five (5) Business Days notice upon  irrevocable  payment to it of
all  Obligations if each Company shall have (i) provided Laurus with an executed
release of any and all claims  which such  Company may have or  thereafter  have
under this  Agreement  and all Ancillary  Agreements  and (ii) paid to Laurus an
early  payment fee in an amount  equal to (1)  $200,000 if such  payment  occurs
prior to the first anniversary of the Closing Date, (2) $150,000 if such payment
occurs on or after the first  anniversary  of the Closing  Date and prior to the
second  anniversary  of the Closing  Date and (3)  $100,000 if such  termination
occurs  thereafter during the Term; such fee being intended to compensate Laurus
for its costs and expenses  incurred in initially  approving  this  Agreement or
extending  same.  Such early  payment fee shall be due and  payable  jointly and
severally by the Companies to Laurus upon  termination by  acceleration  of this
Agreement  by  Laurus  due to the  occurrence  and  continuance  of an  Event of
Default.

                                       33
<PAGE>

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

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

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

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

            (c) failure to perform  under,  and/or  committing any breach of, in
      any material  respect,  this Agreement or any covenant  contained  herein,
      which  failure or breach  shall  continue  without  remedy for a period of
      thirty (30) days after the occurrence thereof;

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

            (e)  the  occurrence  of  any  default  (or  similar  term)  in  the
      observance or performance of any other agreement or condition  relating to
      any indebtedness or contingent  obligation of any Company, in an aggregate
      amount outstanding in excess of $250,000  (including,  without limitation,
      the indebtedness  evidenced by the Subordinated Debt Documentation) beyond
      the period of grace (if any), the effect of which default is to cause,  or
      permit  the  holder or  holders of such  indebtedness  or  beneficiary  or
      beneficiaries of such contingent obligation to cause, such indebtedness to
      become due prior to its stated maturity or such  contingent  obligation to
      become payable;

                                       34
<PAGE>

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

            (g) any change in any Company's or any of its Subsidiary's condition
      or affairs  (financial or  otherwise)  which in Laurus'  reasonable,  good
      faith  opinion,  could  reasonably be expected to have a Material  Adverse
      Effect, other than as set forth in Schedule 19(g);

            (h) any Lien created hereunder or under any Ancillary  Agreement for
      any  reason  ceases to be or is not a valid and  perfected  Lien  having a
      first priority  interest,  unless  released  pursuant to the provisions of
      this Agreement or any of the Ancillary Agreements,  or otherwise waived by
      Laurus;

            (i) any  Company  or any of its  Subsidiaries  shall (i) apply  for,
      consent  to or  suffer  to exist  the  appointment  of,  or the  taking of
      possession by, a receiver,  custodian,  trustee or liquidator of itself or
      of  all or a  substantial  part  of  its  property,  (ii)  make a  general
      assignment  for the benefit of creditors,  (iii) commence a voluntary case
      under the federal bankruptcy laws (as now or hereafter in effect), (iv) be
      adjudicated a bankrupt or insolvent,  (v) file a petition  seeking to take
      advantage  of any other law  providing  for the  relief of  debtors,  (vi)
      acquiesce to without challenge within ten (10) days of the filing thereof,
      or failure to have  dismissed  within sixty (60) days,  any petition filed
      against it in any involuntary  case under such  bankruptcy  laws, or (vii)
      take any action for the purpose of effecting any of the foregoing;

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

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

            (l) any  "Person"  or "group" (as such terms are defined in Sections
      13(d) and 14(d) of the  Exchange  Act,  as in effect on the date  hereof),
      other than the  Holder or any other  person  set forth on  Schedule  19(l)
      annexed hereto, is or becomes the "beneficial  owner" (as defined in Rules
      13(d)-3 and 13(d)-5 under the Exchange Act),  directly or  indirectly,  of
      35% or more on a fully diluted basis of the then outstanding voting equity
      interest of the Parent,  (ii) the Board of  Directors  of the Parent shall
      cease to consist of a majority of the Board of  Directors of the Parent on
      the date  hereof (or  directors  appointed  by a majority  of the board of
      directors in effect  immediately  prior to such  appointment) or (iii) the
      Parent or any of its  Subsidiaries  merges or consolidates  with, or sells
      all or substantially all of its assets to, any other person or entity;

                                       35
<PAGE>

            (m)  the  indictment  of  any  Company,   any  of  their  respective
      Subsidiaries or Alfred Lam under any criminal statute,  or commencement of
      criminal or civil proceedings against any Company, any of their respective
      Subsidiaries  or  Alfred  Lam  pursuant  to which  statute  or  proceeding
      penalties or remedies sought or available include forfeiture of any of the
      property of any Company or any such Subsidiary;

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

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

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

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

            (r) except if such delivery would violate any  applicable  law, rule
      and/or regulation,  the Parent's failure to deliver Common Stock to Laurus
      pursuant to and in the form required by the Convertible  Note, the Warrant
      and this  Agreement,  if such failure to deliver Common Stock shall not be
      cured within five (5) Business  Days or any Company is required to issue a
      replacement  Note to Laurus and such  Company  shall fail to deliver  such
      replacement Note within seven (7) Business Days; or

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

                                       36
<PAGE>

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

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

                                       37
<PAGE>

      22. Expenses. The Companies shall jointly and severally pay all of Laurus'
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers,  in connection with the preparation,
execution  and delivery of this  Agreement  and the  Ancillary  Agreements  (the
aggregate  amount of all such expenses which shall not exceed  $45,000),  and in
connection with the prosecution or defense of any action, contest, dispute, suit
or  proceeding  concerning  any matter in any way arising out of,  related to or
connected with this Agreement or any Ancillary  Agreement.  The Companies  shall
also  jointly  and  severally  pay  all of  Laurus'  reasonable  fees,  charges,
out-of-pocket costs and expenses, including reasonable fees and disbursements of
counsel and appraisers,  in connection with (a) the  preparation,  execution and
delivery of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the Ancillary
Agreements,  (b) Laurus'  obtaining  performance of the  Obligations  under this
Agreement  and any  Ancillary  Agreements,  including,  but not  limited to, the
enforcement or defense of Laurus' security interests,  assignments of rights and
Liens  hereunder  as valid  perfected  security  interests,  (c) any  attempt to
inspect,  verify, protect,  collect, sell, liquidate or otherwise dispose of any
Collateral,  (d) any  appraisals  or  re-appraisals  of any  property  (real  or
personal)  pledged to Laurus by any  Company  as  Collateral  for,  or any other
Person as security for, the Obligations  hereunder and (e) any  consultations in
connection  with any of the  foregoing.  The  Companies  shall also  jointly and
severally pay Laurus'  customary  bank charges for all bank services  (including
wire transfers) performed or caused to be performed by Laurus for any Company at
any  Company's  request or in connection  with any  Company's  loan account with
Laurus.  All such costs and expenses  together  with all filing,  recording  and
search  fees,  taxes and  interest  payable by the  Companies to Laurus shall be
payable  on demand and shall be  secured  by the  Collateral.  If any tax by any
Governmental Authority is or may be imposed on or as a result of any transaction
between any Company and/or any Subsidiary  thereof,  on the one hand, and Laurus
on the other hand,  which  Laurus is or may be required to withhold or pay,  the
Companies hereby jointly and severally  indemnifies and holds Laurus harmless in
respect of such taxes,  and the Companies will repay to Laurus the amount of any
such  taxes  which  shall be charged to the  Companies'  account;  and until the
Companies  shall furnish Laurus with  indemnity  therefor (or supply Laurus with
evidence  satisfactory to it that due provision for the payment thereof has been
made),  Laurus may hold without  interest any balance standing to each Company's
credit and Laurus shall retain its Liens in any and all Collateral.

                                       38
<PAGE>

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

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

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

                                       39
<PAGE>

      26. Indemnity.

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

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

                                       40
<PAGE>

      27.  Revival.  The Companies  further agree that to the extent any Company
makes a payment or  payments  to Laurus,  which  payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law,  common law or equitable  cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made. 28. Borrowing Agency Provisions.

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

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

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

                                       41
<PAGE>

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

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

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

Notices shall be provided as follows:

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

                                       42
<PAGE>

       If to any Company,

       or Company Agent:         Pacific CMA, Inc.
                                 c/o Airgate International Corporation
                                 153-04 Rockaway Boulevard
                                 Jamaica, New York 11434
                                 Attention:        Kenneth Yeung
                                 Telephone:        (718) 949-9700
                                 Facsimile:        (718) 949-6260

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

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

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

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

                                       43
<PAGE>

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

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

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

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

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

                                       44
<PAGE>

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

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

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

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

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

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

            (a) The  Revolving  Note  shall  bear  substantially  the  following
      legend:

            "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED, OR ANY APPLICABLE,  STATE SECURITIES LAWS. THIS NOTE MAY
            NOT BE SOLD,  OFFERED  FOR  SALE,  PLEDGED  OR  HYPOTHECATED  IN THE
            ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
            SAID ACT AND  APPLICABLE  STATE  SECURITIES  LAWS OR AN  OPINION  OF
            COUNSEL  REASONABLY  SATISFACTORY  TO PACIFIC  CMA,  INC.  THAT SUCH
            REGISTRATION IS NOT REQUIRED."

                                       45
<PAGE>

            (b) The  Convertible  Note shall bear  substantially  the  following
      legend:

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

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

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

                                       46
<PAGE>

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

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

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

                                       47
<PAGE>

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

                                        PACIFIC CMA, INC.

                                        By: /s/ Alfred Lam
                                            ------------------------------------
                                        Name: Alfred Lam
                                        Title: Chairman/CEO

                                        PACIFIC CMA INTERNATIONAL, LLC

                                        By: /s/ Alfred Lam
                                            ------------------------------------
                                        Name: Alfred Lam
                                        Title: Chairman/CEO

                                        AIRGATE INTERNATIONAL CORPORATION,
                                         A NEW YORK CORPORATION

                                        By: /s/ Alfred Lam
                                            ------------------------------------
                                        Name: Alfred Lam
                                        Title: Chairman/CEO

                                        AIRAGATE INTERNATIONAL CORPORATION
                                        (CHICAGO), AN ILLINOIS CORPORATION

                                        By: /s/ Alfred Lam
                                            ------------------------------------
                                        Name: Alfred Lam
                                        Title: Chairman/CEO

                                        PARADIGM INTERNATIONAL INC., FLORIDA
                                         CORPORATION

                                       48
<PAGE>

                                        By: /s/ Alfred Lam
                                            ------------------------------------
                                        Name: Alfred Lam
                                        Title: Chairman/CEO

                                        LAURUS MASTER FUND, LTD.

                                        By: /s/ David Grin
                                            ------------------------------------
                                        Name: David Grin
                                        Title: Director

                                       49
<PAGE>

                              Annex A - Definitions

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

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

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

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

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

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

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

<PAGE>

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

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

      "Capital Availability Amount" means $7,500,000.

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

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

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

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

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

      (a) all Inventory;

      (b) all Equipment;

      (c) all Fixtures;

      (d) all Goods;

      (e) all General Intangibles;

      (f) all Accounts;

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

      (h) all Investment Property;

      (i) all Stock of the Eligible Subsidiaries owned by any Company;

      (j) all Chattel Paper;

                                       2
<PAGE>

      (k) all Letter-of-Credit Rights;

      (l) all Instruments;

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

      (n) all Books and Records;

      (o) all Intellectual Property;

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

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

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

      "Common Stock" means the shares of stock  representing the Parent's common
equity interests.

      "Company Agent" means the Parent.

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

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

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

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

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

                                       3
<PAGE>

      "Eligible  Accounts"  means each Account of each Company which conforms to
the  following  criteria:  (a) shipment of the  merchandise  or the rendition of
services has been  completed;  (b) no return,  rejection or  repossession of the
merchandise  has  occurred;  (c)  merchandise  or  services  shall not have been
rejected  or  disputed  by the  Account  Debtor  and  there  shall not have been
asserted  any  offset,  defense or  counterclaim;  (d)  continues  to be in full
conformity  with the  representations  and  warranties  made by such  Company to
Laurus with respect thereto;  (e) Laurus is, and continues to be, satisfied with
the credit  standing of the  Account  Debtor in relation to the amount of credit
extended;  (f) there are no facts  existing  or  threatened  which are likely to
result in any adverse change in an Account Debtor's financial condition;  (g) is
documented  by an invoice in a form  approved  by Laurus and shall not be unpaid
more than  ninety (90) days from  invoice  date;  (h) not more than  twenty-five
percent  (25%) of the unpaid  amount of invoices  due from such  Account  Debtor
remains  unpaid  more  than  ninety  (90)  days from  invoice  date;  (i) is not
evidenced by chattel  paper or an  instrument  of any kind with respect to or in
payment  of the  Account  unless  such  instrument  is duly  endorsed  to and in
possession  of Laurus or  represents  a check in payment of an Account;  (j) the
Account Debtor is located in the United States;  provided,  however, Laurus may,
from  time to time,  in the  exercise  of its sole  discretion  and  based  upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts  notwithstanding  that such Account is due
from an Account  Debtor located  outside of the United States;  (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions with
any employee, officer, director, stockholder or Affiliate of any Company; (m) is
payable to such Company; (n) does not arise out of a bill and hold sale prior to
shipment and does not arise out of a sale to any Person to which such Company is
indebted; (o) is net of any returns, discounts,  claims, credits and allowances;
(p) if the Account  arises out of  contracts  between such  Company,  on the one
hand, and the United States,  on the other hand, any state,  or any  department,
agency or  instrumentality  of any of them, such Company has so notified Laurus,
in writing, prior to the creation of such Account, and there has been compliance
with any governmental notice or approval requirements, including compliance with
the  Federal  Assignment  of  Claims  Act;  (q)  is a  good  and  valid  account
representing an undisputed bona fide indebtedness incurred by the Account Debtor
therein named, for a fixed sum as set forth in the invoice relating thereto with
respect to an  unconditional  sale and  delivery  upon the stated terms of goods
sold by such Company or work,  labor and/or  services  rendered by such Company;
(r) does not arise out of progress  billings  prior to  completion of the order;
(s) the  total  unpaid  Accounts  from  such  Account  Debtor  does  not  exceed
twenty-five percent (25%) of all Eligible Accounts;  (t) such Company's right to
payment is absolute and not  contingent  upon the  fulfillment  of any condition
whatsoever;  (u) such  Company is able to bring suit and  enforce  its  remedies
against the Account  Debtor  through  judicial  process;  (v) does not represent
interest  payments,  late or finance  charges owing to such Company,  and (w) is
otherwise  satisfactory to Laurus as determined by Laurus in the exercise of its
sole  discretion.  In the event any Company  requests that Laurus include within
Eligible Accounts certain Accounts of one or more of such Company's  acquisition
targets,  Laurus shall at the time of such request consider such inclusion,  but
any such inclusion  shall be at the sole option of Laurus and shall at all times
be subject to the  execution  and  delivery to Laurus of all such  documentation
(including,  without limitation,  guaranty and security documentation) as Laurus
may require in its sole discretion.

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

                                       4
<PAGE>

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

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

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

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

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

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

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

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

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

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

      "Goods"  means all "goods",  as such term is defined in the UCC, now owned
or  hereafter  acquired  by any Person,  wherever  located,  including  embedded
software to the extent  included in "goods" as defined in the UCC,  manufactured
homes,  fixtures,  standing  timber  that is cut and removed for sale and unborn
young of animals.

                                       5
<PAGE>

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

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

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

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

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

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

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

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

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

                                       6
<PAGE>

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

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

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

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

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

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

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

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

                                       7
<PAGE>

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

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

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

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

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

                                       8
<PAGE>

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

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

      "Revolving Note" means that certain Secured Revolving Note dated as of the
Closing Date made by the Companies in favor of Laurus in the original  principal
amount of $7,500,000, as the same may be amended, supplemented,  restated and/or
otherwise modified from time to time.

      "SEC" means the Securities and Exchange Commission.

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

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

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

      "Security  Documents"  means  all  security  agreements,  mortgages,  cash
collateral  deposit letters,  pledges and other agreements which are executed by
any Company in favor of Laurus.

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

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

      "Subordinated  Debt  Documentation"  means any indebtedness of any Company
that  (x) is  permitted  by the  terms  of  this  Agreement  and  the  Ancillary
Agreements  to be incurred by such Company and (y) is by its terms  subordinated
in right of payment  to the  Obligations  and/or is  subject to a  subordination
agreement  among the  creditors  with respect to such  indebtedness  and Laurus,
which subordination agreement is in form and substance satisfactory to Laurus.

                                       9
<PAGE>

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

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

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

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

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

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

                                       10
<PAGE>

                                    Exhibit A
                                    ---------

                              Eligible Subsidiaries

         Pacific CMA International, LLC, a Colorado limited liability company

         Airgate International Corporation, a New York corporation

         Airgate International Corporation (Chicago), an Illinois corporation

         Paradigm International, Inc., a Florida corporation

<PAGE>

                                    Exhibit B
                                    ---------

                           Borrowing Base Certificate

                                [To be inserted]

<PAGE>

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

                            LAURUS MASTER FUND, LTD.

                    PACIFIC CMA, INC., a Delaware corporation

      PACIFIC CMA INTERNATIONAL, LLC, a Colorado limited liability company,

           AIRGATE INTERNATIONAL CORPORATION, a New York corporation,

           AIRAGATE INTERNATIONAL CORPORATION, an Illinois corporation

                                       and

               PARADIGM INTERNATIONAL INC., a Florida corporation

                              Dated: July 29, 2005

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

                                                                            PAGE
                                                                            ----

1.   General Definitions and Terms; Rules of Construction......................1

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

3.   Repayment of the Loans....................................................4

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

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

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

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

8.   Payment of Accounts.......................................................9

9.   Collection and Maintenance of Collateral.................................10

10.  Inspections and Appraisals...............................................11

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

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

13.  Covenants................................................................23

14.  Further Assurances.......................................................31

15.  Representations, Warranties and Covenants of Laurus......................31

16.  Power of Attorney........................................................33

17.  Term of Agreement........................................................33

18.  Termination of Lien......................................................34

19.  Events of Default........................................................34

20.  Remedies.................................................................36

21.  Waivers..................................................................37

22.  Expenses.................................................................38

23.  Assignment By Laurus.....................................................38

                                       i
<PAGE>

                                                                         PAGE(s)
                                                                         -------

24.  No Waiver; Cumulative Remedies...........................................39

25.  Application of Payments..................................................39

26.  Indemnity................................................................40

27.  Revival..................................................................40

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

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

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

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

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

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

34.  Captions.................................................................45

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

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

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

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

39.  Legends..................................................................45

                                       ii

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00103-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00103-of-00352.parquet"}]]