Document:

exhibit10-96.htm

    
      

      

    

    Exhibit
10.96

    

    EXHIBIT
D

    

    [Letterhead
of Carlton Fields, P.A.]

    
      	
              Robert
      B. Macaulay

              305.530.0500

              rmacaulay@carltonfields.com

               

            

    

    

    

    

    

    November
20, 2008

    

    

    Whalehaven
Capital Fund Limited

    560
Sylvan Avenue, 3rd
Floor

    Englewood
Cliffs, New Jersey 07632

    

    Ref.:
Imaging Diagnostic
Systems, Inc., a Florida corporation (the “Company”)

    

    Ladies
and Gentlemen,

    

    We have acted as counsel to the
Company, in connection with the execution and delivery by the Company of the
Securities Purchase Agreement, dated as of November 20, 2008 (the “Purchase Agreement”),
by and among the Company and the purchasers identified on the signature pages
thereto (the “Purchasers”).  This
opinion is given to you pursuant to Section 2.2(a)(ii) of the Purchase
Agreement. Unless otherwise defined herein, capitalized terms used herein have
the meanings ascribed to such terms in the Purchase Agreement.

    

    In connection with the opinions
expressed below, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of various documents, including,
without limitation, the following:

    

    
      	
               
      

            	
              (i) 
      the Purchase Agreement;

            

    

    

    
      	
               
      

            	
              (ii)
       the Security Agreement entered into by and among the Company and the
      Purchasers and the Security Documents (as defined in the Purchase
      Agreement), dated November 20,
2008;

            

    

    

    
      	
               
      

            	
              (iii)
      the Registration Rights Agreement entered into by and among the Company
      and the Purchasers, dated as of November 20,
  2008;

            

    

    

    
      	
               
      

            	
              (iv)
       the 8% Senior Secured Convertible Debentures Due November 20, 2009,
      issued by the Company in favor of the Purchasers, dated as of November 20,
      2008;

            

    

    

    
      	
               
      

            	
              (v) 
      Certificate of Allan L. Schwartz, Executive Vice President and Chief
      Financial Officer of the Company, dated as of November 20, 2008, regarding
      certain factual matters (the “Officer’s
  Certificate”).

            

    

     

    The
documents listed in clauses (i) to (iv) above may be referred to collectively as
the “Transaction
Documents.”  In addition, we also have examined originals or
copies, certified or otherwise identified to our satisfaction, of such other
documents, certificates, 

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

          
            Whalehaven
Capital Fund Limited

            November
20, 2008

            Page of
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    and
records of the Company, public officials and other persons, and have examined
such matters of law, as we have deemed necessary or appropriate as a basis for
the opinions expressed below.

    

      As
to any facts material to our opinions expressed below, you have specifically
authorized us to rely upon, and assume as accurate and complete, and we
therefore have relied upon and assumed to be accurate and complete, the
following, without any independent verification, investigation, or research of
any kind: certificates of public officials, statutes and published rules and
regulations, the Officer’s Certificate, statements and representations of the
officers and other representatives of the Company as they relate to any facts
material to the opinions expressed below, and the accuracy of the facts,
information, covenants, and representations in the Transaction Documents and
other documents listed or described above.

     

    We have
not, except as specifically identified herein, been retained or engaged to
perform and, accordingly, have not performed, any independent review or
investigation of any statutes, ordinances, laws or regulations, other than those
related to the corporate laws of the State of Florida, or agreements, contracts,
instruments, or corporate records (other than as indicated above) or, orders,
writs, judgments, rules or decrees to which the Company may be a party or to
which the Company or any property thereof may be bound.

     

    In our
examination, you also have authorized us to assume, and we therefore have
assumed, without undertaking any independent investigation, research, or
verification of any kind that:

     

    1.  all natural persons
executing the Transaction Documents on behalf of all parties thereto have the
legal capacity to execute such documents;

     

    2.  all parties, other than
the Company or persons acting on the Company’s behalf (collectively, the “Other
Parties”) to the Transaction Documents, are duly organized and validly
existing;

     

    3.  all copies of
instruments examined by us are true and correct copies of the originals thereof,
all documents submitted to us as originals are authentic, all documents
submitted to us as certified or photostatic copies conform to the original
documents, and all signatures thereon are genuine;

     

    4.  the power and full
authority (corporate or otherwise) of each of the Other Parties to execute,
deliver and perform its obligations under each of the Transaction Documents to
which it is stated to be a party;

     

    5.  each of the Transaction
Documents has been duly authorized, executed, and delivered by, and constitutes
legal, valid and binding obligations of, the Other Parties thereto, enforceable
against each of the Other Parties thereto in accordance with its
terms;

     

    6.  there are no other
agreements or understandings among the parties that would modify the terms of
the Transaction Documents or the respective rights or obligations of the parties
to the Transaction Documents;

     

    

    
      
        
           

        

        
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            Whalehaven
Capital Fund Limited

            November
20, 2008

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    7.  the laws of any
jurisdiction, other than the State of Florida, which govern the Transaction
Documents are identical to the laws of the State of Florida in all respects
material to the opinion as to the enforceability of the Transaction
Documents.

     

    Whenever
any of our opinions herein is stated to be “to our knowledge”, or words or
phrases of similar meaning, it shall mean that there is nothing in the current
conscious awareness of Robert B. Macaulay, who constitutes the only attorney of
this firm who has had substantial participation in our firm’s representation of
the Company in connection with the Agreement and the transactions contemplated
thereby, that would lead such attorney to conclude that such opinion is not
correct.  Except to the extent expressly set forth herein, neither
this firm nor such attorney has undertaken any independent verification,
investigation, or research of any kind to determine the existence or absence of
such facts, and no inference as to this firm’s or such attorney’s knowledge of
the existence or absence of such facts should be or may be drawn from such
representation of the Company.

     

    Based
solely upon the foregoing, and in reliance thereon, and subject to the foregoing
and the exclusions, assumptions and qualifications contained below, we are of
the opinion that:

     

    1. 
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Florida. The Company has all requisite power and
authority, and is in possession of all material governmental licenses,
authorizations, consents and approvals, that are required to own and operate its
properties and assets and to carry on its business as now conducted and as
proposed to be conducted (all as described in the Company’s Annual Report on
Form 10-K for its fiscal year ended June 30, 2008). The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to qualify could have a Material Adverse Effect.

     

    2.  The Company has the
corporate power and authority (i) to execute, deliver and perform the
Transaction Documents, (ii) to issue, sell and deliver the Debentures and the
Underlying Shares pursuant to the Transaction Documents and (iii) to carry out
and perform its obligations under, and to consummate the transactions
contemplated by, the Transaction Documents.

     

    3.  All action on the part
of the Company, its directors and its stockholders necessary for the
authorization, execution and delivery by the Company of the Transaction
Documents, the authorization, issuance, sale and delivery of the Debentures
pursuant to the Agreement, the issuance and delivery of the Underlying Shares
and the consummation by the Company of the transactions contemplated by the
Transaction Documents has been duly taken.  The Transaction Documents
have been duly and validly executed and delivered by the Company and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.

     

    4.  After giving effect to
the transactions contemplated by the Agreement, and immediately after the
Closing, the authorized capital stock of the Company will consist of: an
aggregate of 450,000,000 shares of Common Stock, of which 383,470,710 shares
will be issued and outstanding and 41,419,729 shares will be reserved for
issuance upon conversion of issued and outstanding options, warrants and other
derivative securities, and 21,764,082 shares will be reserved for issuance to
employees, officers and directors under the Company’s 1995, 2000
and  2002 Stock Option Plans and 2004 and 2007 Non-Statutory Stock
Option Plans, of which 8,878,847 shares are subject to currently

     

    

    
      
        
           

        

        
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            Whalehaven
Capital Fund Limited

            November
20, 2008

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    outstanding
incentive stock option grants.  The Company has informed us that,
immediately upon receipt of the Authorized Share Approval and filing of the
Amendment, it will reserve 22,750,000 shares for issuance upon conversion of the
Debentures.  All presently issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and free of any preemptive or similar rights, and have been issued
in compliance with applicable securities laws and regulations.  The
Debentures which are being issued on the date hereof pursuant to the Agreement
have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive or similar rights, and have been issued in
compliance with applicable securities laws, rules and
regulations.  Upon receipt of the Authorized Share Approval and filing
of the Amendment, the Underlying Shares will be duly and validly authorized and
reserved for issuance, and when issued upon the conversion of the Debentures in
accordance with the respective terms therein, will be validly issued, fully paid
and nonassessable, and free of any preemptive or similar rights.  To
our knowledge, except for rights described in Schedule 3.1(g) of the Agreement,
there are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire from the Company any
capital stock or other securities of the Company, or any other agreements to
issue any such securities or rights.  The rights, privileges and
preferences of the Common Stock are as stated in the Company’s Articles of
Incorporation, as amended.

     

    5.  To our knowledge, the
Company has filed all reports (the “SEC Reports”)
required to be filed by it under Sections 13(a) and 15(d) of the Exchange Act of
1934, as amended (the “Exchange Act”). As of
their respective filing dates, the SEC Reports complied in all material respects
as to form with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.

     

    6.  Based in part upon the
representations of the Purchasers contained in the Agreement, the Debentures and
the Underlying Shares may be issued to the Purchasers without registration under
the Securities Act of 1933, as amended.

     

    7.  The execution, delivery
and performance by the Company of, and the compliance by the Company with the
terms of, the Transaction Documents and the issuance, sale and delivery of the
Debentures and the Underlying Shares pursuant to the Agreement do not (a)
conflict with or result in a violation of any provision of law, rule or
regulation applicable to the Company or of the articles of incorporation or
by-laws or other similar organizational documents of the Company, (b) conflict
with, result in a breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or result in or
permit the termination or modification of, any material agreement, instrument,
order, writ, judgment or decree known to us to which the Company is a party or
is subject or (c) other than as set forth in the Transaction Documents, result
in the creation or imposition of any lien, claim or encumbrance on any of the
assets or properties of the Company. 

     

    8.  To our knowledge,
except as set forth in the Disclosure Schedule to the Agreement, there is no
claim, action, suit, proceeding, arbitration, investigation or inquiry, pending
or threatened, before any court or governmental or administrative body or
agency, or any private arbitration tribunal, against the Company, or any of the
officers, directors or employees (in connection with the discharge of their
duties as officers, directors and employees) of the Company, or affecting any of
its properties or assets that could have a Material Adverse Effect.

     

    

    
      
        
           

        

        
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            Whalehaven
Capital Fund Limited

            November
20, 2008

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    9.  In connection with the
execution, delivery and performance by the Company of the Transaction Documents,
or the offer, sale, issuance or delivery of the Debentures and the
Underlying Shares or the consummation of the transactions contemplated thereby,
no consent, license, permit, waiver, approval or authorization of, or
designation, declaration, registration or filing with, any court, governmental
or regulatory authority, or self-regulatory organization, is
required.

     

    10.  The Company is not,
and after the consummation of the transactions contemplated by the Transaction
Documents shall not be, an Investment Company within the meaning of the
Investment Company Act of 1940, as amended.

     

    11. 
The Security Agreement is sufficient to grant the Purchasers a security
interest in the Company’s assets specified therein, and upon filing the UCC-1 in
the office of the Secretary of State of the State of Florida, such security
interest shall be perfected as to those items of collateral which can be
perfected by the filing of such UCC-1.

     

    The
opinions set forth above are subject to the following exceptions:

    

    A. 
We are not licensed to practice law in any jurisdiction other than the State of
Florida.  In rendering this opinion letter, we do not express any
opinion concerning any law other than the law of the State of Florida and the
federal law of the United States of America.  To the extent the
opinions expressed above concern the laws of any jurisdiction other than the
State of Florida, as they relate to the enforceability of contracts, as
indicated previously, we have assumed such law is substantially similar to the
laws of the State of Florida.

    

    B. 
Without limiting the generality of the foregoing, we express no opinion as to
the applicability of any bankruptcy or insolvency laws or regulations, or
environmental laws or regulations of the United States or any state or other
jurisdiction.

    

    C. 
To the extent that we express an opinion as to the enforceability of any
contracts or agreements, such opinion is subject to the following
exceptions:  (i) that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
fraudulent transfer, moratorium or other similar laws, now or hereafter in
effect, affecting creditors’ rights generally, and general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity), (ii) that the remedies of specific performance and injunctive relief
and other forms of equitable remedies are subject to certain equitable defenses
and to the discretion of the court before which any proceeding therefore may be
brought, (iii) that rights to indemnity and contribution may be limited by
federal or state securities laws or the public policy underlying such laws, and
that the enforceability of rights to indemnification and contribution under such
agreements may be limited by applicable securities laws or the public policy
underlying such laws, (iv) that we express no opinion as to the enforceability
of any liquidated damages provisions, and (v) that enforceability may be limited
by an implied covenant of fair dealing and good faith.

    

    This opinion is limited to the laws in
effect as of the date hereof and we assume no obligation to advise you of any
changes in the foregoing subsequent to the delivery of this opinion
letter.  This opinion letter is rendered only to you and can be relied
upon solely by you.  This opinion letter may not be relied upon by you
for any other purpose, and may not

    

    
      
        
           

        

        
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Capital Fund Limited

            November
20, 2008

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    be
furnished, quoted, or referenced to anyone else, including without limitation,
any governmental agency, without the prior written consent of this
firm.

    

                                         
 Sincerely,

    

                                          
CARLTON FIELDS, P.A.

    

    

                                          
By: /s/ Robert B.
Macaulay

    

                                        
  Robert B. Macaulay

    

     

     

     

    6exhibit10-97.htm

    
      

      

    

    Exhibit
10.97

    EXHIBIT
E

    

    SECURITY
AGREEMENT

    

                This
SECURITY AGREEMENT, dated as of November 20, 2008 (this “Agreement”), is among
Imaging Diagnostic Systems, Inc., a Florida corporation (the “Company”), all of the
Subsidiaries of the Company (such subsidiaries,
the “Guarantors” and together with
the Company, the “Debtors”) and the
holders of the Company’s 8% Senior Secured Convertible Debentures due
one year following their issuance, in the original aggregate principal amount of
$400,000 (collectively, the “Debentures”) signatory hereto,
their endorsees, transferees and assigns (collectively, the “Secured
Parties”).

    

    W
I T N E S S E T H:

    

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

    

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

    

                WHEREAS,
in order to induce the Secured Parties to extend the loans evidenced by the
Debentures, each Debtor has agreed to execute and deliver to the Secured Parties
this Agreement and to grant the Secured Parties, pari passu with each other
Secured Party and through the Agent (as defined in Section 18 hereof), a
security interest in certain property of such Debtor to secure the prompt
payment, performance and discharge in full of all of the Company’s obligations
under the Debentures and the Guarantors’ obligations under the
Guarantee.

    

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

    

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

    

    (a)           “Collateral” means the
collateral in which the Secured Parties are granted a security interest by this
Agreement and which shall include the

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

    

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

    

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

    

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

     

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

    

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

    

    (v)           All
commercial tort claims;

    

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

    

    (vii)           All
investment property;

    

    
      
        
           

        

        
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    (viii)        All
supporting obligations; and

    

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

    

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

    

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

     

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

    

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

    

    
      
        
           

        

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

    

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

    

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

    
 

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

    

    
      
        
           

        

        
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    allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving any Debtor.

    

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

    

    (g)           “Pledged Interests”
shall have the meaning ascribed to such term in Section 4(j).

    

    (h)           “Pledged Securities”
shall have the meaning ascribed to such term in Section 4(i).

    

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

    

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

    

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

    

    
      
        
           

        

        
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                4.                      Representations, Warranties,
Covenants and Agreements of the Debtors. Except as set
forth under the corresponding section of the disclosure schedules delivered to
the Secured Parties concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof,
each Debtor represents and warrants to, and covenants and agrees with, the
Secured Parties as follows:

    

    (a)   Each
Debtor has the requisite corporate, partnership, limited liability company or
other power and authority to enter into this Agreement and otherwise to carry
out its obligations hereunder. The execution, delivery and performance by each
Debtor of this Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of such Debtor and no further
action is required by such Debtor.  This Agreement has been duly
executed by each Debtor.  This Agreement constitutes the legal, valid
and binding obligation of each Debtor, enforceable against each Debtor in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.

    

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

    

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

    

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

    

    

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

    

    (e)           Each
Debtor shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule A attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Parties at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary documents
have been filed and recorded and other steps have been taken to perfect the
Security Interests to create in favor of the Secured Parties a valid, perfected
and continuing perfected first priority lien in the Collateral.

    

    (f)           This
Agreement creates in favor of the Secured Parties a valid security interest
in the Collateral, subject only to Permitted Liens (as defined in the
Debentures) securing the payment and performance of the
Obligations.  Upon making the filings described in the immediately
following paragraph, all security interests created hereunder in any Collateral
which may be perfected by filing Uniform Commercial Code financing statements
shall have been duly perfected.  Except for the filing of the Uniform
Commercial Code financing statements referred to in the immediately following
paragraph, the recordation of the Intellectual Property Security Agreement (as
defined in Section 4(p) hereof) with respect to copyrights and copyright
applications in the United States Copyright Office referred to in paragraph (m),
the execution and delivery of deposit account control agreements satisfying the
requirements of Section 9-104(a)(2) of the UCC with respect to each deposit
account of the Debtors, and the delivery of the
certificates and other instruments provided in Section 3, no action is
necessary to create, perfect or protect the security interests created
hereunder.  Without limiting the generality of the foregoing, except
for the filing of said financing statements, the recordation of said
Intellectual Property Security Agreement, and the execution and delivery of said
deposit account control agreements, no consent of any third parties and no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for (i) the execution,
delivery and performance of this Agreement, (ii) the creation or perfection of
the Security Interests created hereunder in the Collateral or (iii) the
enforcement of the rights of the Agent and the Secured Parties
hereunder.

    

    
      
        
           

        

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

    

    (h)           The
execution, delivery and performance of this Agreement by the Debtors does not
(i) violate any of the provisions of any Organizational Documents of any Debtor
or any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing any Debtor's debt or otherwise) or other understanding to
which any Debtor is a party or by which any property or asset of any Debtor is
bound or affected. If any, all required consents (including, without limitation,
from stockholders or creditors of any Debtor) necessary for any Debtor to enter
into and perform its obligations hereunder have been obtained.

    

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

    

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

    

    (k)           Except
for Permitted Liens (as defined in the Debentures), each Debtor shall at all
times maintain the liens and Security Interests provided for hereunder as valid
and perfected first priority liens and security interests in the Collateral in
favor of the Secured Parties until this Agreement and the Security Interest
hereunder shall be terminated pursuant to Section 14 hereof.  Each
Debtor hereby agrees to defend the same against the claims of any and all
persons and entities. Each Debtor shall safeguard and protect all Collateral for
the account of the Secured Parties.  At the request of the Agent, each
Debtor will sign and deliver to the Agent on behalf of the Secured Parties at
any time or from time to time one or more financing statements pursuant to the
UCC in form reasonably satisfactory to the Agent and will pay the cost of filing
the same in all public offices wherever filing is, or is deemed by the Agent to
be, necessary or desirable

    

    
      
        
           

        

        
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    to effect
the rights and obligations provided for herein. Without limiting the generality
of the foregoing, each Debtor shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the Security Interests hereunder, and
each Debtor shall obtain and furnish to the Agent from time to time, upon
demand, such releases and/or subordinations of claims and liens which may be
required to maintain the priority of the Security Interests
hereunder.

    

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

    

    (m)        
Each Debtor shall keep and preserve its equipment, inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.

    

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

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

    

    otherwise directed in writing by the
Agent.   Copies of such policies or the related certificates, in
each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually
and at the time any new policy of insurance is issued.

    

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

    

     (p)         Each
Debtor shall promptly execute and deliver to the Agent such further deeds,
mortgages, assignments, security agreements, financing statements or other
instruments, documents, certificates and assurances and take such further action
as the Agent may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce the Secured Parties’ security interest
in the Collateral including, without limitation, if applicable, the execution
and delivery of a separate security agreement with respect to each Debtor’s
Intellectual Property (“Intellectual Property
Security Agreement”) in which the Secured Parties have been granted a
security interest hereunder, substantially in a form reasonably acceptable to
the Agent, which Intellectual Property Security Agreement, other than as stated
therein, shall be subject to all of the terms and conditions
hereof.

    

    (q)           Each
Debtor shall permit the Agent and its representatives and agents to inspect the
Collateral during normal business hours and upon reasonable prior notice, and to
make copies of records pertaining to the Collateral as may be reasonably
requested by the Agent from time to time.

    

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

    

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

    

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

    

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

    

    
      
        
           

        

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

    

    (w)          Except
in the ordinary course of business, no Debtor may consign any of its inventory
or sell any of its inventory on bill and hold, sale or return, sale on approval,
or other conditional terms of sale without the consent of the Agent which shall
not be unreasonably withheld.

    

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

    

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

    

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

    

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

    

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

     

    (cc)       Each
Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Agent, or, if such delivery is not possible, then
to

    

    
      
        
           

        

        
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    cause
such tangible chattel paper to contain a legend noting that it is subject to the
security interest created by this Agreement.  To the extent that any
Collateral consists of electronic chattel paper, the applicable Debtor shall
cause the underlying chattel paper to be “marked” within the meaning of Section
9-105 of the UCC (or successor section thereto).

    

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

    

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

    

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

    

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

    

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

    

    (ii)                    Each
Debtor shall cause each subsidiary of such
Debtor to immediately become a party hereto (an “Additional Debtor”), by
executing and delivering an Additional Debtor Joinder in substantially the form
of Annex A
attached hereto and comply with the provisions hereof applicable to the
Debtors.  Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to (or referred
to in) this Agreement, as

    

    
      
        
           

        

        
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    applicable,
which replacement schedules shall supersede, or supplements shall modify, the
Schedules then in effect.  The Additional Debtor shall also deliver
such opinions of counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing statements and
other information and documentation as the Agent may reasonably
request.  Upon delivery of the foregoing to the Agent, the Additional
Debtor shall be and become a party to this Agreement with the same rights and
obligations as the Debtors, for all purposes hereof as fully and to the same
extent as if it were an original signatory hereto and shall be deemed to have
made the representations, warranties and covenants set forth herein as of the
date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.

    

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

    

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

    

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

     

    

    
      
        
           

        

        
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    Pledged Securities by Agent and allow the Transferee or
Agent to continue the business of the Debtors and their direct and indirect
subsidiaries.

     

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

    

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

    

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

    

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

    

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

    

    
      
        
           

        

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

    

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

    

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

    

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

    

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

    

                7.              Duty To Hold In
Trust.

    

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

    

    (b)           If any Debtor shall become entitled to receive or shall
receive any securities or other property
(including, without limitation, shares of Pledged Securities or instruments
representing Pledged Securities acquired after the date hereof, or any options,
warrants, rights or other similar property or certificates representing a
dividend, or any distribution in connection with any recapitalization,
reclassification or increase or reduction of capital, or issued in connection
with any reorganization of such Debtor or any of its direct or indirect
subsidiaries) in respect of the Pledged Securities (whether as an
addition to, in substitution of, or in exchange for, such Pledged Securities or
otherwise), such

    

    
      
        
           

        

        
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    Debtor agrees to (i) accept the same as the agent of the
Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of
the Secured Parties; and (iii) to deliver
any and all certificates or instruments evidencing the same to Agent on or
before the close of business on the fifth business day following the receipt
thereof by such Debtor, in the exact form received together with the Necessary
Endorsements, to be held by Agent subject to the terms of this Agreement as
Collateral.

    

                8.              Rights and Remedies Upon
Default.

    

               (a)           Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Parties, acting through the Agent, shall have the right to exercise all of the
remedies conferred hereunder and under the Debentures, and the Secured Parties
shall have all the rights and remedies of a secured party under the
UCC.  Without limitation, the Agent, for the benefit of the Secured
Parties, shall have the following rights and powers:

    

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

    

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

    

    (iii)   The Agent shall have the
right to operate the business of each Debtor using the Collateral and shall have
the right to assign, sell, lease or

    

    
      
        
           

        

        
          16

          
            

          

        

        
           

        

      

    

    

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

    

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

    

    (v)                       The
Agent, for the benefit of the Secured Parties, may (but is not obligated to)
direct any financial intermediary or any other person or entity holding any
investment property to transfer the same to the Agent, on behalf of the Secured
Parties, or its designee.

    

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

    

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

     

    (c)         For the purpose of enabling the Agent to further
exercise rights and remedies under this Section 8 or elsewhere provided by
agreement or applicable law, each Debtor hereby grants to the Agent, for the
benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable
without

    

    
      
        
           

        

        
          17

          
            

          

        

        
           

        

      

    

    

    payment of royalty or other compensation to such Debtor)
to use, license or sublicense following an Event of Default, any Intellectual
Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such
license access to all media in which any of the licensed items may be recorded
or stored and to all computer software and programs used for the compilation or
printout thereof.

    

                9.              Applications of Proceeds. The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy insuring any
portion of the Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like
(including, without limitation, any taxes, fees and other costs incurred in
connection therewith) of the Collateral, to the reasonable attorneys’ fees and
expenses incurred by the Agent in enforcing the Secured Parties’ rights
hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata among the
Secured Parties (based on then-outstanding principal amounts of Debentures at
the time of any such determination), and to the payment of any other amounts
required by applicable law, after which the Secured Parties shall pay to the
applicable Debtor any surplus proceeds. If, upon the sale, license or other
disposition of the Collateral, the proceeds thereof are insufficient to pay all
amounts to which the Secured Parties are legally entitled, the Debtors will be
liable for the deficiency, together with interest thereon, at the rate of 18%
per annum or the lesser amount permitted by applicable law (the “Default Rate”), and
the reasonable fees of any attorneys employed by the Secured Parties to collect
such deficiency.  To the extent permitted by applicable law, each
Debtor waives all claims, damages and demands against the Secured Parties
arising out of the repossession, removal, retention or sale of the Collateral,
unless due solely to the gross negligence or willful misconduct of the Secured
Parties as determined by a final judgment (not subject to further appeal) of
a court of competent jurisdiction.

    

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

     

                11.              Costs and Expenses. Each
Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder, including without
limitation, any financing statements pursuant to the UCC,

    

    
      
        
           

        

        
          18

          
            

          

        

        
           

        

      

    

    

    continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Agent.  The
Debtors shall also pay all other claims and charges which in the reasonable
opinion of the Agent is reasonably likely to prejudice, imperil or otherwise
affect the Collateral or the Security Interests therein.  The Debtors
will also, upon demand, pay to the Agent the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Agent, for the benefit of the Secured
Parties, may incur in connection with the creation, perfection, protection,
satisfaction, foreclosure, collection or enforcement of the Security Interest
and the preparation, administration, continuance, amendment or enforcement of
this Agreement and pay to the Agent the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Agent, for the benefit of the Secured Parties, and
the Secured Parties may incur in connection with (i) the enforcement of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, or (iii) the exercise or
enforcement of any of the rights of the Secured Parties under the Debentures.
Until so paid, any fees payable hereunder shall be added to the principal amount
of the Debentures and shall bear interest at the Default Rate.

    

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

    

               13.           Security Interests Absolute. All rights of the
Secured Parties and all obligations of the Debtors hereunder, shall be absolute
and unconditional, irrespective of: (a) any lack of validity or enforceability
of this Agreement, the Debentures or any agreement entered into in connection
with the foregoing, or any portion hereof or thereof; (b) any change in the
time, manner or place of payment or performance of, or in any

    

    
      
        
           

        

        
          19

          
            

          

        

        
           

        

      

    

    

    other
term of, all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the Debentures or any other agreement entered
into in connection with the foregoing; (c) any exchange, release or
nonperfection of any of the Collateral, or any release or amendment or waiver of
or consent to departure from any other collateral for, or any guarantee, or any
other security, for all or any of the Obligations; (d) any action by the Secured
Parties to obtain, adjust, settle and cancel in its sole discretion any
insurance claims or matters made or arising in connection with the Collateral;
or (e) any other circumstance which might otherwise constitute any legal or
equitable defense available to a Debtor, or a discharge of all or any part of
the Security Interests granted hereby.  Until the Obligations shall
have been paid and performed in full, the rights of the Secured Parties shall
continue even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or
bankruptcy.  Each Debtor expressly waives presentment, protest, notice
of protest, demand, notice of nonpayment and demand for performance. In the
event that at any time any transfer of any Collateral or any payment received by
the Secured Parties hereunder shall be deemed by final order of a court of
competent jurisdiction to have been a voidable preference or fraudulent
conveyance under the bankruptcy or insolvency laws of the United States,
or shall be deemed to be otherwise due to any party other than the Secured
Parties, then, in any such event, each Debtor’s obligations hereunder shall
survive cancellation of this Agreement, and shall not be discharged or satisfied
by any prior payment thereof and/or cancellation of this Agreement, but shall
remain a valid and binding obligation enforceable in accordance with the terms
and provisions hereof.  Each Debtor waives all right to require the
Secured Parties to proceed against any other person or entity or to
apply any Collateral which the Secured Parties may hold at any time, or to
marshal assets, or to pursue any other remedy. Each Debtor waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby.

    

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

    

    15.
           Power of Attorney; Further
Assurances.

    

     (a)           Each
Debtor authorizes the Agent, and does hereby make, constitute and appoint the
Agent and its officers, agents, successors or assigns with full power of
substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in
the name of the Agent or such Debtor, to, after the occurrence and during the
continuance of an Event of Default, (i) endorse any note, checks, drafts, money
orders or other instruments of payment (including payments payable under or in
respect of any policy of insurance) in respect of the Collateral that may come
into possession of the Agent; (ii) to sign and endorse any financing statement
pursuant to the UCC or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,

    

    
      
        
           

        

        
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    verifications
and notices in connection with accounts, and other documents relating to the
Collateral; (iii) to pay or discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on or threatened against the
Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for
monies due in respect of the Collateral; (v) to transfer any Intellectual
Property or provide licenses respecting any Intellectual Property; and (vi)
generally, at the option of the Agent, and at the expense of the Debtors, at any
time, or from time to time, to execute and deliver any and all documents and
instruments and to do all acts and things which the Agent deems necessary to
protect, preserve and realize upon the Collateral and the Security Interests
granted therein in order to effect the intent of this Agreement and the
Debentures all as fully and effectually as the Debtors might or could do; and
each Debtor hereby ratifies all that said attorney shall lawfully do or cause to
be done by virtue hereof.  This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.  The designation set
forth herein shall be deemed to amend and supersede any inconsistent provision
in the Organizational Documents or other documents or agreements to which any
Debtor is subject or to which any Debtor is a party.  Without
limiting the generality of the foregoing, after the occurrence and during the
continuance of an Event of Default, each Secured Party is specifically
authorized to execute and file any applications for or instruments of transfer
and assignment of any patents, trademarks, copyrights or other Intellectual
Property with the United States Patent and Trademark Office and the United
States Copyright Office.

    

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

    

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

    

    
      
        
           

        

        
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    of
attorney is coupled with an interest and shall be irrevocable for the term of
this Agreement and thereafter as long as any of the Obligations shall be
outstanding.

    

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

    

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

    

               18.           
Appointment of
Agent. The Secured Parties hereby appoint Whalehaven Capital Fund
Limited to act as their agent (“Whalehaven” or
“Agent”) for
purposes of exercising any and all rights and remedies of the Secured Parties
hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in
Interest shall appoint a new Agent, provided that Whalehaven may not be
removed as Agent unless Whalehaven shall then hold less than $500,000 in
principal amount of Debentures; provided, further, that such removal
may occur only if each of the other Secured Parties shall then
hold not less than an aggregate of
$1,000,000 in principal amount
of Debentures. The Agent shall have the rights, responsibilities and
immunities set forth in Annex B
hereto.

    

              19.              Miscellaneous.

    

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

    

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

    

    (c)           This
Agreement, together with the exhibits and schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into this
Agreement and the exhibits and schedules hereto. No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Debtors and
the

    

    
      
        
           

        

        
          22

          
            

          

        

        
           

        

      

    

    

    Secured
Parties holding 67% or more of the principal amount of Debentures then
outstanding, or, in the case of a waiver, by the party against whom enforcement
of any such waived provision is sought.

    

    (d)           If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    (e)           No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such
right.

    

    (f)
           This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The Company and the
Guarantors may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Secured Party (other than by
merger).  Any Secured Party may assign any or all of its rights under
this Agreement to any Person (as defined in the Purchase Agreement) to whom such
Secured Party assigns or transfers any Obligations, provided such transferee
agrees in writing to be bound, with respect to the transferred Obligations, by
the provisions of this Agreement that apply to the “Secured
Parties.”

    

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

    

    (h)   All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof.  Each Debtor agrees that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and the Debentures (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in the City of New York,
Borough of Manhattan. Each Debtor hereby irrevocably submits to the exclusive
jurisdiction of the state and

    

    
      
        
           

        

        
          23

          
            

          

        

        
           

        

      

    

    

    federal
courts sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such proceeding
is improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.  Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.

    

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

    

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

    

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

    

    (l)           Nothing in this Agreement shall be construed to subject
Agent or any Secured Party to liability as a partner in any Debtor or any if its
direct or

    

    
      
        
           

        

        
          24

          
            

          

        

        
           

        

      

    

    

    indirect subsidiaries that is a partnership or as a
member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor
shall Agent or any Secured Party be deemed to have assumed any obligations under
any partnership agreement or limited liability company agreement, as
applicable, of any such Debtor or any
of its direct or indirect subsidiaries or otherwise, unless and until
any such Secured Party exercises its right to be substituted for such Debtor as
a partner or member, as applicable, pursuant hereto.

    

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

    

    [SIGNATURE
PAGES FOLLOW]

    

    

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

    

    

    
      	
              IMAGING
      DIAGNOSTIC SYSTEMS, INC.

               

            
	
               

              By:
      /s/ Linda B.
      Grable

                   
      Name:  Linda B. Grable

                   
      Title:  Chief Executive Officer

               

            
	 
      
	
              [INSERT
      NAMES OF SUBSIDIARIES]

               

               

            
	
              By:__________________________________________

                   Name:

                   Title:

               

            

    

    
 

    

 

    
 

                          [SIGNATURE
PAGE OF HOLDERS FOLLOWS]

    

    
      
        
           

        

        
          25

          
            

          

        

        
           

        

      

    

    

    [SIGNATURE
PAGE OF HOLDERS TO IMDS SA]

    

               Name
of Investing Entity:  Whalehaven Capital Fund Limited

    Signature of Authorized Signatory of
Investing entity:  /s/
Brian Mazzella

    Name of
Authorized Signatory:  Brian Mazella

    Title of
Authorized Signatory:  CFO

    

    [SIGNATURE
PAGE OF HOLDERS FOLLOWS]

    

    

    

    

    
      
        
           

        

        
          26

          
            

          

        

        
           

        

      

    

    

                       [SIGNATURE
PAGE OF HOLDERS TO IMDS SA]

    

    Name of Investing Entity:  Alpha
Capital Anstalt

    Signature of Authorized
Signatory of Investing
entity: /s/ Konrad
Ackerman

    Name of
Authorized Signatory:  Konrad Ackerman

    Title of
Authorized Signatory:  Director

    

    [SIGNATURE
PAGE OF HOLDERS FOLLOWS]

    

    

    

    

    
      
        
           

        

        
          27

          
            

          

        

        
           

        

      

    

    

     

    
      SCHEDULE
A

      

      

      Principal
Place of Business of Debtors:  5307 NW 35th
Terrace     Fort
Lauderdale, FL 33309

      

      Locations
Where Collateral is Located or Stored:  5307 NW 35th
Terrace        Fort
Lauderdale, FL 33309

       

      

      SCHEDULE
B

      

      Debtor is
the sole owner of the collateral

      

      SCHEDULE
C

      

      None

      

      

      SCHEDULE
D

      Legal
Names and Organizational Identification Numbers

      

      Imaging
Diagnostic Systems, Inc., State of Florida  P95000050570

      

      

      SCHEDULE
E

      

      None

      

      SCHEDULE
F

      Intellectual
Property

      

      
        	
                Imaging
      Diagnostic Systems, Inc.

              
	
                U.S.
      Patents

              
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	
                Patent
      #

              	
                For

              	
                Patent
      Date

              	 
      
	
                5,692,511

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                12/2/1997

              	 
      
	 
      	
                (Electronics
      & Imaging)

              	 
      	 
      
	
                6,195,580

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                2/27/2001

              	 
      
	 
      	
                (Patient
      Support Structure) in addition to above

              	 
      	 
      
	
                6,662,042

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                12/9/2003

              	 
      
	
                6,044,288

              	
                Device
      for Determining the Contour of the Surface

              	
                3/28/2000

              	 
      
	 
      	
                of
      an Object Being Scanned

              	 
      	 
      
	
                6,029,077

              	
                Device
      for Determining the Perimeter of the

              	
                2/22/2000

              	 
      
	 
      	
                Surface
      of an Object Being Scanned and for

              	 
      	 
      
	 
      	
                Limiting
      Reflection from the Object Surface

              	 
      	 
      
	
                6,150,649

              	
                Detector
      Array with Variable Amplifiers for Use

              	
                11/21/2000

              	 
      
	 
      	
                in
      a Laser Imaging Device

              	 
      	 
      
	
                6,331,700

              	
                Detector
      Array with Variable Amplifiers for Use

              	
                12/18/2001

              	 
      
	 
      	
                in
      a Laser Imaging Device

              	 
      	 
      
	
                6,100,520

              	
                Detector
      Array for Use in a Laser Imaging

              	
                8/8/2000

              	 
      
	 
      	
                Apparatus
      (Single Row of Detectors)

              	 
      	 
      
	
                6,211,512

              	
                Detector
      Array for Use in a Laser Imaging

              	
                4/3/2001

              	 
      
	 
      	
                Apparatus
      (WideEye-2 or more rows of Detectors)

              	 
      	 
      
	
                6,130,958

              	
                Method
      for Reconstructing the Image of an Object

              	
                10/10/2000

              	 
      
	 
      	
                Scanned
      with a Laser Imaging Apparatus

              	 
      	 
      
	
                5,952,664

              	
                Laser
      Imaging Apparatus Using Biomedical

              	
                9/14/1999

              	 
      
	 
      	
                Markers
      That Bind to Cancer Cells

              	 
      	 
      
	
                6,693,287

              	
                Laser
      Imaging Apparatus Using Biomedical

              	
                1/17/2004

              	 
      
	 
      	
                Markers
      That Bind to Cancer Cells

              	 
      	 
      
	
                6,339,216

              	
                Time-Resolved
      Breast Imaging Device

              	
                2/5/2002

              	 
      
	
                6,571,116

              	
                Multiple
      Wavelength Simultaneous Data

              	
                5/27/2003

              	 
      
	 
      	
                Acquisition
      Device For Breast Imaging

              	 
      	 
      
	
                6,738,658

              	
                Multiple
      Wavelength Simultaneous Data

              	
                5/18/2004

              	 
      
	 
      	
                Acquisition
      Device For Breast Imaging

              	 
      	 
      
	
                6,681,130

              	
                Method
      for Improving the Accuracy of Data

              	
                1/20/2004

              	 
      
	 
      	
                Obtained
      in a Laser Imaging Apparatus

              	 
      	 
      
	
                7,254,851

              	
                Breast
      Positioning in a Laser

              	
                7/14/2007

              	 
      
	
                7,155,274

              	
                Optical
      Computed Tomography Scanner

              	
                12/26/2006

              	 
      
	 
      	
                for
      Small Laboratory Animals

              	 
      	 
      
	
                7,212,848

              	
                Optical
      Computed Tomography Scanner

              	
                5/1/2007

              	 
      
	 
      	
                for
      Small Laboratory Animals

              	 
      	 
      
	
                7,446,875

              	
                Apparatus
      and Method for Acquiring Time Resolved measurements Utilizing Direct
      Digitization of the Temporal Point Spread Function of the Detected
      Light.

              	
                11/4/2008

              	 
      
	 
      	 
      	 
      	 
      
	
                International
      Patents

              
	 
      	 
      	 
      	 
      
	
                Patent
      #

              	
                For

              	
                Country/Region

              	
                Patent
      Date

              
	
                712849

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                Australia

              	
                11/18/1999

              
	
                2223606

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                Canada

              	
                10/7/2003

              
	
                ZL95197940

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                China

              	
                5/19/2004

              
	
                0837649

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                Europe

              	
                12/10/2003

              
	
                1389441

              	
                Diagnostic
      Tomographic Laser Imaging Apparatus

              	
                Europe

              	
                5/10/2006

              
	
                1003419

              	
                Device
      for Determining the Contour of the Surface of an Object Being
      Scanned

              	
                Europe

              	
                7/4/2004

              
	
                HK
      1029506

              	
                Device
      for Determining the Contour of the Surface of an Object Being
      Scanned

              	
                Hong
      Kong

              	
                12/17/2004

              
	
                1005286

              	
                Method
      for Reconstructing the Image of an Object Scanned with a Laser Imaging
      Apparatus

              	
                Europe

              	
                7/28/2004

              
	
                HK
      1029508

              	
                Method
      for Reconstructing the Image of an Object Scanned with a Laser Imaging
      Apparatus

              	
                Hong
      Kong

              	
                12/31/2004

              
	
                775069

              	
                Laser
      Imaging Apparatus Using Biomedical Markers That Bind to Cancer
      Cells

              	
                Australia

              	
                7/15/2004

              
	
                2,373,299

              	
                Laser
      Imaging Apparatus Using Biomedical Markers That Bind to Cancer
      Cells

              	
                Canada

              	
                3/30/2004

              
	
                ZL
      99 8 16608.1

              	
                Laser
      Imaging Apparatus Using Biomedical Markers That Bind to Cancer
      Cells

              	
                China

              	
                7/11/2007

              
	
                1181511

              	
                Laser
      Imaging Apparatus Using Biomedical Markers That Bind to Cancer
      Cells

              	
                Europe

              	
                6/15/2005

              
	
                DE69925869T2

              	
                Laser
      Imaging Apparatus Using Biomedical Markers That Bind to Cancer
      Cells

              	
                Germany

              	
                5/4/2006

              
	
                HK1043480B

              	
                Laser
      Imaging Apparatus Using Biomedical Markers That Bind to Cancer
      Cells

              	
                Hong
      Kong

              	
                1/27/2006

              
	
                2L01809326.4

              	
                Multiple
      Wavelength Simultaneous Data Acquisition Device For Breast
      Imaging

              	
                China

              	
                11/30/2005

              
	 
      	 
      	 
      	 
      

      

      

      

      

      SCHEDULE
G

      Account
Debtors

      

      None

      

      SCHEDULE
H

      Pledged
Securities

      

      None

      

    

     

    

    
      
        
           

        

        
          28

          
            

          

        

        
           

        

      

    

    

    

    ANNEX
A

    to

    SECURITY

    AGREEMENT

     

    
      FORM
OF ADDITIONAL DEBTOR JOINDER

    

    
 

    Security
Agreement dated as of November ___, 2008 made by

    Imaging
Diagnostic Systems, Inc., a Florida corporation

    and its
subsidiaries party thereto from time to time, as Debtors

    to and in
favor of

    the
Secured Parties identified therein (the “Security
Agreement”)

    

               Reference
is made to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in, or by reference in, the Security Agreement.

    

               The
undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
to the Secured Parties referred to above, the undersigned shall (a) be an
Additional Debtor under the Security Agreement, (b) have all the rights and
obligations of the Debtors under the Security Agreement as fully and to the same
extent as if the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein as of the date
of execution and delivery of this Additional Debtor Joinder.  WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO
THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET
FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF
JURY TRIAL PROVISIONS SET FORTH THEREIN.

    

               Attached
hereto are supplemental and/or replacement Schedules to the Security Agreement,
as applicable.

    

               An
executed copy of this Joinder shall be delivered to the Secured Parties, and the
Secured Parties may rely on the matters set forth herein on or after the date
hereof.  This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Parties.

    

    
      	
               
      

            	 

    

    

    
      
        
           

        

        
          29

          
            

          

        

        
           

        

      

    

    

               IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the
name and on behalf of the undersigned.

    

    
      	 	
              [Name
      of Additional Debtor]

            

    

    

    
      	 	
              By:

            

    

    
      	 	
              Name:

            

    

    
      	 	
              Title:

            

    

    

    
      	 	
              Address:

            

    

    

    

    

    

    

    
      	
               
      

            	
              Dated:

            

    

    

    

    
      
        
           

        

        
          30

          
            

          

        

        
           

        

      

    

    

    ANNEX
B

    to

    SECURITY

    AGREEMENT

    

    THE
AGENT

    

                          1.  Appointment. The Secured Parties
(all capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Security Agreement to which this Annex B is
attached (the "Agreement")), by
their acceptance of the benefits of the Agreement, hereby designate Whalehaven
Capital Fund Limited (“Whalehaven” or
“Agent”) as the
Agent to act as specified herein and in the Agreement.  Each Secured
Party shall be deemed irrevocably to authorize the Agent to take such action on
its behalf under the provisions of the Agreement and any other Transaction
Document (as such term is defined in the Purchase Agreement) and to exercise
such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental
thereto.  The Agent may perform any of its duties hereunder by or
through its agents or employees.

    

                          2.
Nature of Duties.  The Agent shall
have no duties or responsibilities except those expressly set forth in the
Agreement.  Neither the Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of any
oversight or error of judgment or answerable for any loss, unless caused solely
by its or their gross negligence or willful misconduct as determined by a final
judgment (not subject to further appeal) of a court of competent
jurisdiction.  The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the Agreement or
any other Transaction Document a fiduciary relationship in respect of any Debtor
or any Secured Party; and nothing in the Agreement or any other Transaction
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of the Agreement or any other
Transaction Document except as expressly set forth herein and
therein.

    

                          3.
Lack of Reliance on the
Agent.  Independently and without reliance upon the Agent, each
Secured Party, to the extent it deems appropriate, has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of the Company and its subsidiaries in connection with such Secured
Party’s investment in the Debtors, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction Documents, and the
taking or not taking of any action in connection therewith, and (ii) its own
appraisal of the creditworthiness of the Company and its subsidiaries, and of
the value of the Collateral from time to time, and the Agent shall have no duty
or responsibility, either initially or on a continuing basis, to provide any
Secured Party with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred
or

    

    
      
        
           

        

        
          31

          
            

          

        

        
           

        

      

    

    

    at any
time or times thereafter.  The Agent shall not be responsible to the
Debtors or any Secured Party for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith, or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority or
sufficiency of the Agreement or any other Transaction Document, or for the
financial condition of the Debtors or the value of any of the Collateral,
or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of the Agreement or any
other Transaction Document, or the financial condition of the Debtors, or the
value of any of the Collateral, or the existence or possible existence of any
default or Event of Default under the Agreement, the Debentures or any of the
other Transaction Documents.

    

                          4.
Certain Rights of the
Agent.  The Agent shall have the right to take any action with
respect to the Collateral, on behalf of all of the Secured
Parties.  To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act or action
(including failure to act) in connection with the Agreement or any other
Transaction Document, and shall be entitled to act or refrain from acting in
accordance with the instructions of a Majority in Interest; if such instructions
are not provided despite the Agent’s request therefor, the Agent shall be
entitled to refrain from such act or taking such action, and if such action is
taken, shall be entitled to appropriate indemnification from the Secured Parties
in respect of actions to be taken by the Agent; and the Agent shall not incur
liability to any person or entity by reason of so refraining.  Without
limiting the foregoing, (a) no Secured Party shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder in accordance with the terms of the Agreement or any other
Transaction Document, and the Debtors shall have no right to question or
challenge the authority of, or the instructions given to, the Agent pursuant to
the foregoing and (b) the Agent shall not be required to take any action which
the Agent believes (i) could reasonably be expected to expose it to personal
liability or (ii) is contrary to this Agreement, the Transaction Documents or
applicable law.

    

                          5.  Reliance.  The Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other Transaction
Documents and its duties thereunder, upon advice of counsel selected by it and
upon all other matters pertaining to this Agreement and the other Transaction
Documents and its duties thereunder, upon advice of other experts selected by
it. Anything to the contrary notwithstanding, the Agent shall have no
obligation whatsoever to any Secured Party to assure that the Collateral exists
or is owned by the Debtors or is cared for, protected or insured or that the
liens granted pursuant to the Agreement have been properly or sufficiently or
lawfully created, perfected, or enforced or are entitled to any particular
priority.

    

    
      
        
           

        

        
          32

          
            

          

        

        
           

        

      

    

    

    

                          6.  Indemnification.  To the extent
that the Agent is not reimbursed and indemnified by the Debtors, the Secured
Parties will jointly and severally reimburse and indemnify the Agent, in
proportion to their initially purchased respective principal amounts of
Debentures, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in performing its duties hereunder or under the
Agreement or any other Transaction Document, or in any way relating to or
arising out of the Agreement or any other Transaction Document except for those
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction to have resulted solely from the Agent's own gross
negligence or willful misconduct.  Prior to taking any action
hereunder as Agent, the Agent may require each Secured Party to deposit with it
sufficient sums as it determines in good faith is necessary to protect the Agent
for costs and expenses associated with taking such action.

    

                          7.  Resignation by the Agent.

    

    (a)  The
Agent may resign from the performance of all its functions and duties under the
Agreement and the other Transaction Documents at any time by giving 30 days'
prior written notice (as provided in the Agreement) to the Debtors and the
Secured Parties.  Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c)
below.

    

    (b)  Upon
any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor
Agent hereunder.

    

    (c) If a
successor Agent shall not have been so appointed within said 30-day period, the
Agent shall then appoint a successor Agent who shall serve as Agent until such
time, if any, as the Secured Parties appoint a successor Agent as provided
above.  If a successor Agent has not been appointed within such 30-day
period, the Agent may petition any court of competent jurisdiction or may
interplead the Debtors and the Secured Parties in a proceeding for the
appointment of a successor Agent, and all fees, including, but not limited to,
extraordinary fees associated with the filing of interpleader and expenses
associated therewith, shall be payable by the Debtors on demand.

    

                          8.  Rights with respect to
Collateral.  Each Secured
Party agrees with all other Secured Parties and the Agent (i) that it shall not,
and shall not attempt to, exercise any rights with respect to its security
interest in the Collateral, whether pursuant to any other agreement or otherwise
(other than pursuant to this Agreement), or take or institute any action against
the Agent or any of the other Secured Parties in respect of the Collateral or
its rights hereunder (other than any such action arising from the breach of this
Agreement) and (ii) that such Secured Party has no other rights with respect to
the Collateral other than as set forth in this Agreement and the other
Transaction Documents. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations under the Agreement.  After any
retiring Agent’s resignation or removal hereunder as Agent, the provisions of
the Agreement including this Annex B shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.

     

     

     

    33

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