Document:

Unassociated Document

     

    AMENDED
      AND RESTATED

    SECURITY
      AGREEMENT

     

    LAURUS
      MASTER FUND, LTD.

     

    AMERICAN
      TECHNOLOGIES GROUP, INC.

     

    and

     

    EACH
      ELIGIBLE SUBSIDIARY NAMED THEREIN

     

    January
      31, 2007

    

    
      
        
        

      

      
        1

        
          

        

      

       

    

     

    
      	
              1.

            	
              General
                Definitions and Terms; Rules of Construction

            	
              4

            
	 	 	 
	
              2.

            	
              Loan
                Facility

            	
              5

            
	 	 	 
	
              3.

            	
              Repayment
                of the Loans

            	
              8

            
	 	 	 
	
              4.

            	
              Procedure
                for Revolving Loans

            	
              8

            
	 	 	 
	
              5.

            	
              Interest
                and Payments

            	
              8

            
	 	 	 
	
              6.

            	
              Security
                Interest

            	
              10

            
	 	 	 
	
              7.

            	
              Representations,
                Warranties and Covenants Concerning the Collateral

            	
              10

            
	 	 	 
	
              8.

            	
              Payment
                of Accounts

            	
              13

            
	 	 	 
	
              9.

            	
              Collection
                and Maintenance of Collateral

            	
              14

            
	 	 	 
	
              10.

            	
              Inspections
                and Appraisals

            	
              14

            
	 	 	 
	
              11.

            	
              Financial
                Reporting

            	
              14

            
	 	 	 
	
              12.

            	
              Additional
                Representations and Warranties

            	
              15

            
	 	 	 
	
              13.

            	
              Covenants

            	
              26

            
	 	 	 
	
              14.

            	
              Further
                Assurances

            	
              33

            
	 	 	 
	
              15.

            	
              Representations,
                Warranties and Covenants of Laurus.

            	
              33

            
	 	 	 
	
              16.

            	
              Power
                of Attorney

            	
              35

            
	 	 	 
	
              17.

            	
              Term
                of Agreement

            	
              35

            
	 	 	 
	
              18.

            	
              Termination
                of Lien

            	
              36

            
	 	 	 
	
              19.

            	
              Events
                of Default

            	
              36

            
	 	 	 
	
              20.

            	
              Remedies

            	
              39

            
	 	 	 
	
              21.

            	
              Waivers

            	
              40

            
	 	 	 
	
              22.

            	
              Expenses

            	
              40

            
	 	 	 
	
              23.

            	
              Assignment
                By Laurus

            	
              41

            
	 	 	 
	
              24.

            	
              No
                Waiver; Cumulative Remedies

            	
              41

            
	 	 	 
	
              25.

            	
              Application
                of Payments

            	
              41

            

    

    

    
      
        
        

      

      
        2

        
          

        

      

       

    

    

    
      	
              26.

            	
              Indemnity

            	
              41

            
	 	 	 
	
              27.

            	
              Revival

            	
              42

            
	 	 	 
	
              28.

            	
              Borrowing
                Agency Provisions

            	
              42

            
	 	 	 
	
              29.

            	
              Notices

            	
              43

            
	 	 	 
	
              30.

            	
              Governing
                Law, Jurisdiction and Waiver of Jury Trial

            	
              44

            
	 	 	 
	
              31.

            	
              Limitation
                of Liability

            	
              45

            
	 	 	 
	
              32.

            	
              Entire
                Understanding; Maximum Interest

            	
              45

            
	 	 	 
	
              33.

            	
              Severability

            	
              46

            
	 	 	 
	
              34.

            	
              Survival

            	
              46

            
	 	 	 
	
              35.

            	
              Captions

            	
              46

            
	 	 	 
	
              36.

            	
              Counterparts;
                Telecopier Signatures

            	
              46

            
	 	 	 
	
              37.

            	
              Construction

            	
              46

            
	 	 	 
	
              38.

            	
              Publicity

            	
              46

            
	 	 	 
	
              39.

            	
              Joinder

            	
              46

            
	 	 	 
	
              40.

            	
              Legends

            	
              47

            

    

     

    
      
        
        

      

      
        3

        
          

        

      

       

    

     

    AMENDED
      AND RESTATED SECURITY AGREEMENT

     

    This
      Amended and Restated Security Agreement is made as of January 31, 2007 (this
      “Agreement”)
      by and
      among LAURUS MASTER FUND, LTD., a Cayman Islands corporation (“Laurus”),
      AMERICAN TECHNOLOGIES GROUP, INC., a Nevada corporation (the “Parent”),
      and
      each party listed on Exhibit
      A
      attached
      hereto (each an “Eligible
      Subsidiary”
and
      collectively, the “Eligible
      Subsidiaries”)
      (the
      Parent and each Eligible Subsidiary, each a “Company”
and
      collectively, the “Companies”).

     

    BACKGROUND

     

    The
      Companies and Laurus are parties to a Security Agreement dated as of September
      7, 2005 (the “Original
      Closing Date”)
      (as
      amended, restated, modified and/or supplemented from time to time, the
“Original
      Security Agreement”),
      pursuant to which Laurus provides financial accommodations to the Companies
      as
      indicated therein;

     

    The
      Companies have requested that Laurus amend certain provisions of the Original
      Credit Agreement and continue to provide financial accommodations to the
      Companies; and

     

    Laurus
      has agreed to amend and restate the Original Credit Agreement and to continue
      to
      make such advances to the Companies on the terms and conditions set forth in
      this Agreement.

     

    AMENDMENT
      AND RESTATEMENT

    

    As
      of the
      date of this Agreement, the terms, conditions, covenants, agreements,
      representations and warranties contained in the Original Security Agreement
      shall be deemed amended and restated in their entirety as set forth in this
      Agreement and the Original Security Agreement shall be consolidated with and
      into and superseded by this Agreement; provided,
      however,
      that
      nothing contained in this Agreement shall impair or affect the Liens on the
      Collateral heretofore pledged, granted and/or assigned by each Company to Laurus
      as security for the Obligations under the Original Security
      Agreement.

     

    AGREEMENT

     

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

     

    1.  General
      Definitions and Terms; Rules of Construction. 

     

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

     

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

    
      
        
        

      

      
        4

        
          

        

      

       

    

     

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

     

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

     

    2.  Loan
      Facility.

     

    (a)  Revolving
      Loans.

     

    (i)  Subject
      to the terms and conditions set forth herein and in the Ancillary Agreements,
      Laurus may make revolving loans (the “Revolving
      Loans”)
      to the
      Companies from time to time during the Term which, in the aggregate at any
      time
      outstanding, will not exceed the lesser of (x) (I) the Capital Availability
      Amount, minus (II) such reserves as Laurus may reasonably in its good faith
      judgment deem proper and necessary from time to time (the “Reserves”)
      and
      (y) an amount equal to (I) the Accounts Availability, plus (II) the Inventory
      Availability, minus (III) the Reserves. The amount derived at any time from
      Section 2(a)(i)(y)(I), plus Section 2(a)(i)(y)(II) minus 2(a)(i)(y)(III) shall
      be referred to as the “Formula
      Amount.”
The
      Companies shall, jointly and severally, execute and deliver to Laurus on the
      Closing Date the Revolving Note and the Minimum Borrowing Note evidencing the
      Revolving Loans funded on the Original Closing Date. Each Company hereby
      acknowledges and agrees that Laurus’ obligation to continue to make Loans to the
      Companies hereafter shall be contingent upon the satisfaction (or waiver by
      Laurus in its sole discretion) of the items and matters set forth in the closing
      checklist provided by Laurus to the Companies on or prior to the Closing
      Date.

     

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

     

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

    
      
        
        

      

      
        5

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

    (viii)  If
      any
      Eligible Account is not paid by the Account Debtor within ninety (90) days
      after
      the date that such Eligible Account was invoiced or if any Account Debtor
      asserts a deduction, dispute, contingency, set-off, or counterclaim with respect
      to any Eligible Account, (a “Delinquent
      Account”),
      the
      Companies shall jointly and severally (i) reimburse Laurus for the amount of
      the
      Revolving Loans made with respect to such Delinquent Account plus an adjustment
      fee in an amount equal to one-half of one percent (0.50%) of the gross face
      amount of such Eligible Account, provided that no such adjustment fee shall
      be
      payable in the event Laurus is so reimbursed within ten (10) Business Days
      following the date such applicable Eligible Account is deemed a Delinquent
      Account or (ii) immediately replace such Delinquent Account with an otherwise
      Eligible Account.

    
      
        
        

      

      
        6

        
          

        

      

       

    

     

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

     

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

     

    (d)  Term
      Loans.

     

    (i)  Subject
      to the terms and conditions set forth herein and in the Ancillary Agreements,
      Laurus made a term loan (“Term
      Loan A”)
      to the
      Companies in an aggregate amount equal to $3,000,000. Term Loan A was advanced
      on the Original Closing Date and shall be, with respect to principal, payable
      in
      monthly installments of principal, subject to acceleration upon the occurrence
      of an Event of Default or termination of this Agreement, as follows: (A) $50,000
      on the first Business Day of each month from January, 2006 through March, 2006,
      (B) $98,275 on the first Business Day of April, 2006 and May, 2006 and (C)
      $98,275 on the first Business Day of each month from [February, 2007] through
      the Maturity Date; provided,
      however,
      that
      the entire unpaid principal balance of Term Loan A plus all accrued and unpaid
      interest thereon shall be due and payable in full on September 6, 2008, subject
      to acceleration upon the occurrence of an Event of Default or termination of
      this Agreement. As of the Closing Date, the outstanding principal amount of
      Term
      Loan A is $2,662,500. Term Loan A shall be evidenced by Term Note A.

     

    (ii)  On
      the
      Original Closing Date, Laurus made a term loan (“Term
      Loan B”
      together with Term Loan A, each a “Term
      Loan”
and
      collectively the “Term
      Loans”)
      to the
      Companies in an aggregate amount equal to $2,000,000. Term Loan B was advanced
      on the Closing Date and the entire unpaid principal balance of Term Loan B
      plus
      all accrued and unpaid interest thereon shall be due and payable in full on
      March 6, 2007, subject to acceleration upon the occurrence of an Event of
      Default or termination of this Agreement. As of the Closing Date, the
      outstanding principal amount of Term Loan B is $2,000,000. Term Loan B shall
      be
      evidenced by Term Note B.

    
      
        
        

      

      
        7

        
          

        

      

       

    

     

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

     

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

     

    5.  Interest
      and Payments. 

     

    (a)  Interest.

     

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

     

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

     

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

    
      
        
        

      

      
        8

        
          

        

      

       

    

     

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

     

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

     

    (b)  Payments;
      Certain Closing Conditions.

     

    (i)  Closing/Annual
      Payments.
      On the
      Original Closing Date, the Companies jointly and severally paid to Laurus
      Capital Management, LLC a closing payment in an amount equal to three and
      three-quarters percent (3.75%) of the Total Investment Amount. Such payment
      was
      deemed fully earned on the Original Closing Date and shall not be subject to
      rebate or proration for any reason.

     

    (ii)  Unused
      Line Payment.
      If,
      during any month, the average of the aggregate Loans outstanding during such
      month (the “Average
      Loan Amount”)
      does
      not equal the Total Investment Amount, the Companies shall jointly and severally
      pay to Laurus at the end of such month a payment (calculated on a per annum
      basis) in an amount equal to one-half percent (0.50%) of the amount by which
      the
      Total Investment Amount exceeds the Average Loan Amount. Notwithstanding the
      foregoing, any such due and unpaid fee shall come immediately due and payable
      upon termination of this Agreement.

     

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

     

    (iv)  Financial
      Information Default.
      Without
      affecting Laurus’ other rights and remedies, in the event any Company fails to
      deliver the financial information required by Section 11 on or before the date
      required by this Agreement, the Companies shall jointly and severally pay Laurus
      an aggregate fee in the amount of $250.00 per week (or portion thereof) for
      each
      such failure until such failure is cured to Laurus’ satisfaction or waived in
      writing by Laurus. All amounts that are incurred pursuant to this Section
      5(b)(iv) shall be due and payable by the Companies monthly, in arrears, on
      the
      first business of each calendar month and upon expiration of the
      Term.

    
      
        
        

      

      
        9

        
          

        

      

       

    

     

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

     

    6.  Security
      Interest. 

     

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

     

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

     

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

     

    7.  Representations,
      Warranties and Covenants Concerning the Collateral.
      Each
      Company represents, warrants (each of which such representations and warranties
      shall be deemed repeated upon the making of each request for a Revolving Loan
      and made as of the time of each and every Revolving Loan hereunder) and
      covenants as follows:

    
      
        
        

      

      
        10

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        11

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        12

        
          

        

      

       

    

     

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

     

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

     

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

     

    (q)  All
      Inventory manufactured by it in the United States of America shall be produced
      in accordance with the requirements of the Federal Fair Labor Standards Act
      of
      1938, as amended and all rules, regulations and orders related thereto or
      promulgated thereunder.

     

    8.  Payment
      of Accounts. 

     

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

     

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

    
      
        
        

      

      
        13

        
          

        

      

       

    

     

    9.  Collection
      and Maintenance of Collateral. 

     

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

     

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

     

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

     

    10.  Inspections
      and Appraisals.
      At all
      times during normal business hours, and upon reasonable notice (provided that
      no
      such prior notice shall be required to be given in the event Laurus believes
      such access is necessary to preserve or protect the Collateral or following
      the
      occurrence and during the continuance of an Event of Default) Laurus, and/or
      any
      agent of Laurus shall have the right to (a) have access to, visit, inspect,
      review, evaluate and make physical verification and appraisals of each Company’s
      properties and the Collateral, (b) inspect, audit and copy (or take originals
      if
      necessary) and make extracts from each Company’s Books and Records, including
      management letters prepared by the Accountants, and (c) discuss with each
      Company’s directors, principal officers, and independent accountants, each
      Company’s business, assets, liabilities, financial condition, results of
      operations and business prospects. Each Company will deliver to Laurus any
      instrument necessary for Laurus to obtain records from any service bureau
      maintaining records for such Company. If any internally prepared financial
      information, including that required under this Section is unsatisfactory in
      any
      manner to Laurus, Laurus may request that the Accountants review the
      same.

     

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

     

    (a)  As
      soon
      as available, and in any event within ninety (90) days after the end of each
      fiscal year of the Parent, each Company’s audited financial statements with a
      report of independent certified public accountants of recognized standing
      selected by the Parent and acceptable to Laurus (the “Accountants”),
      which
      annual financial statements shall be without qualification and shall include
      each Company’s balance sheet as at the end of such fiscal year and the related
      statements of each Company’s income, retained earnings and cash flows for the
      fiscal year then ended, prepared, if Laurus so requests, on a consolidating
      and
      consolidated basis to include all Subsidiaries and Affiliates of each Company,
      all in reasonable detail and prepared in accordance with GAAP, together with
      (i) if and when available, copies of any management letters prepared by the
      Accountants; and (ii) a certificate of the Parent’s President, Chief
      Executive Officer or Chief Financial Officer stating that such financial
      statements have been prepared in accordance with GAAP and whether or not such
      officer has knowledge of the occurrence of any Default or Event of Default
      hereunder and, if so, stating in reasonable detail the facts with respect
      thereto;

    
      
        
        

      

      
        14

        
          

        

      

       

    

     

    (b)  As
      soon
      as available and in any event within forty five (45) days after the end of
      each
      quarter, an unaudited/internal balance sheet and statements of income, retained
      earnings and cash flows of each Company as at the end of and for such quarter
      and for the year to date period then ended, prepared, if Laurus so requests,
      on
      a consolidating and consolidated basis to include all Subsidiaries and
      Affiliates of each Company, in reasonable detail and stating in comparative
      form
      the figures for the corresponding date and periods in the previous year, all
      prepared in accordance with GAAP, subject to year-end adjustments and
      accompanied by a certificate of the Parent’s President, Chief Executive Officer
      or Chief Financial Officer, stating (i) that such financial statements have
      been prepared in accordance with GAAP, subject to year-end audit adjustments,
      and (ii) whether or not such officer has knowledge of the occurrence of any
      Default or Event of Default hereunder not theretofore reported and remedied
      and,
      if so, stating in reasonable detail the facts with respect thereto;

     

    (c)  Within
      thirty (30) days after the end of each month (or more frequently if Laurus
      so
      requests), agings of each Company’s Accounts, unaudited trial balances and their
      accounts payable and a calculation of each Company’s Accounts, Eligible
      Accounts, Inventory and/or Eligible Inventory, provided, however, that if Laurus
      shall request the foregoing information more often than as set forth in the
      immediately preceding clause, each Company shall have thirty (30) days from
      each
      such request to comply with Laurus’ demand; and

     

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

     

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

     

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

    
      
        
        

      

      
        15

        
          

        

      

       

    

     

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

     

    (c)  Capitalization;
      Voting Rights.

     

    (i)  The
      authorized capital stock of the Parent, as of the date hereof consists of
      1,050,000,000 shares, of which 1,000,000,000 are shares of Common Stock, par
      value $0.001 per share, 10,382,047 shares of which are issued and outstanding,
      and 50,000,000 are shares of preferred stock, par value $0.001 per share of
      which 10,000,000 shares of Series A, 500,000 shares of Series B, 2,000 shares
      of
      Series C, 900,000 shares of Series D, 25,000 shares of Series E and 900,000
      shares of Series F are authorized, and of which 378,061 shares of Series
      A and 1,500 shares of Series E preferred stock are issued and
      outstanding.  The authorized, issued and outstanding capital stock of each
      Subsidiary of each Company is set forth on
      Schedule 12(c).

     

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

     

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

     

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

    
      
        
        

      

      
        16

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

    (i)  There
      are
      no agreements, understandings, instruments, contracts, proposed transactions,
      judgments, orders, writs or decrees to which it or any of its Subsidiaries
      is a
      party or to its knowledge by which it is bound which may involve: (i)
      obligations (contingent or otherwise) of, or payments to, it or any of its
      Subsidiaries in excess of $75,000 (other than obligations of, or payments to,
      it
      or any of its Subsidiaries arising from purchase or sale agreements entered
      into
      in the ordinary course of business); or (ii) the transfer or license of any
      patent, copyright, trade secret or other proprietary right to or from it (other
      than licenses arising from the purchase of “off the shelf” or other standard
      products); or (iii) provisions restricting the development, manufacture or
      distribution of its or any of its Subsidiaries’ products or services; or (iv)
      indemnification by it or any of its Subsidiaries with respect to infringements
      of proprietary rights.

     

    (ii)  Since
      June 30, 2005 (the “Balance
      Sheet Date”)
      neither it nor any of its Subsidiaries has: (i) declared or paid any dividends,
      or authorized or made any distribution upon or with respect to any class or
      series of its capital stock; (ii) incurred any indebtedness for money borrowed
      or any other liabilities (other than ordinary course obligations) individually
      in excess of $50,000 or, in the case of indebtedness and/or liabilities
      individually less than $50,000, in excess of $100,000 in the aggregate; (iii)
      made any loans or advances to any Person not in excess, individually or in
      the
      aggregate, of $100,000, other than ordinary advances for travel expenses; or
      (iv) sold, exchanged or otherwise disposed of any of its assets or rights,
      other
      than the sale of its Inventory in the ordinary course of
      business.

    
      
        
        

      

      
        17

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        18

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

    Except
      as
      described above or set forth on Schedule
      12(g),
      none of
      its officers, directors or, to the best of its knowledge, key employees or
      stockholders, any of its Subsidiaries or any members of their immediate
      families, are indebted to it or any of its Subsidiaries, individually or in
      the
      aggregate, in excess of $50,000 or have any direct or indirect ownership
      interest in any Person with which it or any of its Subsidiaries is affiliated
      or
      with which it or any of its Subsidiaries has a business relationship, or any
      Person which competes with it or any of its Subsidiaries, other than passive
      investments in publicly traded companies (representing less than one percent
      (1%) of such company) which may compete with it or any of its Subsidiaries.
      Except as described above, none of its officers, directors or stockholders,
      or
      any member of their immediate families, is, directly or indirectly, interested
      in any material contract with it or any of its Subsidiaries and no agreements,
      understandings or proposed transactions are contemplated between it or any
      of
      its Subsidiaries and any such Person. Except as set forth on Schedule
      12(g),
      neither
      it nor any of its Subsidiaries is a guarantor or indemnitor of any indebtedness
      of any other Person.

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        19

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        20

        
          

        

      

       

    

     

    (j)  Intellectual
      Property.

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        21

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        22

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

    (ii)  any
      petroleum products or nuclear materials.

     

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

    
      
        
        

      

      
        23

        
          

        

      

       

    

     

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

     

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

     

    (u)  SEC
      Reports and Financial Statements.
      Except
      as set forth on Schedule 12(u),
      it and
      each of its Subsidiaries has filed all proxy statements, reports and other
      documents required to be filed by it under the Exchange Act. The Parent has
      furnished Laurus with copies of: (i) its Annual Report on Form 10-KSB for its
      fiscal years ended July 31, 2006; and (ii) its Quarterly Report on Form 10-QSB
      for its fiscal quarter ended October 31, 2006, and the Form 8-K filings which
      it
      has made during its fiscal year 2006 to date (collectively, the “SEC
      Reports”).
      Except as set forth on Schedule
      12(u),
      each
      SEC Report was, at the time of its filing, in substantial compliance with the
      requirements of its respective form and none of the SEC Reports, nor the
      financial statements (and the notes thereto) included in the SEC Reports, as
      of
      their respective filing dates, contained any untrue statement of a material
      fact
      or omitted to state a material fact required to be stated therein or necessary
      to make the statements therein, in light of the circumstances under which they
      were made, not misleading. Such financial statements have been prepared in
      accordance with GAAP applied on a consistent basis during the periods involved
      (except (i) as may be otherwise indicated in such financial statements or the
      notes thereto or (ii) in the case of unaudited interim statements, to the extent
      they may not include footnotes or may be condensed) and fairly present in all
      material respects the financial condition, the results of operations and cash
      flows of the Parent and its Subsidiaries, on a consolidated basis, as of, and
      for, the periods presented in each such SEC Report.

     

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

    
      
        
        

      

      
        24

        
          

        

      

       

    

     

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

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        26

        
          

        

      

       

    

     

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

     

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

     

    (e)  Use
      of
      Funds.
      It
      shall use the proceeds of the Loans solely to fund the transactions contemplated
      by the Acquisition Documentation and for general working capital
      purposes.

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
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    (h)  Insurance.
      It
      shall bear the full risk of loss from any loss of any nature whatsoever with
      respect to the Collateral. It and each of its Subsidiaries shall keep its assets
      which are of an insurable character insured by financially sound and reputable
      insurers against loss or damage by fire, explosion and other risks customarily
      insured against by companies in similar business similarly situated as it and
      its Subsidiaries; and it and its Subsidiaries shall maintain, with financially
      sound and reputable insurers, insurance against other hazards and risks and
      liability to persons and property to the extent and in the manner which it
      and/or such Subsidiary thereof reasonably believes is customary for companies
      in
      similar business similarly situated as it and its Subsidiaries and to the extent
      available on commercially reasonable terms. It and each of its Subsidiaries
      will
      jointly and severally bear the full risk of loss from any loss of any nature
      whatsoever with respect to the assets pledged to Laurus as security for its
      obligations hereunder and under the Ancillary Agreements. At its own cost and
      expense in amounts and with carriers reasonably acceptable to Laurus, it and
      each of its Subsidiaries shall (i) keep all their insurable properties and
      properties in which they have an interest insured against the hazards of fire,
      flood, sprinkler leakage, those hazards covered by extended coverage insurance
      and such other hazards, and for such amounts, as is customary in the case of
      companies engaged in businesses similar to it or the respective Subsidiary’s
      including business interruption insurance; (ii) maintain a bond in such amounts
      as is customary in the case of companies engaged in businesses similar to it
      and
      its Subsidiaries’ insuring against larceny, embezzlement or other criminal
      misappropriation of insured’s officers and employees who may either singly or
      jointly with others at any time have access to its or any of its Subsidiaries
      assets or funds either directly or through governmental authority to draw upon
      such funds or to direct generally the disposition of such assets; (iii) maintain
      public and product liability insurance against claims for personal injury,
      death
      or property damage suffered by others; (iv) maintain all such worker’s
      compensation or similar insurance as may be required under the laws of any
      state
      or jurisdiction in which it or any of its Subsidiaries is engaged in business;
      and (v) furnish Laurus with (x) a copy of all policies and evidence of the
      maintenance of such policies at least thirty (30) days before any expiration
      date, (y) excepting its and its Subsidiaries’ workers’ compensation policy,
      endorsements to such policies naming Laurus as “co-insured” or “additional
      insured” and appropriate loss payable endorsements in form and substance
      satisfactory to Laurus, naming Laurus as lenders loss payee, and (z) evidence
      that as to Laurus the insurance coverage shall not be impaired or invalidated
      by
      any act or neglect of any Company or any of its Subsidiaries and the insurer
      will provide Laurus with at least thirty (30) days notice prior to cancellation.
      It shall instruct the insurance carriers that in the event of any loss
      thereunder, the carriers shall make payment for such loss to Laurus and not
      to
      any Company or any of its Subsidiaries and Laurus jointly. If any insurance
      losses are paid by check, draft or other instrument payable to any Company
      and/or any of its Subsidiaries and Laurus jointly, Laurus may endorse, as
      applicable, such Company’s and/or any of its Subsidiaries’ name thereon and do
      such other things as Laurus may deem advisable to reduce the same to cash.
      Laurus is hereby authorized to adjust and compromise claims. All loss recoveries
      received by Laurus upon any such insurance may be applied to the Obligations,
      in
      such order as Laurus in its sole discretion shall determine or shall otherwise
      be delivered to Company Agent for the benefit of the applicable Company and/or
      its Subsidiaries; provided; however, any loss recoveries received by Laurus
      arising from the damage or destruction of Collateral may be used by the
      Companies to repair, restore or replace such Collateral, as the case may be,
      so
      long as the fair market value of any such Collateral damaged or destroyed in
      any
      single incident is less than $25,000 and the fair market value, in the
      aggregate, of all such Collateral owned by Borrower and damaged, destroyed
      or
      condemned during any twelve-month period is less than $50,000. Any surplus
      shall
      be paid by Laurus to Company Agent for the benefit of the applicable Company
      and/or its Subsidiaries, or applied as may be otherwise required by law. Any
      deficiency thereon shall be paid, as applicable, by Companies and their
      Subsidiaries to Laurus, on demand.

    
      
        
        

      

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

     

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

     

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

    
      
        
        

      

      
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    (l)  Required
      Approvals.
      It
      shall not, and shall not permit any of its Subsidiaries to, without the prior
      written consent of Laurus, (i) create, incur, assume or suffer to exist any
      indebtedness (exclusive of trade debt) whether secured or unsecured other than
      (x) each Company’s indebtedness to Laurus, (y) the Parent’s unsecured
      indebtedness owing to Whitco so long as, at such time as the aggregate amount
      of
      such indebtedness exceeds $50,000, Whitco executes and delivers to Laurus a
      subordination agreement in form and substance satisfactory to Laurus pursuant
      to
      which all of the indebtedness owing by the Parent to Whitco is subordinated
      to
      the Obligations and (z) as set forth on Schedule 13(l)(i)
      attached
      hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
      $100,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
      endorse or otherwise become directly or contingently liable in connection with
      any obligations of any other Person, except the endorsement of negotiable
      instruments by it or its Subsidiaries for deposit or collection or similar
      transactions in the ordinary course of business; (iv) directly or indirectly
      declare, pay or make any dividend or distribution on any class of its Stock
      (including, without limitation, any dividends or distributions by NTSCO to
      any
      other Company) other than (x) so long as the Parent has received prior written
      consent from Laurus with respect to any such dividend or distribution, which
      consent shall not be unreasonably withheld, dividends or distributions to the
      Parent, the proceeds of which shall be used by the Parent solely to pay the
      Parent’s reasonable and actual costs and expenses for the preparation and filing
      of all proxy statements, reports and other documents required to be filed by
      the
      Parent under the Exchange Act and (y) dividends and distributions by Whitco
      to
      any Company) or apply any of its funds, property or assets to the purchase,
      redemption or other retirement of any of its or its Subsidiaries’ Stock
      outstanding on the date hereof, or issue any preferred stock; (v) purchase
      or
      hold beneficially any Stock or other securities or evidences of indebtedness
      of,
      make or permit to exist any loans or advances to, or make any investment or
      acquire any interest whatsoever in, any other Person, including any partnership
      or joint venture, except (x) travel advances, (y) loans to its and its
      Subsidiaries’ officers and employees not exceeding at any one time an aggregate
      of $10,000, and (z) loans to its existing Subsidiaries so long as such
      Subsidiaries are designated as either a co-borrower hereunder or has entered
      into such guaranty and security documentation required by Laurus, including,
      without limitation, to grant to Laurus a first priority perfected security
      interest in substantially all of such Subsidiary’s assets to secure the
      Obligations; (vi) create or permit to exist any Subsidiary, other than any
      Subsidiary in existence on the date hereof and listed in Schedule
      12(b)
      unless
      such new Subsidiary is a wholly-owned Subsidiary and is designated by Laurus
      as
      either a co-borrower or guarantor hereunder and such Subsidiary shall have
      entered into all such documentation required by Laurus, including, without
      limitation, to grant to Laurus a first priority perfected security interest
      in
      substantially all of such Subsidiary’s assets to secure the Obligations; (vii)
      directly or indirectly, prepay any indebtedness (other than to Laurus and in
      the
      ordinary course of business), or repurchase, redeem, retire or otherwise acquire
      any indebtedness (other than to Laurus and in the ordinary course of business)
      except to make scheduled payments of principal and interest thereof; (viii)
      enter into any merger, consolidation or other reorganization with or into any
      other Person or acquire all or a portion of the assets or Stock of any Person
      or
      permit any other Person to consolidate with or merge with it, unless (A)
      (1) such Company is the surviving entity of such merger or consolidation,
      (2) no Event of Default shall exist immediately prior to and after giving effect
      to such merger or consolidation, (3) such Company shall have provided
      Laurus copies of all documentation relating to such merger or consolidation
      and
      (4) such Company shall have provided Laurus with at least thirty (30) days’
prior written notice of such merger or consolidation or (B) (1) such merger
      or
      consolidation results in the indefeasible payment in full of all Obligations
      (including, without limitation, all early termination and prepayment fees
      required to be paid hereunder and under the terms of the Ancillary Agreements),
      (2) such Company shall have provided Laurus copies of all documentation relating
      to such merger or consolidation and (3) such Company shall have provided Laurus
      at least thirty (30) days’ prior written notice of such early prepayment of the
      Obligations; (ix) materially change the nature of the business in which it
      is
      presently engaged; (x) become subject to (including, without limitation, by
      way
      of amendment to or modification of) any agreement or instrument which by its
      terms would (under any circumstances) restrict its or any of its Subsidiaries’
right to perform the provisions of this Agreement or any of the Ancillary
      Agreements; (xi) change its fiscal year or make any changes in accounting
      treatment and reporting practices without prior written notice to Laurus except
      as required by GAAP or in the tax reporting treatment or except as required
      by
      law; (xii) enter into any transaction with any employee, director or Affiliate,
      except in the ordinary course on arms-length terms; (xiii) bill Accounts under
      any name except the present name of such Company; (xiv) sell, lease, transfer
      or
      otherwise dispose of any of its properties or assets, or any of the properties
      or assets of its Subsidiaries, except for (1) the sale of Inventory in the
      ordinary course of business, (2) the disposition or transfer in the ordinary
      course of business during any fiscal year of obsolete and worn-out Equipment
      and
      only to the extent that (x) the proceeds of any such disposition are used to
      acquire replacement Equipment which is subject to Laurus’ first priority
      security interest or are used to repay Loans or to pay general corporate
      expenses, or (y) following the occurrence of an Event of Default which continues
      to exist, the proceeds of which are remitted to Laurus to be held as cash
      collateral for the Obligations; and (3) the sale of real property so long as
      the
      Company Agent has received the prior written consent of Laurus with respect
      to
      such sale, which consent shall not be unreasonably withheld, provided that,
      (x)
      the Company Agent provided Laurus not less than thirty (30) days prior written
      notice of such sale, (y) such sale is on commercially reasonable terms in an
      arms-length transaction and (z) all proceeds of such sale are remitted directly
      to Laurus to repay the Obligations in such order as Laurus shall elect; (xv)
      directly or indirectly, redeem, repurchase, retire or otherwise acquire or
      make
      any payment or distribution with respect to the Subordinated Debt except to
      the
      extent permitted pursuant to the applicable Subordination Agreement; or (xvi)
      change or modify the terms of any Subordinated Debt
      Documentation.

    
      
        
        

      

      
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    (m)  Reissuance
      of Securities.
      The
      Parent shall reissue certificates representing the Securities without the
      legends set forth in Section 40 below at such time as:

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

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

     

    (u)  Financing
      Right of First Refusal.

     

    (i)  It
      hereby
      grants to Laurus a right of first refusal to provide any Additional Financing
      (as defined below) to be issued by any Company and/or any of its Subsidiaries
      (the “Additional
      Financing Parties”),
      subject to the following terms and conditions. From and after the date hereof,
      prior to the incurrence of any additional indebtedness and/or the sale or
      issuance of any equity interests of the Additional Financing Parties (an
“Additional
      Financing”),
      Company Agent shall notify Laurus of such Additional Financing. In connection
      therewith, Company Agent shall submit a fully executed term sheet (a
“Proposed
      Term Sheet”)
      to
      Laurus setting forth the terms, conditions and pricing of any such Additional
      Financing (such financing to be negotiated on “arm’s length” terms and the terms
      thereof to be negotiated in good faith) proposed to be entered into by the
      Additional Financing Parties. Laurus shall have the right, but not the
      obligation, to deliver to Company Agent its own proposed term sheet (the
“Laurus
      Term Sheet”)
      setting forth the terms and conditions upon which Laurus would be willing to
      provide such Additional Financing to the Additional Financing Parties. The
      Laurus Term Sheet shall contain terms no less favorable to the Additional
      Financing Parties than those outlined in Proposed Term Sheet. Laurus shall
      deliver to Company Agent the Laurus Term Sheet within ten Business Days of
      receipt of each such Proposed Term Sheet. If the provisions of the Laurus Term
      Sheet are at least as favorable to the Additional Financing Parties as the
      provisions of the Proposed Term Sheet, the Additional Financing Parties shall
      enter into and consummate the Additional Financing transaction outlined in
      the
      Laurus Term Sheet. 

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

    17.  Term
      of Agreement.
      Laurus’
agreement to make Loans and extend financial accommodations under and in
      accordance with the terms of this Agreement or any Ancillary Agreement shall
      continue in full force and effect until the expiration of the Term. At Laurus’
election following the occurrence of an Event of Default, Laurus may terminate
      this Agreement. The termination of the Agreement shall not affect any of Laurus’
rights hereunder or any Ancillary Agreement and the provisions hereof and
      thereof shall continue to be fully operative until all transactions entered
      into, rights or interests created and the Obligations have been irrevocably
      disposed of, concluded or liquidated. Notwithstanding the foregoing, Laurus
      shall release its security interests at any time after thirty (30) days notice
      upon irrevocable payment to it of all Obligations if each Company shall have
      (i)
      provided Laurus with an executed release of any and all claims which such
      Company may have or thereafter have under this Agreement and all Ancillary
      Agreements and (ii) paid to Laurus an early payment fee in an amount equal
      to
      (1) five percent (5%) of the Total Investment Amount if such payment occurs
      prior to the first anniversary of the Original Closing Date, (2) four percent
      (4%) of the Total Investment Amount if such payment occurs on or after the
      first
      anniversary of the Original Closing Date and prior to the second anniversary
      of
      the Original Closing Date and (3) three percent (3%) of the Total Investment
      Amount if such termination occurs thereafter during the Term; such fee being
      intended to compensate Laurus for its costs and expenses incurred in initially
      approving this Agreement or extending same. Such early payment fee shall be
      due
      and payable jointly and severally by the Companies to Laurus upon termination
      by
      acceleration of this Agreement by Laurus due to the occurrence and continuance
      of an Event of Default.

    
      
        
        

      

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

     

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

     

    (a)  failure
      to make payment of any of the Obligations when required hereunder, and, in
      any
      such case, such failure shall continue for a period of three (3) days following
      the date upon which any such payment was due; 

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

    (g)  any
      change in any Company’s or any of its Subsidiary’s condition or affairs
      (financial or otherwise) which in Laurus’ reasonable, good faith opinion, could
      reasonably be expected to have a Material Adverse Effect; 

     

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

     

    (i)  any
      Company, any of its Subsidiaries or any Guarantor shall (i) apply for, consent
      to or suffer to exist the appointment of, or the taking of possession by, a
      receiver, custodian, trustee or liquidator of itself or of all or a substantial
      part of its property, (ii) make a general assignment for the benefit of
      creditors, (iii) commence a voluntary case under the federal bankruptcy laws
      (as
      now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
      file a petition seeking to take advantage of any other law providing for the
      relief of debtors, (vi) acquiesce to without challenge within ten (10) days
      of
      the filing thereof, or failure to have dismissed within thirty (30) days, any
      petition filed against it in any involuntary case under such bankruptcy laws,
      or
      (vii) take any action for the purpose of effecting any of the
      foregoing;

     

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

     

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

     

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

    
      
        
        

      

      
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    (m)  the
      indictment or threatened indictment of any Company or any of its Subsidiaries
      or
      any executive officer of any Company or any of its Subsidiaries under any
      criminal statute, or commencement or threatened commencement of criminal or
      civil proceeding against any Company or any of its Subsidiaries or any executive
      officer of any Company or any of its Subsidiaries pursuant to which statute
      or
      proceeding penalties or remedies sought or available include forfeiture of
      any
      of the property of any Company or any of its Subsidiaries; 

     

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

     

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

     

    (p)  any
      Company, any of its Subsidiaries or any Guarantor attempts to terminate,
      challenges the validity of, or its/her/his liability under this Agreement or
      any
      Ancillary Agreement, or if any individual Guarantor shall die, or any proceeding
      shall be brought to challenge the validity, binding effect of any Ancillary
      Agreement or any Ancillary Agreement ceases to be a valid, binding and
      enforceable obligation of such Company, any of its Subsidiaries or any Guarantor
      (to the extent such Persons are a party thereto);

     

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

     

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

     

    (s)  a
      default
      or event of default shall have occurred under any of the Acquisition
      Documentation which is not cured during any applicable cure or grace period;
      or

     

    (t)  the
      failure of the Companies to at all times maintain a cash balance in a deposit
      account, with respect to which Laurus shall have a first priority perfected
      security interest, in an amount not less than $3,000,000; or

     

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

    
      
        
        

      

      
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    20.  Remedies.
      Following the occurrence of an Event of Default, Laurus shall have the right
      to
      demand repayment in full of all Obligations, whether or not otherwise due.
      Until
      all Obligations have been fully and indefeasibly satisfied, Laurus shall retain
      its Lien in all Collateral. Laurus shall have, in addition to all other rights
      provided herein and in each Ancillary Agreement, the rights and remedies of
      a
      secured party under the UCC, and under other applicable law, all other legal
      and
      equitable rights to which Laurus may be entitled, including the right to take
      immediate possession of the Collateral, to require each Company to assemble
      the
      Collateral, at Companies’ joint and several expense, and to make it available to
      Laurus at a place designated by Laurus which is reasonably convenient to both
      parties and to enter any of the premises of any Company or wherever the
      Collateral shall be located, with or without force or process of law, and to
      keep and store the same on said premises until sold (and if said premises be
      the
      property of any Company, such Company agrees not to charge Laurus for storage
      thereof), and the right to apply for the appointment of a receiver for such
      Company’s property. Further, Laurus may, at any time or times after the
      occurrence of an Event of Default, sell and deliver all Collateral held by
      or
      for Laurus at public or private sale for cash, upon credit or otherwise, at
      such
      prices and upon such terms as Laurus, in Laurus’ sole discretion, deems
      advisable or Laurus may otherwise recover upon the Collateral in any
      commercially reasonable manner as Laurus, in its sole discretion, deems
      advisable. The requirement of reasonable notice shall be met if such notice
      is
      mailed postage prepaid to Company Agent at Company Agent’s address as shown in
      Laurus’ records, at least ten (10) days before the time of the event of which
      notice is being given. Laurus may be the purchaser at any sale, if it is public.
      In connection with the exercise of the foregoing remedies, Laurus is granted
      permission to use all of each Company’s Intellectual Property. The proceeds of
      sale shall be applied first to all costs and expenses of sale, including
      attorneys’ fees, and second to the payment (in whatever order Laurus elects) of
      all Obligations. After the indefeasible payment and satisfaction in full of
      all
      of the Obligations, and after the payment by Laurus of any other amount required
      by any provision of law, including Section 9-608(a)(1) of the UCC (but only
      after Laurus has received what Laurus considers reasonable proof of a
      subordinate party’s security interest), the surplus, if any, shall be paid to
      Company Agent (for the benefit of the applicable Companies) or its
      representatives or to whosoever may be lawfully entitled to receive the same,
      or
      as a court of competent jurisdiction may direct. The Companies shall remain
      jointly and severally liable to Laurus for any deficiency. In addition, the
      Companies shall jointly and severally pay Laurus a liquidation fee (“Liquidation
      Fee”) in the amount of five percent (5%) of the actual amount collected in
      respect of each Account outstanding at any time during a Liquidation Period”.
      For purposes hereof, “Liquidation Period” means a period: (i) beginning on the
      earliest date of (x) an event referred to in Section 19(i) or 19(j), or (y)
      the
      cessation of any Company’s business; and (ii) ending on the date on which Laurus
      has actually received all Obligations due and owing it under this Agreement
      and
      the Ancillary Agreements. The Liquidation Fee shall be paid on the date on
      which
      Laurus collects the applicable Account by deduction from the proceeds thereof.
      Each Company and Laurus acknowledge that the actual damages that would be
      incurred by Laurus after the occurrence of an Event of Default would be
      difficult to quantify and that such Company and Laurus have agreed that the
      fees
      and obligations set forth in this Section and in this Agreement would constitute
      fair and appropriate liquidated damages in the event of any such
      termination.
      Each
      party hereto hereby agrees that the exercise by any party hereto of any right
      granted to it or the exercise by any party hereto of any remedy available to
      it
      (including, without limitation, the issuance of a notice of redemption, a
      borrowing request and/or a notice of default), in each case, hereunder or under
      any Ancillary Agreement which has been publicly filed with the SEC shall not
      constitute confidential information and no party shall have any duty to the
      other party to maintain such information as confidential, except for the
      portions of such publicly filed documents that are subject to confidential
      treatment request made by the Companies to the SEC.

    
      
        
        

      

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

     

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

    
      
        
        

      

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

     

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

     

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

     

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

    
      
        
        

      

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

     

    28.  Borrowing
      Agency Provisions. 

     

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

     

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

     

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

    
      
        
        

      

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

     

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

     

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

     

    Notices
      shall be provided as follows:

     

    
      	 	
              If
                to Laurus:

            	
              Laurus
                Master Fund, Ltd.

            
	 	
               

            	
              c/o
                Laurus Capital Management, LLC

            
	 	
               

            	
              825
                Third Avenue 14th Fl.

            
	 	
               

            	
              New
                York, New York 10022

            
	 	
               

            	
              Attention:
                John E. Tucker, Esq.

            
	 	
               

            	
              Telephone:
                (212) 541-4434

            
	 	
               

            	
              Facsimile:
                (212) 541-5800

            

    

    

    
      
        
        

      

      
        43

        
          

        

      

       

    

    

    
      	 	
              With
                a copy to:

            	
              Loeb
                & Loeb LLP

            
	 	
               

            	
              345
                Park Avenue

            
	 	
               

            	
              New
                York, New York 10154

            
	 	
               

            	
              Attention:
                Scott J. Giordano, Esq.

            
	 	
               

            	
              Telephone:
                (212) 407-4000

            
	 	
               

            	
              Facsimile:
                (212) 504-2669

            
	 	 	 
	 	
              If
                to any Company, 

            	
               

            
	 	
              or
                Company Agent:

            	
              American
                Technologies Group, Inc.

            
	 	
               

            	
              300
                Las Olas Place

            
	 	
               

            	
              Fort
                Lauderdale, Florida 33301

            
	 	
               

            	
              Attention:
                William N. Plamondon III, CEO

            
	 	
               

            	
              Telephone:
                (954) 764-4774

            
	 	
               

            	
              Facsimile:
                (954) 764-4030

            
	 	 	 
	 	
              With
                a copy to:

            	
              Erickson
                & Sederstrom, P.C.

            
	 	
               

            	
              10330
                Regency Parkway Drive, Suite 100

            
	 	
               

            	
              Omaha,
                Nebraska 68114

            
	 	
               

            	
              Attention:
                Virgil K. Johnson, Esq.

            
	 	
               

            	
              Telephone:
                (402) 390-7104

            
	 	
               

            	
              Facsimile:
                (402) 390-7130

            

    

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        44

        
          

        

      

       

    

     

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

     

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

     

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

    
      
        
        

      

      
        45

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        46

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        47

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        48

        
          

        

      

       

    

     

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

     

    AMERICAN
      TECHNOLOGIES GROUP, INC.

     

    By:____________________________________
      

     

    Name:__________________________________
      

     

    Title:___________________________________

     

    NORTH
      TEXAS STEEL COMPANY, INC.

     

    By:____________________________________
      

     

    Name:__________________________________
      

     

    Title:___________________________________

     

    OMAHA
      HOLDINGS CORP.

     

    By:____________________________________
      

     

    Name:__________________________________
      

     

    Title:___________________________________

     

    LAURUS
      MASTER FUND, LTD. 

     

    By:____________________________________
      

     

    Name:__________________________________
      

     

    Title:___________________________________

     

    

    
      
        
        

      

      
        49

        
          

        

      

       

    

     

    Annex
      A - Definitions

     

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

     

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

     

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

     

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

     

    “Acquisition
      Documentation”
means
      the Share Purchase Agreement by and among the Parent and Sellers dated as of
      September 7, 2005 and all documents, instruments and agreements entered into
      in
      connection therewith.

     

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

     

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

    
      
        
        

      

      
        1

        
          

        

      

       

    

     

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

     

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

     

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

     

    “Capital
      Availability Amount”
means
      $7,000,000.

     

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

     

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

     

    “Closing
      Date”
means
      January 31, 2007.

     

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

     

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

    
      
         

        (a)  all
          Inventory;

         

        (b)  all
          Equipment;

         

        (c)  all
          Fixtures;

         

        (d)  all
          Goods;

         

        (e)  all
          General Intangibles;

         

        (f)  all
          Accounts;

         

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

         

        (h)  all
          Investment Property;

         

        
          
            
            

          

          
            2

            
              

            

          

          
            
            

          

        

         

        (i)  all
          Stock;

         

        (j)  all
          Chattel Paper;

         

        (k)  all
          Letter-of-Credit Rights;

         

        (l)  all
          Instruments;

         

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

         

        (n)  all
          Books
          and Records;

         

        (o)  all
          Intellectual Property;

      

    

     

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

     

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

     

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

     

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

     

    “Company
      Agent”
means
      the Parent.

     

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

     

    “Convertible
      Notes”
means,
      collectively, the Terms Notes and the Minimum Convertible Note. 

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        3

        
          

        

      

       

    

     

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

    
      
        
        

      

      
        4

        
          

        

      

       

    

     

    “Eligible
      Inventory”
means
      Inventory owned by a Company which Laurus, in its sole and absolute discretion,
      determines: (a) is subject to a first priority perfected Lien in favor of Laurus
      and is subject to no other Liens whatsoever (other than Permitted Liens); (b)
      is
      located on a premises owned by such Company or a premises leased by such Company
      with respect to which Laurus has received a landlord or mortgagee waiver
      acceptable in form and substance to Laurus; (c) is not in transit; (d) is in
      good condition and meets all standards imposed by any governmental agency,
      or
      department or division thereof having regulatory Governmental Authority over
      such Inventory, its use or sale including the Federal Fair Labor Standards
      Act
      of 1938 as amended, and all rules, regulations and orders thereunder; (e) is
      currently either usable or salable in the normal course of such Company’s
      business; (f) is not placed by such Company on consignment or held by such
      Company on consignment from another Person; (g) is in conformity with the
      representations and warranties made by such Company to Laurus with respect
      thereto; (h) is not subject to any licensing, patent, royalty, trademark, trade
      name or copyright agreement with any third parties; (i) does not require the
      consent of any Person for the completion of manufacture, sale or other
      disposition of such Inventory and such completion, manufacture or sale does
      not
      constitute a breach or default under any contract or agreement to which such
      Company is a party or to which such Inventory is or may be subject; (j) is
      not
      work-in-process; (k) is covered by casualty insurance acceptable to Laurus
      and
      under which Laurus has been named as a lender’s loss payee and additional
      insured; and (l) not to be ineligible for any other reason.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        5

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Guarantors”
means
      the Term Loan B Guarantors and any and all other Persons who may from time
      to
      time guaranty all or a portion of the Obligations.

     

    “Guaranty
      Agreements”
means
      any and all guaranty agreements made from time to time by Guarantors in favor
      of
      Laurus, as the same may be amended, supplemented, restates and/or otherwise
      modified from time to time.

     

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

    
      
        
        

      

      
        6

        
          

        

      

       

    

     

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

     

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

     

    “Inventory
      Availability”
means
      up to the lesser of (a) fifty percent (50%) of the value of Companies’ Eligible
      Inventory (calculated on the basis of the lower of cost or market, on a first-in
      first-out basis) and (b) $1,000,000.

     

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

     

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

     

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

     

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

     

    “Loans”
means
      the Revolving Loans, the Term Loans and shall include all other extensions
      of
      credit hereunder and under any Ancillary Agreement.

     

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

     

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

    
      
        
        

      

      
        7

        
          

        

      

       

    

     

    “Minimum
      Borrowing Amount”
means
      $3,000,000.

     

    “Minimum
      Borrowing Note”
means
      that certain Amended and Restated Secured Convertible Minimum Borrowing Note
      effective as of the Original Closing Date made by the Companies in favor of
      Laurus in the original principal amount of $3,000,000, as the same may be
      amended, supplemented, restated and/or otherwise modified from time to
      time.

     

    “Mortgage
      Documentation”
means
      (a) the Deed of Trust dated as of the date hereof made by NTSCO in favor of
      Laurus with respect to the real property located at 412 West Bolt Street, Fort
      Worth, Texas 76110, (b) the Deed of Trust dated as of the date hereof made
      by
      NTSCO in favor of Laurus with respect to the real property located at 4410
      Marsalis Street, Fort Worth, Texas 76117, (c) the Mortgage dated as of the
      date
      hereof made by the Term Note B Guarantors in favor of Laurus with respect to
      the
      real property located at 160 Rose Hill Road, Southport, Connecticut 06890,
      (d)
      the Mortgage dated as of the date hereof made by the Term Note B Guarantors
      in
      favor of Laurus with respect to the real property located at 69 Ellsworth,
      Unit
      105, Bridgeport, Connecticut and (e) all other documents, instruments and
      agreements which are executed by any Company or any of its Subsidiaries and/or
      the Term Note B Guarantors in favor of Laurus in connection
      therewith.

     

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

     

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

     

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

     

    “NTSCO”
means
      North Texas Steel Company, Inc., a Texas corporation.

     

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

    
      
        
        

      

      
        8

        
          

        

      

       

    

     

    “Option
      Shares”
shall
      have the meaning given such term in Section 12(a).

     

    “Options”
means
      that certain Option dated as of the Original Closing Date made by the Parent
      in
      favor of Laurus
      and each other option made by the Parent in favor of Laurus, as each of the
      same
      may be amended, restated, modified and/or supplemented from time to
      time.

     

    “Original
      Closing Date”
has
      the
      meaning given such term in the background section hereof.

     

    “Original
      Security Agreement”
has
      the
      meaning given such term in the background section hereof.

     

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

     

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

     

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

     

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

     

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

    
      
        
        

      

      
        9

        
          

        

      

       

    

     

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

     

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

     

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

     

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

     

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

     

    “SEC”
means
      the Securities and Exchange Commission.

     

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

     

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

    
      
        
        

      

      
        10

        
          

        

      

       

    

     

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

     

    “Security
      Documents”
means
      the Mortgage Documentation and all other security agreements, mortgages, cash
      collateral deposit letters, pledges and other agreements which are executed
      by
      any Company, any of its Subsidiaries and/or any Guarantor in favor of
      Laurus.

     

    “Sellers”
means,
      collectively, Janet Judd, Robert Judd, Robert Judd, Jr., North Texas Steel
      Company, Inc. Pension Plan and the other Persons named therein.

     

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

     

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

     

    “Subordinated
      Debt Documentation”
means
      collectively, (a) the Security Agreement by and among the Companies and
Gryphon
      Master Fund, L.P. and
      any
      other note, document, instrument or agreement now or any time hereafter executed
      and/or delivered in connection therewith, (b) the Security Agreement by and
      among the Companies and GSSF
      Master Fund, LP and
      any
      other note, document, instrument or agreement now or any time hereafter executed
      and/or delivered in connection therewith and (c) all other notes, documents,
      instruments or agreements now or any time hereafter executed and/or delivered
      by
      any Company with or in favor of any Subordinated Lender which evidences the
      principal, interest and other amounts owed by such Company to such Subordinated
      Lender.

     

    “Subordinated
      Lender”
means
      collectively, Gryphon
      Master Fund, L.P., GSSF Master Fund, LP and
      any
      other Person who enters into a Subordination Agreement with Laurus with respect
      to amounts owed by any Company to such Subordinated Lender.

     

    “Subordination
      Agreement”
means
      collectively, the Subordination Agreement executed by Gryphon
      Master Fund, L.P. and GSSF Master Fund, LP
      in favor
      of Laurus and acknowledged by each Company, and any and all other subordination
      agreements accepted by Laurus from time to time with respect to indebtedness
      of
      any Company.

     

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

     

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

    
      
        
        

      

      
        11

        
          

        

      

       

    

     

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

     

    “Term
      Loan A”
has
      the
      meaning given such term in Section 2(d)(i).

     

    “Term
      Loan B”
has
      the
      meaning given such term in Section 2(d)(ii).

     

    “Term
      Loans”
has
      the
      meaning given such term in Section 2(d)(ii).

     

    “Term
      Loan B Guarantors”
means
      Patricia E. Matteson and Charles Matteson.

     

    “Term
      Note A”
means
      that certain Amended and Restated Secured Convertible Term Note A effective
      as
      of the Original Closing Date made by Companies in favor of Laurus in the
      original principal amount of $3,000,000, as the same may be amended,
      supplemented, restated and/or otherwise modified from time to time.

     

    “Term
      Note B”
means
      that certain Amended and Restated Secured Convertible Term Note B effective
      as
      of the Original Closing Date made by Companies in favor of Laurus in the
      original principal amount of $2,000,000, as the same may be amended,
      supplemented, restated and/or otherwise modified from time to time.

     

    “Term
      Notes”
means,
      collectively, Term Note A and Term Note B.

     

    “Total
      Investment Amount”
means
      $12,000,000.

     

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

     

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

     

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

     

    “Whitco”
means
      Whitco Poles, Inc., a Texas corporation.

    
      
        
        

      

      
        12

        
          

        

      

       

    

     

    Exhibit
      A

     

    Eligible
      Subsidiaries

     

    North
      Texas Steel Company, Inc., a Texas corporation

     

    Omaha
      Holdings Corp., a Delaware corporation

    
      
        
        

      

      
        13

        
          

        

      

       

    

     

    Exhibit
      B

     

    Borrowing
      Base Certificate

     

    [To
      be
      inserted]

    
      
        
        

      

      
        14

        
          

        

      

       

    

     

    

    SCHEDULES

    TO

    AMENDED
      AND RESTATED

    SECURITY
      AGREEMENT

    AMONG

    

    LAURUS
      MASTER FUND, LTD.,

    

    AMERICAN
      TECHNOLOGIES GROUP, INC.,

    

    OMAHA
      HOLDINGS CORP.

    

    AND

    

    NORTH
      TEXAS STEEL COMPANY, INC.

    
      
        
        

      

      
        15

        
          

        

      

       

    

    Schedule
      1(A)

    Commercial
      Tort Claims

    

    None.

    
      
        
        

      

      
        16

        
          

        

      

       

    

    Schedule
      2

    Permitted
      Liens

    

    None.

    
      
        
        

      

      
        17

        
          

        

      

       

    

    Schedule
      7(c)

    Actions
      With Respect to Liens

     

    (f)  Uniform
      Commercial Code Filings

    

    1. 
      The filing of a UCC-1 Financing Statement with the Secretary of State of the
      State of Nevada naming American Technologies Group, Inc. as debtor, Laurus
      Master Fund, Ltd. as secured party and listing all the assets of American
      Technologies Group, Inc. as collateral.

    

    2. 
      The filing of a UCC-1 Financing Statement with the Secretary of State of the
      State of Delaware naming Omaha Holdings Corp. as debtor, Laurus Master Fund,
      Ltd. as secured party and listing all the assets of Omaha Holdings Corp. as
      collateral.

    

    3. 
      The filing of a UCC-1 Financing Statement with the Secretary of State of the
      State of Texas naming North Texas Steel Company, Inc. as debtor, Laurus Master
      Fund, Ltd. as secured party and listing all the assets of North Texas Steel
      Company, Inc. as collateral.

     

    Intellectual
      Property Filings

     

    Filing
      of
      Intellectual Property Security Agreement in the US Patent and Trademark Office
      against American Technologies Group, Inc. with respect to the trademarks listed
      therein.

     

    
      
        
        

      

      
        18

        
          

        

      

       

    

    Schedule
      7(p)

    Bank
      and Other Financial Institutions

    

    American
      Technologies Group, Inc.

    

    Name
      of
      bank: Bank of America

    Address:
      230
      S.
      Mountain Avenue, Monrovia, CA  91016

    Telephone
      number: 626-453-8400

    Name
      in
      which account is held: American Technologies Group, Inc.

    Purpose
      of account: operating account

    Complete
      account number: 02302-11467

    

    Name
      of
      bank: FBR Fund for Government Investors

    Address:
      PO Box 5354, Cincinnati Ohio 45273-9704

    Telephone
      number: 888-888-0025

    Name
      in
      which account is held: American Technologies Group, Inc.

    Purpose
      of account: operating account

    Complete
      account number: 31-1630540

    

    North
      Texas Steel Company, Inc.

    

    Name
      of
      bank: Frost National Bank

    Address:
      PO Box 16509, Fort Worth, TX 76162; 77 Main St., Forth Worth, TX
      76102

    Telephone
      number: 817-420-5200

    Name
      in
      which account is held: North Texas Steel Company, Inc.

    Purpose
      of account: Operating

    Complete
      account number: 65-0002410

    

    OTHER
      ACCOUNTS AT FROST BANK:

    Payroll
      Tax Account: 65-00023767

    Payroll
      Account: 65-0023930

    

    Frost
      Brokerage Services, Inc.

    100
      West
      Houston Street

    PO
      Box
      2358

    San
      Antonio, TX 78299

    Telephone:
      1-800-292-1292

    H9H-009067:
      North Texas Steel Company, Inc.

    0672-0791397524:
      Dreyfus Govt Cash Inv.

    THESE
      ACCOUNTS ARE USED FOR WORKING CAPITAL

    

    
      
        
        

      

      
        19

        
          

        

      

       

    

    Schedule
      12(b)

    Subsidiaries

    

    Omaha
      Holdings Corp.

    100%
      owned by American Technologies Group, Inc.

    

    North
      Texas Steel Company, Inc.

    100%
      owned by Omaha Holdings Corp.

    

    Whitco
      Poles, Inc.

    100%
      owned by North Texas Steel Company, Inc.

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    Schedule
      12(c)

    Capitalization

     

    

    Omaha
      Holdings Corp.

    

    10,000,000
      shares of common stock and 250,000 shares of preferred stock authorized. One
      share of common stock outstanding. No shares of preferred stock
      outstanding.

    

    North
      Texas Steel Company, Inc.

    

    3,000
      shares of common stock authorized; 2673 issued and outstanding.

    
      
        
        

      

      
        21

        
          

        

      

       

    

    

    Schedule
      12(f)

    Agreements;
      Actions

    

    None.

    
      
        
        

      

      
        22

        
          

        

      

       

    

    Schedule
      12(g)

    Obligations
      to Related Parties

    

    None

    
      
        
        

      

      
        23

        
          

        

      

       

    

    Schedule
      12(i)

    Title
      to Properties and Assets; Liens, etc.

    

    None

     

    
      
        
        

      

      
        24

        
          

        

      

       

    

    Schedule
      12(l)

    Litigation

    

    None

    
      
        
        

      

      
        25

        
          

        

      

       

    

    Schedule
      12(m)

    Tax
      Returns and Payments

    

    
      None.

    
      
        
        

      

      
        26

        
          

        

      

       

    

    Schedule
      12(n)

    Employees

     

    American
      Technologies Group, Inc.

    

    None.
      

    

    North
      Texas Steel Company, Inc.

    

    List
      of
      Benefit Plans:

    

    
      	
              1.

            	
              
                North
                  Texas Steel Company, Inc. Pension Plan; while this Plan has not
                  terminated, the Plan, effective October 31, 2004, was frozen, such
                  that
                  all benefit accruals under the Plan ceased on October 31,
                  2004;

              

            

    

    

    
      	2.	
              North
                Texas Steel Company, Inc. Deferred Profit Sharing
                Plan;

            

    

    

    
      	
              3.

            	
              North
                Texas Steel Company, Inc. Group Accident and Health Insurance Policy,
                a
                contract between Aetna Life Insurance Company and North Texas Steel
                Company, Inc., Policy Number GP-667260, issued April 21,
                2005;

            

    

    

    
      	
              4.

            	
              North
                Texas Steel Co., Inc. Cafeteria Plan; included within the document
                establishing such Plan is a Depended Care Reimbursement Plan and
                a Medical
                Care Expense Reimbursement Plan;

            

    

    

    
      	
              5.

            	
              North
                Texas Steel Company Group Life Insurance Plan through American United
                Life
                Insurance Company , Group Policy Number 00606346-0000-000, effective
                date,
                May 1, 2005;

            

    

    

    
      	
              6.

            	
              North
                Texas Steel Company Group Voluntary Term Life Insurance through American
                United Life Insurance Company, Policy Number FC/01090/VTL/01 for
                employees
                in Class 001 [All Eligible Full-Time Semi-Month Paid] and Policy
                Number
                FC/1091VTL/02 for employees in Class 002 [All Eligible Full-Time
                Weekly
                Paid Employees] Note:
                the coverages provided under these policies are noncontributory on
                the
                part of the Company, and are made available to eligible employees
                who
                voluntarily wish to participate by way of their own employee
                contributions;

            

    

    

    
      	
              7.

            	
              American
                United Life Insurance Company Group Disability Policy Number VD1B,
                Group
                Voluntary Disability Insurance, Participating Unit Number: G
                0063416-0000-000; Note:
                this plan is noncontributory on the part of the Company, and is made
                available to employees who voluntarily wish to participate by way
                of their
                own employee contributions, offering two separate employee classes
                (Class
                001 and Class 002) to select between two different Schedule of Benefits
                (Plan Number 01 and Plan Number 02)

            

    

    
      
        
        

      

      
        27

        
          

        

      

       

    

    

    
      	
              8.

            	
              North
                Texas Steel Dental Select Plan offered through ACE USA, Policy Number
                79040001; Note:
                this plan is noncontributory on the part of North Texas Steel Company,
                and
                is made available to employees who voluntarily wish to participate
                by way
                of their own employee
                contributions;

            

    

    

    
      	
              9.

            	
              The
                Company maintains no formal “personnel policies and procedures” for its
                employees, although the Company:

            

    

    

    A. Maintains
      a separate policy titled, “Drug and Alcohol Abuse and Testing Policy of North
      Texas Steel Company”;

    

    B. Provides
      each new employee a letter summarizing certain employee benefits in a form
      substantially as attached to this Disclosure Schedule; and

    

    C. Provides
      an “Employee Safety Guide” for those employees working in Company’s
      Shop;

    

    10. Payroll
      Practices/Method of Compensation. Methods and rates of compensation for each
      employee listing, for example, job classification, full/part-time status; hourly
      vs. salary; and frequency of payroll are maintained by the Company, and a
      current listing of such methods and rate for the Company’s employees has been
      made available to the Buyer.

    
      
        
        

      

      
        28

        
          

        

      

       

    

    Schedule
      12(o)

    Registration
      Rights and Voting Rights

     

    American
      Technologies Group, Inc. has agreed to register for resale shares of its Common
      Stock in the amounts and to the persons or entities identified
      below:

     

    
      	
              Person/Entity
                to be Registered

            	 	
              Number
                of Shares

            	 
	
              Gryphon
                Master Fund, L.P.

            	 	 	
              4,555,690

            	 
	
              GSSF
                Master Fund LP

            	 	 	
              4,555,690

            	 
	
              Nite
                Capital LP

            	 	 	
              449,991

            	 
	
              Charles
                and Patricia Matteson

            	 	 	
              1,963,506

            	 
	
              Luther
                Capital Management, Inc.

            	 	 	
              70,750

            	 
	
              Thomas
                E. Durkin, III

            	 	 	
              420,750

            	 
	
              Barbera
                Dritz Trust

            	 	 	
              350,000

            	 
	
              Mary
                Lou Anderson

            	 	 	
              275

            	 
	
              Michael
                Anderson

            	 	 	
              3,209

            	 
	
              Lawrence
                Brady

            	 	 	
              2,000

            	 
	
              BWN
                Nuchen Waste Elim

            	 	 	
              1,585

            	 
	
              Michael
                and Helena Kobin

            	 	 	
              10,134

            	 
	
              Yan
                Lin

            	 	 	
              6,662

            	 
	
              Yin
                Lo

            	 	 	
              6,411

            	 
	
              James
                Nicastro

            	 	 	
              8,256

            	 
	
              Chunsing
                Wang

            	 	 	
              8,326

            	 
	
              John
                Barringer

            	 	 	
              386

            	 
	
              Robert
                Dabney Eastham

            	 	 	
              1,377

            	 
	
              KNF
                Corporation

            	 	 	
              4,743

            	 
	
              Philip
                J. Carcara

            	 	 	
              79

            	 
	
              Gene
                H. Shoda

            	 	 	
              157

            	 
	
              Denis
                McCarthy

            	 	 	
              930

            	 
	
              Cliff
                Kennedy

            	 	 	
              930

            	 
	
              Bernadette
                Walsh

            	 	 	
              930

            	 
	
              Yvonne
                McKeown

            	 	 	
              930

            	 
	
              Merrill
                Communications, LLC

            	 	 	
              784

            	 
	
              Mountain
                Partners, LLC

            	 	 	
              6,738

            	 
	
              Otto
                Jeffrey

            	 	 	
              385

            	 
	
              Lawrence
                W. Schad

            	 	 	
              267

            	 
	
              Kyle
                J. Sikorsky

            	 	 	
              3,334

            	 
	
              Robert
                & Rogga Sikorsky

            	 	 	
              4,238

            	 
	
              I-Chu
                Lin

            	 	 	
              451

            	 
	
              The
                Spectrum Group

            	 	 	
              1,283

            	 
	
              Robert
                C. Thompson W.J. Byrnes & Co.

            	 	 	
              219

            	 
	
              Roger
                Pay Worldwide Scientific Pub Co.

            	 	 	
              65

            	 
	
              US
                Filter

            	 	 	
              79

            	 

    

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    Schedule
      12(q)

    Environmental
      and Safety Laws

    

    North
      Texas Steel Company, Inc.

    

    Hazardous
      material 

    

    Asbestos
      in floor tiles at the 4410 Marsalis location was reported in a Phase I Site
      Assessment dated March 27,2 005, performed by Ben B. Boothe, Certified
      Environmental Inspector (“CEI”). CEI reported in a letter dated July 7, 2005
      that the floor tile has been covered with new tile, as suggested by
      CEI.

     

    
      
        
        

      

      
        30

        
          

        

      

       

    

    Schedule
      12(u)

    SEC
      Reports and Financial Statements

    

    None.

    
      
        
        

      

      
        31

        
          

        

      

       

    

    Schedule
      12(aa)

    Company
      Name; Location of Offices, Records and Collateral

    

    
      	
              American
                Technologies Group, Inc.

            
	
              Entity:
                

            	
              Nevada
                Corporation

            
	
              
                Chief
                  Executive Office:

              

            	
              
                110
                  Wall Street, NY, NY 10005

              

            
	
              Organization
                ID:

            	
              NVC7732-1988

            
	 	 
	
              Omaha
                Holdings Corp.

            	 
	
              Entity:
                

            	
              Delaware
                Corporation

            
	
              
                Chief
                  Executive Office: 

              

            	
              450
                Las Olas Blvd., Suite 1100

            
	 	
              Ft
                Lauderdale, FL 33301

            
	
              Organization
                ID:

            	
              DE4006170

            
	 	 
	
              North
                Texas Steel Company, Inc.

            
	
              Entity:
                

            	
              Texas
                Corporation

            
	
              
                Chief
                  Executive Office:

              

            	
              412
                Bolt St., Fort Worth, TX

            
	
              Organization
                ID:

            	
              TX0008622000

            

    

    

    Additional
      locations of North Texas Steel Company, Inc.:

     

    
      	·  	
              4001
                May St., Fort Worth, TX

            

    

     

    
      	·  	
              4000
                May St., Fort Worth, TX

            

    

     

    
      	·  	
              4410
                Marsalis St., Fort Worth, TX

            

    

     

    
      
        
        

      

      
        32

        
          

        

      

       

    

    Schedule
      12(bb)

    Locations
      of Collateral

    

    American
      Technologies Group, Inc.

    

    110
      Wall
      Street, NY, NY 10005 

    

    Omaha
      Holdings Corp.

    

    450
      Las
      Olas Blvd., Suite 1100

    Ft
      Lauderdale, FL 33301

    

    North
      Texas Steel Company, Inc.

    

    412
      Bolt
      St., Fort Worth, TX 

    4001
      May
      St., Fort Worth, TX

    4000
      May
      St., Fort Worth, TX

    4410
      Marsalis St., Fort Worth, TX

    
      
        
        

      

      
        33

        
          

        

      

       

    

    Schedule
      13(l)(i)

    Required
      Approvals

    

    None.

    
      
        
        

      

      
        34REAFFIRMATION
      AND RATIFICATION AGREEMENT

     

    January
      31, 2007

     

    Laurus
      Master Fund, Ltd.

    c/o
      Laurus Capital Management LLC

    825
      Third
      Avenue

    New
      York,
      New York 10022

     

    Ladies
      and Gentlemen:

     

    Reference
      is made to (a) the Limited Guaranty dated September 7, 2005 (as amended,
      restated, modified and/or supplemented from time to time, the “Luther
      Guaranty”)
      made
      by Michael Luther in favor of Laurus Master Fund, Ltd. (“Laurus”),
      (b)
      the Limited Guaranty dated September 7, 2005 (as amended, restated, modified
      and/or supplemented from time to time, the “Matteson
      Guaranty”)
      made
      by Patricia E. Matteson and Charles Matteson (collectively, the “Mattesons”)
      in
      favor of Laurus, (c) the Limited Guaranty dated September 7, 2005 (as amended,
      restated, modified and/or supplemented from time to time, the “Durkin
      Guaranty”)
      made
      by Thomas E. Durkin III in favor of Laurus, (d) the Stock Pledge Agreement
      dated
      as of September 7, 2005 (as amended, restated, modified and/or supplemented
      from
      time to time, the “Pledge
      Agreement”)
      by and
      among American Technologies Group, Inc., a Nevada corporation (“ATEG”),
      Omaha
      Holdings Corp., a Delaware corporation (“Omaha”),
      and
      Laurus, (e) the Intellectual Property Security Agreement dated as of September
      7, 2005 (as amended, restated, modified and/or supplemented from time to time,
      the “IP
      Agreement”)
      by and
      between ATEG and Laurus, (f) the Deed of Trust dated as of September 7, 2005
      (as
      amended, restated, modified and/or supplemented from time to time, the
“Deed
      of Trust”)
      granted by North Texas Steel Company, Inc., a Texas corporation (“NTSCO”
      together with ATEG and Omaha, each a “Company”
and
      collectively, the “Companies”),
      in
      favor of Charles A. Poche, Jr., Esq., in his capacity as trustee for the benefit
      of Laurus and (g) the Open End Mortgage Deed and Security Agreement dated as
      of
      September 7, 2005 (as amended, restated, modified and/or supplemented from
      time
      to time, the “Mortgage”)
      by and
      among the Mattesons and Laurus (the Luther Guaranty, the Matteson Guaranty,
      the
      Durkin Guaranty, the Pledge Agreement, the IP Agreement, the Deed of Trust
      and
      the Mortgage, each an “Existing
      Agreement”
and
      collectively, the “Existing
      Agreements”).

     

    To
      induce
      Laurus to enter into the Amended and Restated Security Agreement dated as of
      the
      date hereof by and among the Companies and Laurus (as amended, restated,
      supplemented and/or modified from time to time, the “A&R
      Security Agreement”)
      and
      the Ancillary Agreements (as defined in the A&R Security Agreement) (the
      A&R Security Agreement and the Ancillary Agreements, each an “A&R
      Agreement”
and
      collectively, the “A&R
      Agreements”),
      each
      of the undersigned hereby:

     

    (a) represents
      and warrants to Laurus that it has reviewed and approved the terms and
      provisions of the A&R Agreements; 

     

    (b) acknowledges,
      ratifies and confirms that all of the terms, conditions, representations and
      covenants contained in the Existing Agreements to which it is a party are in
      full force and effect and shall remain in full force and effect after giving
      effect to the execution and effectiveness of the A&R
      Agreements;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) acknowledges,
      ratifies and confirms that the defined term “Obligations” under the IP Agreement
      and the Deed of Trust and the defined term “Indebtedness” under the Pledge
      Agreement include, without limitation, all obligations and liabilities of each
      of the Companies to Laurus under the A&R Agreements and all other
      obligations and liabilities of each of the Companies to Laurus (including
      interest accruing after the filing of any petition in bankruptcy, or the
      commencement of any insolvency, reorganization or like proceeding, whether
      or
      not a claim for post-filing or post-petition interest is allowed or allowable
      in
      such proceeding), whether now existing or hereafter arising, direct or indirect,
      liquidated or unliquidated, absolute or contingent (collectively, the
“Obligations”);

     

    (d) acknowledges,
      ratifies and confirms that the defined term “Obligations” under the Luther
      Guaranty, the Matteson Guaranty and the Durkin Guaranty includes, without
      limitation, all obligations and liabilities of the Companies to Laurus with
      respect to Term Loan B under and as defined in the A&R Security Agreement
      (the “Term
      Loan B Obligations”);

     

    (e) acknowledges
      and confirms that the occurrence of an Event of Default under any of the
      Existing Agreements shall constitute an Event of Default under the A&R
      Agreements and (ii) the occurrence of an Event of Default under any of the
      A&R Agreements shall constitute an Event of Default under the Existing
      Agreements;

     

    (f) represents
      and warrants that no offsets, counterclaims or defenses exist as of the date
      hereof with respect to any of the undersigned’s obligations under any of the
      Existing Agreements;

     

    (g) acknowledges,
      ratifies and confirms (i) the grant by each Company to Laurus of a security
      interest and lien in the assets of such Company as more specifically set forth
      in the Pledge Agreement, the IP Agreement and the Deed of Trust, as applicable
      (the “Security
      Interest Grants”),
      and
      (ii) that the Security Interest Grants secure all the Obligations;

     

    (h) acknowledges,
      ratifies and confirms (i) the grant by the Mattesons of a security interest
      and
      lien in the Property (as defined in the Mortgage) as more specifically set
      forth
      in the Mortgage (the “Matteson
      Mortgage Grant”)
      and
      (ii) that the Matteson Mortgage Grant secures all the Term Loan B Obligations;
      and

     

    (i) releases,
      remises, acquits and forever discharges Laurus and Laurus’ employees, agents,
      representatives, consultants, attorneys, fiduciaries, officers, directors,
      partners, predecessors, successors and assigns, subsidiary corporations, parent
      corporations, and related corporate divisions (all of the foregoing hereinafter
      called the “Released
      Parties”),
      from
      any and all actions and causes of action, judgments, executions, suits, debts,
      claims, demands, liabilities, obligations, damages and expenses of any and
      every
      character, known or unknown, direct and/or indirect, at law or in equity, of
      whatsoever kind or nature, for or because of any matter or things done, omitted
      or suffered to be done by any of the Released Parties prior to and including
      the
      date of execution hereof, and in any way directly or indirectly arising out
      of
      or in any way connected to this Reaffirmation and Ratification Agreement, the
      Existing Agreements and the A&R Agreements and any other document,
      instrument or agreement made by any of the undersigned in favor of
      Laurus.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    This
      Reaffirmation and Ratification Agreement shall be governed by and construed
      in
      accordance with the laws of the State of New York.

     

    
      	 	
              Very
                truly yours,

            
	 	 	 
	 	
              AMERICAN
                TECHNOLOGIES GROUP, INC.

            
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
Name:
	 	Title: 

       

      
        	 	 	 
	 	
                OMAHA
                  HOLDINGS CORP.

              
	 
 	 
 	 
 
	
              	By:  	
              
	 	
                
Name:
	 	Title: 

         

        
          	 	 	 
	 	
                  NORTH
                    TEXAS STEEL COMPANY, INC.

                
	 
 	 
 	 
 
	
                	By:  	
                
	 	
                  
Name:
	 	Title: 

        

        
           

          
            	 	 	 
	 	
                    
                      
Michael
                      Luther, Individually

                  
	
                  	 	
                  

          

          
            
               

              
                	 	 	 
	 	
                        
                          
Patricia
                          E. Matteson, Individually

                      
	
                      	 	
                      

              

              
                
                   

                  
                    	 	 	 
	 	
                            
                              

                              Charles
                                Matteson, Individually

                            

                          
	
                          	 	
                          

                  

                  
                    
                       

                      
                        	 	 	 
	 	
                                
                                  
Thomas
                                  E. Durkin III, Individually

                              
	
                              	 	
                              

                      

                       

                      
                        
                          
                          

                        

                        
                          
                          

                          
                            

                          

                        

                        
                          
                          

                        

                      

                    

                  

                

              

            

          

        

         

      

    

    ACCEPTED
      AND AGREED TO:

     

    LAURUS
      MASTER FUND, LTD.

     

    By:  

    
      

    

    Name: 

    Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00116-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00116-of-00352.parquet"}]]