Document:

EXHIBIT
      10.1

    

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of April 28, 2006 among DOBI Medical International, Inc., a Delaware
      corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”).

     

    WHEREAS,
      subject to the terms and conditions set forth in this Agreement and pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506 promulgated thereunder, the Company desires to issue and sell to each
      Purchaser, and each Purchaser, severally and not jointly, desires to purchase
      from the Company, securities of the Company as more fully described in this
      Agreement.

     

    NOW,
      THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
      and for other good and valuable consideration the receipt and adequacy of which
      are hereby acknowledged, the Company and each Purchaser agree as
      follows:

     

    ARTICLE
      I. 

    DEFINITIONS

     

    1.1  Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Debentures (as defined herein), and (b) the following terms have the
      meanings indicated in this Section 1.1:

     

    “Action”
shall
      have the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate”
means
      any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by or is under common control with a Person, as such
      terms are used in and construed under Rule 144 under the Securities
      Act.
      With
      respect to a Purchaser, any investment fund or managed account that is managed
      on a discretionary basis by the same investment manager as such Purchaser will
      be deemed to be an Affiliate of such Purchaser.

     

    “Business
      Day”
means
      any day except Saturday, Sunday, any day which shall be a federal legal holiday
      in the United States or any day on which banking institutions or trust companies
      in the State of New York or the State of Delaware are authorized or required
      by
      law or other governmental action to close.

     

    “Charter
      Amendment”
shall
      have the meaning set forth in Section 4.19.

     

    “Closing
      Dates”
means,
      collectively, the dates of the First Closing and Second Closing.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    “Closing(s)”
means
      the closing(s) of the purchase and sale of the Securities pursuant to Section
      2.1.

     

    “Commission”
means
      the U.S. Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock, par value $.00001 per share, of the Company, and any other
      class of securities into which such securities may hereafter be reclassified
      or
      changed into.

     

    “Common
      Stock Equivalents”
means
      any securities of the Company or the Subsidiaries which would entitle the holder
      thereof to acquire at any time Common Stock, including, without limitation,
      any
      debt, preferred stock, rights, options, warrants or other instrument that is
      at
      any time convertible into or exercisable or exchangeable for, or otherwise
      entitles the holder thereof to receive, Common Stock.

     

    “Company
      Counsel”
means
      Greenberg Traurig, LLP.

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Debentures.

     

    “Debentures”
means
      the Convertible Debentures due, subject to the terms therein, 16 months from
      their date of issuance, issued by the Company to the Purchasers hereunder,
      in
      the form of Exhibit
      A
      hereto.

     

    “Disclosure
      Schedules”
shall
      have the meaning ascribed to such term in Section 3.1.

     

    “Effective
      Date”
means
      the date that a Registration Statement required to be filed by the Company
      pursuant to the Registration Rights Agreement is first declared effective by
      the
      Commission.

     

    “Evaluation
      Date”
shall
      have the meaning ascribed to such term in Section 3.1(r). 

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

    

    “Exempt
      Issuance”
means
      the issuance of (a) up to 10,000,000 shares of Common Stock or options in any
      12
      month period to employees, officers or directors of the Company pursuant to
      any
      stock or option plan duly adopted by a majority of the members of the Board
      of
      Directors of the Company or a majority of the members of a committee of
      directors established for such purpose, (b) securities upon the exercise or
      exchange of or conversion of any Securities issued hereunder and/or other
      securities exercisable or exchangeable for or convertible into shares of Common
      Stock issued and outstanding on the date of this Agreement, provided that such
      securities have not been amended since the date of this Agreement to increase
      the number of such securities or to decrease the exercise, exchange or
      conversion price of any such securities, (c) up to 16,350,000 warrants to
      purchase shares of Common Stock and such underlying shares issued in connection
      with the Company’s offer to all accredited warrant holders to reset the exercise
      price of the Company’s outstanding warrants and, if such warrants are exercised,
      issue replacement warrants to such holders, pursuant to the terms of the
      Company’s notice to warrant holders, dated March 20, 2006, and amended April 19,
      2006 (the “Warrant
      Reset Transaction”),
      (d)
      warrants and options to purchase up to 2,000,000 shares of Common Stock, in
      the
      aggregate, in any 12 month period issued to third party vendors and independent
      consultants of the Company for bona fide services rendered in the ordinary
      course of the Company’s business consistent with past practice that are approved
      by a majority of directors, provided the effective price and exercise or
      conversion price per share at which such warrants, options and underlying shares
      are issued at shall be equal to at least the VWAP of the Common Stock in the
      Trading Day immediately prior to the date such securities are issued and are
      exercisable or convertible (based on, with respect to the issuance price of
      such
      securities, the fair market value of the goods and/or services provided by
      such
      vendors or consultants as determined in good faith by the board of directors
      of
      the Company, and, with respect to the exercise or conversion price, the price
      at
      which such securities are convertible into, exchangeable, exercisable for,
      shares of Common Stock) and (e) securities issued pursuant to acquisitions
      or
      strategic transactions approved by a majority of the disinterested directors,
      provided any such issuance shall only be to a Person which is, itself or through
      its subsidiaries, an operating company in a business synergistic with the
      business of the Company and in which the Company receives benefits in addition
      to the investment of funds, but shall not include a transaction in which the
      Company is issuing securities primarily for the purpose of raising capital
      or to
      an entity whose primary business is investing in securities.

    

    
      
        
        

      

      
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    “FW”
means
      Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620,
      New York, New York 10170-0002.

    

    “GAAP”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    “Intellectual
      Property Rights”
shall
      have the meaning ascribed to such term in Section 3.1(o).

     

    “Legend
      Removal Date”
shall
      have the meaning ascribed to such term in Section 4.1(c). 

     

    “Liens”
means
      a
      lien, charge, security interest, encumbrance, right of first refusal, preemptive
      right or other restriction. 

     

    “Material
      Adverse Effect”
shall
      have the meaning assigned to such term in Section 3.1(b).

     

    “Material
      Permits”
shall
      have the meaning ascribed to such term in Section 3.1(m).

     

    “Maximum
      Rate”
shall
      have the meaning ascribed to such term in Section 5.17.

     

    
      
        
        

      

      
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    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Person”
means
      an individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or an agency or subdivision thereof) or other entity of any
      kind.

     

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Principal
      Amount”
shall
      mean, as to each Purchaser, the amounts set forth below such Purchaser’s
      signature block on the signature pages hereto and next to the heading “Principal
      Amount”, in United States Dollars, which shall equal such Purchaser’s
      Subscription Amount multiplied by 1.142857.

     

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an investigation or partial proceeding, such as a deposition),
      whether commenced or threatened.

     

    “Purchaser
      Party”
shall
      have the meaning ascribed to such term in Section 4.11.

     

    “Registration
      Rights Agreement”
means
      the Registration Rights Agreement, dated the date hereof, among the Company
      and
      the Purchasers, in the form of Exhibit
      B
      attached
      hereto.

     

    “Registration
      Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement and covering the resale of the Underlying Shares by each
      Purchaser as provided for in the Registration Rights Agreement.

     

    “Required
      Approvals”
shall
      have the meaning ascribed to such term in Section 3.1(e).

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all Warrants and Debentures, ignoring any conversion or exercise
      limits set forth therein, and assuming that the Conversion Price is at all
      times
      on and after the date of determination 50% of the then Conversion Price on
      the
      Trading Day immediately prior to the date of determination.

     

    “Rule
      144”
means
      Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same effect as
      such
      Rule.

     

    “SEC
      Reports”
shall
      have the meaning ascribed to such term in Section 3.1(h).

     

    
      
        
        

      

      
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    “Securities”
means
      the Debentures, the Warrants, the Warrant Shares and the Underlying
      Shares.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated hereunder. 

     

    “Security
      Agreement”
means
      the Security Agreement, dated the date hereof, among the Company and the
      Purchasers, in the form of Exhibit
      E
      attached
      hereto.

    

    “Security
      Documents”
shall
      mean the Security Agreement, the Subsidiary Guarantees and any other documents
      and filings required thereunder in order to grant the Purchasers a first
      priority security interest in the assets of the Company as provided in the
      Security Agreement, including all UCC-1 financing statement filing
      receipts.

    

    “Short
      Sales”
shall
      include all “short sales” as defined in Rule 200 of Regulation SHO under the
      Exchange Act (but shall not be deemed to include the location and/or reservation
      of borrowable shares of Common Stock). 

     

    “Subscription
      Amount”
      means,
      as
      to each Purchaser, the aggregate amount
      to be
      paid for Debentures and Warrants purchased hereunder as specified below such
      Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount”, in United States Dollars and in immediately available
      funds.

     

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.13.

     

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

     

    “Subsidiary”
means
      any subsidiary of the Company as set forth on Schedule
      3.1(a).

     

    “Subsidiary
      Guarantee”
means
      the Subsidiary Guarantee, dated the date hereof, among each of its Subsidiaries
      and the Purchasers, in the form of Exhibit
      F
      attached
      hereto.

     

    “Trading
      Day”
means
      a
      day on which the Common Stock is traded or quoted on a Trading
      Market.

     

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the Nasdaq Capital Market, the American
      Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
      the
      OTC Bulletin Board.

     

    “Transaction
      Documents”
means
      this Agreement, the Debentures, the Warrants, the Registration Rights Agreement,
      the Security Agreement, the Security Documents and any other documents or
      agreements executed in connection with the transactions contemplated
      hereunder.

     

    
      
        
        

      

      
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    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion or redemption
      of
      the Debentures and upon exercise of the Warrants. 

     

    “VWAP”
means,
      for any date, the price determined by the first of the following clauses that
      applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
      the daily volume weighted average price of the Common Stock for such date (or
      the nearest preceding date) on the Trading Market on which the Common Stock
      is
      then listed or quoted as reported by Bloomberg Financial L.P. (based on a
      Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)  if
      the OTC Bulletin Board is not a Trading Market, the volume weighted average
      price of the Common Stock for such date (or the nearest preceding date) on
      the
      OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on
      the
      OTC Bulletin Board and if prices for the Common Stock are then reported in
      the
“Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency
      succeeding to its functions of reporting prices), the most recent bid price
      per
      share of the Common Stock so reported; or (d) in all other cases, the fair
      market value of a share of Common Stock as determined by an independent
      appraiser selected in good faith by the Purchasers and reasonably acceptable
      to
      the Company.

     

    “Warrants”
means
      collectively the Common Stock purchase warrants, in the form of Exhibit C
      delivered to the Purchasers at the First Closing in accordance with Section
      2.2(a) hereof, which Warrants shall be exercisable immediately and have a term
      of exercise equal to three years (other than the Series C Warrants (as defined
      in Section 2.2(a) hereof), which shall expire the earlier of (i) the later
      of
      (x) December 31, 2006 or (y) the one month anniversary of the Effective Date
      of
      the Registration Statement that registers the Warrant Shares underlying such
      Warrants or (ii) the 13 month anniversary of their issuance).

     

    “Warrant
      Shares”
means
      the shares of Common Stock issuable upon exercise of the Warrants.

     

    ARTICLE
      II. 

    PURCHASE
      AND SALE

     

    2.1  Closing.
      The
      Company agrees to sell, and each Purchaser agrees, severally and not jointly,
      to
      purchase the respective Principal Amounts of the Debentures set forth below
      its
      name on the signature pages hereto. The Closings shall take place in two stages
      as set forth below (respectively, the “First
      Closing”
and
      the
“Second
      Closing”).
      Upon
      satisfaction of the conditions set forth in Section 2.2, each Closing shall
      occur at the offices of FW, or such other location as the parties shall mutually
      agree.

     

    (a)  First
      Closing.
      The
      First Closing shall be for up to $2,625,000 aggregate cash Subscription Amounts,
      and shall occur within 5 Trading Days of the date hereof.

     

    (b)  Second
      Closing.
      The
      Second Closing shall be for up to $2,625,000 aggregate cash Subscription
      Amounts, and shall occur on or before the 4th
      Trading
      Day following the initial Effective Date.

     

    
      
        
        

      

      
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    2.2  Deliveries

     

    .

     

    (a)  On
      each
      Closing Date (except as noted), the Company shall deliver or cause to be
      delivered to each Purchaser the following:

     

    (i)  as
      to the
      First Closing only, this Agreement duly executed by the Company;

     

    (ii)  a
      legal
      opinion of Company Counsel, in the form of Exhibit
      D
      attached
      hereto; 

     

    (iii)  a
      Debenture with a principal amount equal to such Purchaser’s Principal Amount as
      to the applicable Closing, registered in the name of such
      Purchaser;

     

    (iv)  as
      to the
      First Closing only, a Warrant (the “Series
      A Warrant(s)”)
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 100% of such Purchaser’s aggregate Principal Amount for
      both Closings divided by $0.08, with an exercise price equal to $0.15 per
      share,
      subject
      to adjustment therein;

     

    (v)  as
      to the
      First Closing only, a Warrant (the “Series
      B Warrant(s)”)
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 50% of such Purchaser’s aggregate Principal Amount for
      both Closings divided by $0.08, with an exercise price equal to $0.50 per
      share,
      subject
      to adjustment therein;

     

    (vi)  as
      to the
      First Closing only, a Warrant (the “Series
      C Warrant(s)”)
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 100% of such Purchaser’s aggregate Principal Amount for
      both Closings divided by $0.08, with an exercise price equal to
      $0.08,
      subject
      to adjustment therein; 

     

    (vii)  as
      to the
      First Closing only, the Security Agreement, duly executed by the Company, along
      with all the Security Documents, including the Subsidiary
      Guarantees;

     

    (viii)  as
      to the
      First Closing only, a lock-up agreement, in the form attached hereto as
Exhibit
      G,
      duly
      executed by all executive officers, directors and 10% stockholders of the
      Company; 

     

    (ix)  as
      to the
      First Closing only, a voting agreement, in the form attached hereto as
Exhibit
      H,
      duly
      executed by all officers, directors and 10% stockholders of the Company, to
      vote
      all Common Stock over which such Persons have voting control as of the record
      date for the meeting of shareholders of the Company in favor of the Charter
      Amendment, amounting to, in the aggregate, at least 50% of the issued and
      outstanding Common Stock; 

     

    
      
        
        

      

      
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    (x)  a
      certificate of an executive officer of the Company, dated as of the applicable
      Closing Date, confirming the accuracy of the Company’s representations,
      warranties and covenants as of such Closing Date and confirming the compliance
      by the Company with the conditions precedent set forth in Section 2.3(b) as
      of
      such Closing Date; and

     

    (xi)  as
      to the
      First Closing only, the Registration Rights Agreement duly executed by the
      Company.

     

    (b)  On
      each
      Closing Date (except as noted), each Purchaser shall deliver or cause to be
      delivered to the Company the following: 

     

    (i)  as
      to the
      First Closing, this Agreement duly executed by such Purchaser;

     

    (ii)  such
      Purchaser’s Subscription Amount as to the applicable Closing by wire transfer to
      the account as specified in writing by the Company; 

     

    (iii)  as
      to the
      First Closing, the Security Agreement duly executed by such Purchaser;
      and

     

    (iv)  as
      to the
      First Closing, the Registration Rights Agreement duly executed by such
      Purchaser.

     

    2.3  Closing
      Conditions. 

     

    (a)  The
      obligations of the Company hereunder in connection with each Closing are subject
      to the following conditions being met:

     

    (i)  the
      accuracy in all material respects when made and on each Closing Date of the
      representations and warranties of the Purchasers contained herein;

     

    (ii)  all
      obligations, covenants and agreements of the Purchasers required to be performed
      at or prior to each Closing Date shall have been performed in all material
      respects; and

     

    (iii)  the
      delivery by the Purchasers of the items set forth in Section 2.2(b) of this
      Agreement.

     

    (b)  The
      respective obligations of the Purchasers hereunder in connection with each
      Closing are subject to the following conditions being met:

     

    (i)  the
      accuracy in all material respects on each Closing Date of the representations
      and warranties of the Company contained herein;

     

    (ii)  all
      obligations, covenants and agreements of the Company required to be performed
      at
      or prior to each Closing Date shall have been performed in all material
      respects; 

     

    
      
        
        

      

      
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    (iii)  the
      delivery by the Company of the items set forth in Section 2.2(a) of this
      Agreement; 

     

    (iv)  the
      minimum aggregate Subscription Amount hereunder shall be at least
      $3,500,000;

     

    (v)  as
      to the
      Second Closing only, the Company shall have filed with the Commission a
      Registration Statement registering 150% of the Underlying Shares with respect
      to
      the Debentures and 120% of the Underlying Shares with respect to the Series
      C
      Warrants and such Registration Statement shall have been declared effective
      by
      the Commission as to all such securities and been maintained effective since
      such date;

     

    (vi)  as
      to the
      Second Closing only, the Charter Amendment shall have been approved and
      effective;

     

    (vii)  as
      of the
      applicable Closing Date there shall have been no Material Adverse Effect with
      respect to the Company since the date hereof; and

     

    (viii)  from
      the
      date hereof to each applicable Closing Date, trading in the Common Stock shall
      not have been suspended by the Commission or the Company’s principal Trading
      Market (except for any suspension of trading of limited duration agreed to
      by
      the Company, which suspension shall be terminated prior to the applicable
      Closing), and, at any time prior to the Closing Date, trading in securities
      generally as reported by Bloomberg Financial Markets shall not have been
      suspended or limited, or minimum prices shall not have been established on
      securities whose trades are reported by such service, or on any Trading Market,
      nor shall a banking moratorium have been declared either by the United States
      or
      New York State authorities nor shall there have occurred any material outbreak
      or escalation of hostilities or other national or international calamity of
      such
      magnitude in its effect on, or any material adverse change in, any financial
      market which, in each case, in the reasonable judgment of each Purchaser, makes
      it impracticable or inadvisable to purchase the Debentures at the applicable
      Closing.

     

    ARTICLE
      III. 

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1  Representations
      and Warranties of the Company.
      Except
      as set forth under the corresponding section of the disclosure schedules
      delivered to the Purchasers concurrently herewith (the “Disclosure
      Schedules”)
      which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby makes the representations and warranties set
      forth below to each Purchaser.

     

    
      
        
        

      

      
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    (a)  Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company are set forth on
Schedule
      3.1(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each Subsidiary free and clear of any Liens, and all the issued
      and
      outstanding shares of capital stock of each Subsidiary are validly issued and
      are fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities. If the Company has no subsidiaries, then
      all other references in the Transaction Documents to the Subsidiaries or any
      of
      them will be disregarded.

     

    (b)  Organization
      and Qualification.
      The
      Company and each of the Subsidiaries is an entity duly incorporated or otherwise
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its incorporation or organization (as applicable), with the
      requisite corporate power and authority to own and use its properties and assets
      and to carry on its business as currently conducted. Neither the Company nor
      any
      Subsidiary is in violation or default of any of the provisions of its respective
      certificate or articles of incorporation, bylaws or other organizational or
      charter documents. Each of the Company and the Subsidiaries is duly qualified
      to
      conduct business and is in good standing as a foreign corporation or other
      entity in each jurisdiction in which the nature of the business conducted or
      property owned by it makes such qualification necessary, except where the
      failure to be so qualified or in good standing, as the case may be, could not
      have or reasonably be expected to result in (i) a material adverse effect on
      the
      legality, validity or enforceability of any Transaction Document, (ii) a
      material adverse effect on the results of operations, assets, business, or
      financial condition of the Company and the Subsidiaries, taken as a whole,
      or
      (iii) a material adverse effect on the Company’s ability to perform in any
      material respect on a timely basis its obligations under any Transaction
      Document (any of (i), (ii) or (iii), a “Material
      Adverse Effect”)
      and no
      Proceeding has been instituted in any such jurisdiction revoking, limiting
      or
      curtailing or seeking to revoke, limit or curtail such power and authority
      or
      qualification.

     

    (c)  Authorization;
      Enforcement.
      The
      Company has the requisite corporate power and authority to enter into and to
      consummate the transactions contemplated by each of the Transaction Documents
      and otherwise to carry out its obligations hereunder and thereunder. The
      execution and delivery of each of the Transaction Documents by the Company
      and
      the consummation by it of the transactions contemplated hereby thereby have
      been
      duly authorized by all necessary action on the part of the Company and no
      further action is required by the Company, its board of directors or its
      stockholders in connection therewith other than in connection with the Required
      Approvals. Each Transaction Document has been (or upon delivery will have been)
      duly executed by the Company and, when delivered in accordance with the terms
      hereof and thereof, will constitute the valid and binding obligation of the
      Company enforceable against the Company in accordance with its terms except
      (i)
      as limited by general equitable principles and applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general application
      affecting enforcement of creditors’ rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies and (iii) insofar as indemnification and contribution
      provisions may be limited by applicable law.

     

    
      
        
        

      

      
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    (d)  No
      Conflicts.
      The
      execution, delivery and performance of the Transaction Documents by the Company
      and the consummation by the Company of the transactions contemplated hereby
      and
      thereby do not and will not: (i) conflict with or violate any provision of
      the
      Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
      or other organizational or charter documents, or (ii) conflict with, or
      constitute a default (or an event that with notice or lapse of time or both
      would become a default) under, result in the creation of any other Lien upon
      any
      of the properties or assets of the Company or any Subsidiary, or give to others
      any rights of termination, amendment, acceleration or cancellation (with or
      without notice, lapse of time or both) of, any agreement, credit facility,
      debt
      or other instrument (evidencing a Company or Subsidiary debt or otherwise)
      or
      other understanding to which the Company or any Subsidiary is a party or by
      which any property or asset of the Company or any Subsidiary is bound or
      affected, or (iii) subject to the Required Approvals, conflict with or result
      in
      a violation of any law, rule, regulation, order, judgment, injunction, decree
      or
      other restriction of any court or governmental authority to which the Company
      or
      a Subsidiary is subject (including federal and state securities laws and
      regulations), or by which any property or asset of the Company or a Subsidiary
      is bound or affected; except in the case of each of clauses (ii) and (iii),
      such
      as could not have or reasonably be expected to result in a Material Adverse
      Effect.

     

    (e)  Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.6
      of this Agreement, (ii) the filing with the Commission of the Registration
      Statement, (iii) the notice and/or application(s) to each applicable Trading
      Market for the issuance and sale of the Securities and the listing of the
      Underlying Shares for trading thereon in the time and manner required thereby
      and (iv) the filing of Form D with the Commission and such filings as are
      required to be made under applicable state securities laws (collectively, the
      “Required
      Approvals”).

     

    (f)  Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Underlying Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company. The Company has reserved from its duly
      authorized capital stock a number of shares of Common Stock for issuance of
      the
      Underlying Shares at least equal to the Required Minimum on the date hereof.
      

     

    (g)  Capitalization.
      The
      capitalization of the Company is as set forth on Schedule
      3.1(g).
      The
      Company has not issued any capital stock since its most
      recently filed periodic report under the Exchange Act,
      other
      than pursuant to the exercise of employee stock options under the Company’s
      stock option plans, the issuance of shares of Common Stock to employees pursuant
      to the Company’s employee stock purchase plan and pursuant to the conversion or
      exercise of Common Stock Equivalents outstanding as of the date of the most
      recently filed periodic report under the Exchange Act. No Person has any right
      of first refusal, preemptive right, right of participation, or any similar
      right
      to participate in the transactions contemplated by the Transaction Documents.
      Except as set forth on Schedule
      3.1(g)
      and as a
      result of the purchase and sale of the Securities, there are no outstanding
      options, warrants, script rights to subscribe to, calls or commitments of any
      character whatsoever relating to, or securities, rights or obligations
      convertible into or exercisable or exchangeable for, or giving any Person any
      right to subscribe for or acquire, any shares of Common Stock, or contracts,
      commitments, understandings or arrangements by which the Company or any
      Subsidiary is or may become bound to issue additional shares of Common Stock
      or
      Common Stock Equivalents. The issuance and sale of the Securities will not
      obligate the Company to issue shares of Common Stock or other securities to
      any
      Person (other than the Purchasers) and will not result in a right of any holder
      of Company securities to adjust the exercise, conversion, exchange or reset
      price under any of such securities. All of the outstanding shares of capital
      stock of the Company are validly issued, fully paid and nonassessable, have
      been
      issued in compliance with all federal and state securities laws, and none of
      such outstanding shares was issued in violation of any preemptive rights or
      similar rights to subscribe for or purchase securities. No further approval
      or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Securities. There are no
      stockholders agreements, voting agreements or other similar agreements with
      respect to the Company’s capital stock to which the Company is a party or, to
      the knowledge of the Company, between or among any of the Company’s
      stockholders.

     

    
      
        
        

      

      
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    (h)  SEC
      Reports; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by it under the Securities Act and the Exchange Act,
      including pursuant to Section 13(a) or 15(d) thereof, for the two years
      preceding the date hereof (or such shorter period as the Company was required
      by
      law or regulation to file such material) (the foregoing materials, including
      the
      exhibits thereto and documents incorporated by reference therein, being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Securities Act and the Exchange Act and the rules and
      regulations of the Commission promulgated thereunder, as applicable, and none
      of
      the SEC Reports, when filed, contained any untrue statement of a material fact
      or omitted to state a material fact required to be stated therein or necessary
      in order to make the statements therein, in light of the circumstances under
      which they were made, not misleading. The financial statements of the Company
      included in the SEC Reports comply in all material respects with applicable
      accounting requirements and the rules and regulations of the Commission with
      respect thereto as in effect at the time of filing. Such financial statements
      have been prepared in accordance with United States generally accepted
      accounting principles applied on a consistent basis during the periods involved
      (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated subsidiaries as of and
      for the dates thereof and the results of operations and cash flows for the
      periods then ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

     

    
      
        
        

      

      
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    (i)  Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report, (i) there
      has been no event, occurrence or development that has had or that could
      reasonably be expected to result in a Material Adverse Effect, (ii) the Company
      has not incurred any liabilities (contingent or otherwise) other than (A) trade
      payables and accrued expenses incurred in the ordinary course of business
      consistent with past practice and (B) liabilities not required to be reflected
      in the Company’s financial statements pursuant to GAAP or disclosed in filings
      made with the Commission, (iii) the Company has not altered its method of
      accounting, (iv) the Company has not declared or made any dividend or
      distribution of cash or other property to its stockholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock and (v) the Company has not issued any equity securities to any officer,
      director or Affiliate, except pursuant to existing Company stock option plans.
      The Company does not have pending before the Commission any request for
      confidential treatment of information. Except for the issuance of the Securities
      contemplated by this Agreement or as set forth on Schedule
      3.1(i),
      no
      event, liability or development has occurred or exists with respect to the
      Company or its Subsidiaries or their respective business, properties, operations
      or financial condition, that would be required to be disclosed by the Company
      under applicable securities laws at the time this representation is made that
      has not been publicly disclosed at least one Trading Day prior to the date
      that
      this representation is made.

     

    (j)  Litigation.
      Except
      as set forth on Schedule
      3.1(j),
      there is
      no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company, any Subsidiary or any of their respective properties before or by
      any
      court, arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or has been the subject of any Action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. There has not been, and to the knowledge of the
      Company, there is not pending or contemplated, any investigation by the
      Commission involving the Company or any current or former director or officer
      of
      the Company. The Commission has not issued any stop order or other order
      suspending the effectiveness of any registration statement filed by the Company
      or any Subsidiary under the Exchange Act or the Securities Act. 

     

    
      
        
        

      

      
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    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company, is imminent
      with respect to any of the employees of the Company which could reasonably
      be
      expected to result in a Material Adverse Effect. None of the Company’s or its
      Subsidiaries’ employees is a member of a union that relates to such employee’s
      relationship with the Company, and neither the Company or any of its
      Subsidiaries is a party to a collective bargaining agreement, and the Company
      and its Subsidiaries believe that their relationships with their employees
      are
      good. No executive officer, to the knowledge of the Company, is, or is now
      expected to be, in violation of any material term of any employment contract,
      confidentiality, disclosure or proprietary information agreement or
      non-competition agreement, or any other contract or agreement or any restrictive
      covenant, and the continued employment of each such executive officer does
      not
      subject the Company or any of its Subsidiaries to any liability with respect
      to
      any of the foregoing matters. The Company and its Subsidiaries are in compliance
      with all U.S. federal, state, local and foreign laws and regulations relating
      to
      employment and employment practices, terms and conditions of employment and
      wages and hours, except where the failure to be in compliance could not,
      individually or in the aggregate, reasonably be expected to have a Material
      Adverse Effect.

     

    (l)  Compliance.
      Neither
      the Company nor any Subsidiary (i) is in default under or in violation of (and
      no event has occurred that has not been waived that, with notice or lapse of
      time or both, would result in a default by the Company or any Subsidiary under),
      nor has the Company or any Subsidiary received notice of a claim that it is
      in
      default under or that it is in violation of, any indenture, loan or credit
      agreement or any other agreement or instrument to which it is a party or by
      which it or any of its properties is bound (whether or not such default or
      violation has been waived), (ii) is in violation of any order of any court,
      arbitrator or governmental body, or (iii) is or has been in violation of any
      statute, rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its business
      and all such laws that affect the environment, except in each case as could
      not
      have or reasonably be expected to result in a Material Adverse
      Effect.

     

    (m)  Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      SEC Reports, except where the failure to possess such permits could not have
      or
      reasonably be expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

    (n)  Title
      to Assets.
      The
      Company and the Subsidiaries have good and marketable title in fee simple to
      all
      real property owned by them that is material to the business of the Company
      and
      the Subsidiaries and good and marketable title in all personal property owned
      by
      them that is material to the business of the Company and the Subsidiaries,
      in
      each case free and clear of all Liens, except for Liens as do not materially
      affect the value of such property and do not materially interfere with the
      use
      made and proposed to be made of such property by the Company and the
      Subsidiaries and Liens for the payment of federal, state or other taxes, the
      payment of which is neither delinquent nor subject to penalties. Any real
      property and facilities held under lease by the Company and the Subsidiaries
      are
      held by them under valid, subsisting and enforceable leases with which the
      Company and the Subsidiaries are in compliance.

     

    
      
        
        

      

      
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    (o)  Patents
      and Trademarks.
      To the
      best knowledge of the Company and each Subsidiary, after due inquiry and review,
      the Company and the Subsidiaries have, or have rights to use, all patents,
      patent applications, trademarks, trademark applications, service marks, trade
      names, trade secrets, inventions, copyrights, licenses and other intellectual
      property rights and similar rights necessary or material for use in connection
      with their respective businesses as described in the SEC Reports and which
      the
      failure to so have could reasonably have a Material Adverse Effect
      (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a notice (written or
      otherwise) that the Intellectual Property Rights used by the Company or any
      Subsidiary violates or infringes upon the rights of any Person. To the knowledge
      of the Company, all such Intellectual Property Rights are enforceable and there
      is no existing infringement by another Person of any of the Intellectual
      Property Rights. The Company and its Subsidiaries have taken reasonable security
      measures to protect the secrecy, confidentiality and value of all of their
      intellectual properties, except where failure to do so could not, individually
      or in the aggregate, reasonably be expect to have a Material Adverse
      Effect.

     

    (p)  Insurance.
      Except
      as set forth on Schedule
      3.1(p),
      the
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, including, but not limited to, directors and officers insurance
      coverage at least equal to the aggregate Subscription Amount. Neither the
      Company nor any Subsidiary has any reason to believe that it will not be able
      to
      renew its existing insurance coverage as and when such coverage expires or
      to
      obtain similar coverage from similar insurers as may be necessary to continue
      its business without a significant increase in cost.

     

    (q)  Transactions
      With Affiliates and Employees.
      Except
      as set forth in the SEC Reports, none of the officers or directors of the
      Company and, to the knowledge of the Company, none of the employees of the
      Company is presently a party to any transaction with the Company or any
      Subsidiary (other than for services as employees, officers and directors),
      including any contract, agreement or other arrangement providing for the
      furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Company, any entity in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner, in each case in excess of $60,000
      other than (i) for payment of salary or consulting fees for services rendered,
      (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
      for
      other employee benefits, including stock option agreements under any stock
      option plan of the Company.

     

    
      
        
        

      

      
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    (r)  Sarbanes-Oxley;
      Internal Accounting Controls.
      The
      Company is in material compliance with all provisions of the Sarbanes-Oxley
      Act
      of 2002 which are applicable to it as of the applicable Closing Date.
The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that information required to be disclosed by the Company in the
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms. The Company’s certifying officers have evaluated the
      effectiveness of the Company’s disclosure controls and procedures as of the end
      of the period covered by the Company’s most recently filed periodic report under
      the Exchange Act (such date, the “Evaluation
      Date”).
      The
      Company presented in its most recently filed periodic report under the Exchange
      Act the conclusions of the certifying officers about the effectiveness of the
      disclosure controls and procedures based on their evaluations as of the
      Evaluation Date. Since the Evaluation Date, there have been no changes in the
      Company’s internal control over financial reporting (as such term is defined in
      the Exchange Act) that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.

     

    (s)  Certain
      Fees.
      Except
      for amounts payable to C.E. Unterberg Towbin as set forth on Schedule
      3.1(s),
      no
      brokerage or finder’s fees or commissions are or will be payable by the Company
      to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by the Transaction Documents. The Purchasers shall have no
      obligation with respect to any fees or with respect to any claims made by or
      on
      behalf of other Persons for fees of a type contemplated in this Section that
      may
      be due in connection with the transactions contemplated by the Transaction
      Documents. 

     

    (t)  Private
      Placement.
      Assuming the accuracy of the Purchasers representations and warranties set
      forth
      in Section 3.2, no registration under the Securities Act is required for the
      offer and sale of the Securities by the Company to the Purchasers as
      contemplated hereby. The issuance and sale of the Securities hereunder does
      not
      contravene the rules and regulations of the Trading Market.

     

    (u)  Investment
      Company.
      The
      Company is not, and is not an Affiliate of, and immediately after receipt of
      payment for the Securities, will not be or be an Affiliate of, an “investment
      company” within the meaning of the Investment Company Act of 1940, as amended.
      The Company shall conduct its business in a manner so that it will not become
      subject to the Investment Company Act.

     

    
      
        
        

      

      
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    (v)  Registration
      Rights.
      Except
      as set forth on Schedule
      3.1(v),
      other
      than each of the Purchasers, no Person has any right to cause the Company to
      effect the registration under the Securities Act of any securities of the
      Company.

     

    (w)  Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to, or which to
      its
      knowledge is likely to have the effect of, terminating the registration of
      the
      Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      The Company has not, in the 12 months preceding the date hereof, received notice
      from any Trading Market on which the Common Stock is or has been listed or
      quoted to the effect that the Company is not in compliance with the listing
      or
      maintenance requirements of such Trading Market. The Company is, and has no
      reason to believe that it will not in the foreseeable future continue to be,
      in
      compliance with all such listing and maintenance requirements.

     

    (x)  Application
      of Takeover Protections.
      The
      Company and its Board of Directors have taken all necessary action, if any,
      in
      order to render inapplicable any control share acquisition, business
      combination, poison pill (including any distribution under a rights agreement)
      or other similar anti-takeover provision under the Company’s Certificate of
      Incorporation (or similar charter documents) or the laws of its state of
      incorporation that is or could become applicable to the Purchasers as a result
      of the Purchasers and the Company fulfilling their obligations or exercising
      their rights under the Transaction Documents, including without limitation
      the
      Company’s issuance of the Securities and the Purchasers’ ownership of the
      Securities.

     

    (y)  Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, nonpublic information. The Company understands and
      confirms that the Purchasers will rely on the foregoing representation in
      effecting transactions in securities of the Company. All disclosure furnished
      by
      or on behalf of the Company to the Purchasers regarding the Company, its
      business and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, with respect to the representations and warranties
      made herein are true and correct with respect to such representations and
      warranties and do not contain any untrue statement of a material fact or omit
      to
      state any material fact necessary in order to make the statements made therein,
      in light of the circumstances under which they were made, not misleading. The
      Company acknowledges and agrees that no Purchaser makes or has made any
      representations or warranties with respect to the transactions contemplated
      hereby other than those specifically set forth in Section 3.2
      hereof.

     

    (z)  No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, neither the Company, 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 this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provision of any Trading Market on which any
      of
      the securities of the Company are listed or designated.

     

    
      
        
        

      

      
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    (aa)  Solvency.
      Based
      on the financial condition of the Company as of the applicable Closing Date
      after giving effect to the receipt by the Company of the proceeds from the
      sale
      of the Securities hereunder, (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business as now conducted and as
      proposed to be conducted including its capital needs taking into account the
      particular capital requirements of the business conducted by the Company, and
      projected capital requirements and capital availability thereof; and (iii)
      the
      current cash flow of the Company, together with the proceeds the Company would
      receive, were it to liquidate all of its assets, after taking into account
      all
      anticipated uses of the cash, would be sufficient to pay all amounts on or
      in
      respect of its liabilities when such amounts are required to be paid. The
      Company does not intend to incur debts beyond its ability to pay such debts
      as
      they mature (taking into account the timing and amounts of cash to be payable
      on
      or in respect of its debt). The Company has no knowledge of any facts or
      circumstances which lead it to believe that it will file for reorganization
      or
      liquidation under the bankruptcy or reorganization laws of any jurisdiction
      within one year from the applicable Closing Date. Schedule
      3.1(aa)
      sets
      forth as of the dates thereof all outstanding secured and unsecured Indebtedness
      of the Company or any Subsidiary, or for which the Company or any Subsidiary
      has
      commitments. For the purposes of this Agreement, “Indebtedness”
shall
      mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $50,000 due under leases required to be capitalized in accordance
      with GAAP. Neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

    (bb)  Tax
      Status.
      Except
      for matters that would not, individually or in the aggregate, have or reasonably
      be expected to result in a Material Adverse Effect, the Company and each
      Subsidiary has filed all necessary federal, state and foreign income and
      franchise tax returns and has paid or accrued all taxes shown as due thereon,
      and the Company has no knowledge of a tax deficiency which has been asserted
      or
      threatened against the Company or any Subsidiary.

     

    (cc)  No
      General Solicitation.
      Neither
      the Company nor any person acting on behalf of the Company has offered or sold
      any of the Securities by any form of general solicitation or general
      advertising. The Company has offered the Securities for sale only to the
      Purchasers and certain other “accredited investors” within the meaning of Rule
      501 under the Securities Act.

     

    
      
        
        

      

      
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    (dd)  Foreign
      Corrupt Practices.
      Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any funds
      for unlawful contributions, gifts, entertainment or other unlawful expenses
      related to foreign or domestic political activity, (ii) made any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic political parties or campaigns from corporate funds, (iii)
      failed to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in violation
      of law, or (iv) violated in any material respect any provision of the Foreign
      Corrupt Practices Act of 1977, as amended.

     

    (ee)  Accountants.
      The
      Company’s accountants are set forth on Schedule
      3.1(ee)
      of the
      Disclosure Schedule. To the knowledge of the Company, such accountants, who
      the
      Company expects will express their opinion with respect to the financial
      statements to be included in the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2006 are an independent registered public accounting
      firm as required by the Securities Act.

     

    (ff)  Seniority.
      As of
      the applicable Closing Date, no Indebtedness or other claim against the Company
      is senior to the Debentures in right of payment, whether with respect to
      interest or upon liquidation or dissolution, or otherwise, other than
      indebtedness secured by purchase money security interests (which is senior
      only
      as to underlying assets covered thereby) and capital lease obligations (which
      is
      senior only as to the property covered thereby).

     

    (gg)  No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company and the Company is current with
      respect to any fees owed to its accountants and lawyers.

     

    (hh)  Acknowledgment
      Regarding Purchasers’ Purchase of Securities.
      The
      Company acknowledges and agrees that each of the Purchasers is acting solely
      in
      the capacity of an arm’s length purchaser with respect to the Transaction
      Documents and the transactions contemplated thereby. The Company further
      acknowledges that no Purchaser is acting as a financial advisor or fiduciary
      of
      the Company (or in any similar capacity) with respect to the Transaction
      Documents and the transactions contemplated thereby and any advice given by
      any
      Purchaser or any of their respective representatives or agents in connection
      with the Transaction Documents and the transactions contemplated thereby is
      merely incidental to the Purchasers’ purchase of the Securities. The Company
      further represents to each Purchaser that the Company’s decision to enter into
      this Agreement and the other Transaction Documents has been based solely on
      the
      independent evaluation of the transactions contemplated hereby by the Company
      and its representatives.

     

    
      
        
        

      

      
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    (ii)  Acknowledgement
      Regarding Purchasers’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
      by the Company (i) that none of the Purchasers have been asked to agree, nor
      has
      any Purchaser agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or “derivative” securities based on securities issued
      by the Company or to hold the Securities for any specified term; (ii) that
      past
      or future open market or other transactions by any Purchaser, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock, and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding, including, without limitation, during the periods
      that the value of the Underlying Shares deliverable with respect to Securities
      are being determined and (b) such hedging activities (if any) could reduce
      the
      value of the existing stockholders' equity interests in the Company at and
      after
      the time that the hedging activities are being conducted.  The Company
      acknowledges that such aforementioned hedging activities do not constitute
      a
      breach of any of the Transaction Documents.

     

    (jj)  Manipulation
      of Price. 
      The Company has not, and to its knowledge no one acting on its behalf has,
      (i)
      taken, directly or indirectly, any action designed to cause or to result in
      the
      stabilization or manipulation of the price of any security of the Company to
      facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or paid any compensation for soliciting purchases of, any of the
      securities of the Company or (iii) paid or agreed to pay to any person any
      compensation for soliciting another to purchase any other securities of the
      Company, other than, in the case of clauses (ii) and (iii), compensation paid
      to
      the Company’s placement agent in connection with the placement of the
      Securities.

     

    (kk) Form
      SB-2 Eligibility.
      The
      Company is eligible to register the resale of the Underlying Shares for resale
      by the Purchaser on Form SB-2 promulgated under the Securities Act.

    

    3.2  Representations
      and Warranties of the Purchasers.
      Each
      Purchaser hereby, for itself and for no other Purchaser, represents and warrants
      as of the date hereof and as of the applicable Closing Date to the Company
      as
      follows:

     

    (a)  Organization;
      Authority.
      Such
      Purchaser is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with full right,
      corporate or partnership power and authority to enter into and to consummate
      the
      transactions contemplated by the Transaction Documents and otherwise to carry
      out its obligations hereunder and thereunder. The execution, delivery and
      performance by such Purchaser of the transactions contemplated by this Agreement
      have been duly authorized by all necessary corporate or similar action on the
      part of such Purchaser. Each Transaction Document to which it is a party has
      been duly executed by such Purchaser, and when delivered by such Purchaser
      in
      accordance with the terms hereof, will constitute the valid and legally binding
      obligation of such Purchaser, enforceable against it in accordance with its
      terms, except (i) as limited by general equitable principles and applicable
      bankruptcy, insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors’ rights generally, (ii) as
      limited by laws relating to the availability of specific performance, injunctive
      relief or other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

     

    
      
        
        

      

      
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    (b)  Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no direct or indirect arrangement or understandings with any other persons
      to
      distribute or regarding the distribution of such Securities (this representation
      and warranty not limiting such Purchaser’s right to sell the Securities pursuant
      to the Registration Statement or otherwise in compliance with applicable federal
      and state securities laws) in violation of the Securities Act or any applicable
      state securities law. Such Purchaser is acquiring the Securities hereunder
      in
      the ordinary course of its business.

     

    (c)  Purchaser
      Status.
      At the
      time such Purchaser was offered the Securities, it was, and at the date hereof
      it is, either: (i) an “accredited investor” as defined in Rule 501(a)(1),
      (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
      institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such
      Purchaser is not required to be registered as a broker-dealer under Section
      15
      of the Exchange Act.

     

    (d)  Experience
      of Such Purchaser.
      Such
      Purchaser, either alone or together with its representatives, has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the merits and risks of the prospective investment
      in the Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of such
      investment.

     

    (e)  General
      Solicitation.
      Such
      Purchaser is not purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television, radio or
      a
“webcast” over the Internet, or presented at any seminar or any other general
      solicitation or general advertisement.

     

    
      
        
        

      

      
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    (f)  Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder and the Warrant Reset Transaction,
      such Purchaser has not directly or indirectly, nor has any Person acting on
      behalf of or pursuant to any understanding with such Purchaser, executed any
      transaction, including Short Sales, in the securities of the Company during
      the period commencing from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the representation set forth above shall only apply
      with respect to the portion of assets managed by the portfolio manager that
      made
      the investment decision to purchase the Securities covered by this Agreement.
      Other than to other Persons party to this Agreement, such Purchaser has
      maintained the confidentiality of all disclosures made to it in connection
      with
      this transaction (including the existence and terms of this
      transaction).

     

    ARTICLE
      IV. 

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1  Transfer
      Restrictions.

     

    (a)  The
      Securities may only be disposed of in compliance with state and federal
      securities laws. In connection with any transfer of Securities other than
      pursuant to an effective registration statement or Rule 144, to the Company
      or
      to an affiliate of a Purchaser or in connection with a pledge as contemplated
      in
      Section 4.1(b), the Company may require the transferor thereof to provide to
      the
      Company an opinion of counsel selected by the transferor and reasonably
      acceptable to the Company, the form and substance of which opinion shall be
      reasonably satisfactory to the Company, to the effect that such transfer does
      not require registration of such transferred Securities under the Securities
      Act. As a condition of transfer, any such transferee shall agree in writing
      to
      be bound by the terms of this Agreement and shall have the rights of a Purchaser
      under this Agreement and the Registration Rights Agreement.

     

    (b)  The
      Purchasers agree to the imprinting, so long as is required by this Section
      4.1,
      of a legend on any of the Securities in the following form:

     

    [NEITHER]
      THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
      [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND
      EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
      AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
      TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
      TO
      AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
      TO
      THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
      [EXERCISE] [CONVERSION] OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
      A
      BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     

    
      
        
        

      

      
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    The
      Company acknowledges and agrees that a Purchaser may from time to time pledge
      pursuant to a bona fide margin agreement with a registered broker-dealer or
      grant a security interest in some or all of the Securities to a financial
      institution that is an “accredited investor” as defined in Rule 501(a) under the
      Securities Act and who agrees to be bound by the provisions of this Agreement
      and the Registration Rights Agreement and, if required under the terms of such
      arrangement, such Purchaser may transfer pledged or secured Securities to the
      pledgees or secured parties. Such a pledge or transfer would not be subject
      to
      approval of the Company and no legal opinion of legal counsel of the pledgee,
      secured party or pledgor shall be required in connection therewith. Further,
      no
      notice shall be required of such pledge. At the appropriate Purchaser’s expense,
      the Company will execute and deliver such reasonable documentation as a pledgee
      or secured party of Securities may reasonably request in connection with a
      pledge or transfer of the Securities, including, if the Securities are subject
      to registration pursuant to the Registration Rights Agreement, the preparation
      and filing of any required prospectus supplement under Rule 424(b)(3) under
      the
      Securities Act or other applicable provision of the Securities Act to
      appropriately amend the list of Selling Stockholders thereunder.

     

    (c)  Certificates
      evidencing the Underlying Shares shall not contain any legend (including the
      legend set forth in Section 4.1(b) hereof): (i) while a registration statement
      (including the Registration Statement) covering the resale of such security
      is
      effective under the Securities Act, or (ii) following any sale of such
      Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares
      are
      eligible for sale under Rule 144(k), or (iv) if such legend is not required
      under applicable requirements of the Securities Act (including judicial
      interpretations and pronouncements issued by the staff of the Commission).
      The
      Company shall cause its counsel to issue a legal opinion to the Company’s
      transfer agent promptly after each Effective Date if required by the Company’s
      transfer agent to effect the removal of the legend hereunder. If all or any
      portion of a Debenture or Warrant is converted or exercised (as applicable)
      at a
      time when there is an effective registration statement to cover the resale
      of
      the Underlying Shares, or if such Underlying Shares may be sold under Rule
      144(k) or if such legend is not otherwise required under applicable requirements
      of the Securities Act (including judicial interpretations and pronouncements
      issued by the staff of the Commission) then such Underlying Shares shall be
      issued free of all legends. The Company agrees that following the Effective
      Date
      as to the Underlying Shares at issue or at such time as such legend is no longer
      required under this Section 4.1(c), it will, no later than three Trading Days
      following the delivery by a Purchaser to the Company or the Company’s transfer
      agent of a certificate representing Underlying Shares, as applicable, issued
      with a restrictive legend (such third Trading Day, the “Legend
      Removal Date”),
      deliver or cause to be delivered to such Purchaser a certificate representing
      such shares that is free from all restrictive and other legends. The Company
      may
      not make any notation on its records or give instructions to any transfer agent
      of the Company that enlarge the restrictions on transfer set forth in this
      Section. Certificates for Underlying Shares subject to legend removal hereunder
      shall be transmitted by the transfer agent of the Company to the Purchasers
      by
      crediting the account of the Purchaser’s prime broker with the Depository Trust
      Company System.

    

    
      
        
        

      

      
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    (d)  In
      addition to such Purchaser’s other available remedies, the Company shall pay to
      a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
      each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on
      the
      date such Securities are submitted to the Company’s transfer agent) delivered
      for removal of the restrictive legend and subject to Section 4.1(c), $10 per
      Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages
      have begun to accrue) for each Trading Day after the second Trading Day
      following the Legend Removal Date until such certificate is delivered without
      a
      legend. Nothing herein shall limit such Purchaser’s right to pursue actual
      damages for the Company’s failure to deliver certificates representing any
      Securities as required by the Transaction Documents, and such Purchaser shall
      have the right to pursue all remedies available to it at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief.

     

    (e)  Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein.

     

    4.2  Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligations under the Transaction Documents, including without limitation its
      obligation to issue the Underlying Shares pursuant to the Transaction Documents,
      are unconditional and absolute and not subject to any right of set off,
      counterclaim, delay or reduction, regardless of the effect of any such dilution
      or any claim the Company may have against any Purchaser and regardless of the
      dilutive effect that such issuance may have on the ownership of the other
      stockholders of the Company.

     

    
      
        
        

      

      
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    4.3  Furnishing
      of Information.
      As long
      as any Purchaser owns Securities, the Company covenants to timely file (or
      obtain extensions in respect thereof and file within the applicable grace
      period) all reports required to be filed by the Company after the date hereof
      pursuant to the Exchange Act. As long as any Purchaser owns Securities, if
      the
      Company is not required to file reports pursuant to the Exchange Act, it will
      prepare and furnish to the Purchasers and make publicly available in accordance
      with Rule 144(c) such information as is required for the Purchasers to sell
      the
      Securities under Rule 144. The Company further covenants that it will take
      such
      further action as any holder of Securities may reasonably request, to the extent
      required from time to time to enable such Person to sell such Securities without
      registration under the Securities Act within the requirements of the exemption
      provided by Rule 144.

     

    4.4  Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market.

     

    4.5  Conversion
      and Exercise Procedures.
      The
      form of Notice of Exercise included in the Warrants and the form of Notice
      of
      Conversion included in the Debentures set
      forth
      the totality of the procedures required of the Purchasers in order to exercise
      the Warrants or convert the Debentures. No additional legal opinion or other
      information or instructions shall be required of the Purchasers to exercise
      their Warrants or convert their Debentures. The Company shall honor exercises
      of
      the Warrants and conversions of the Debentures and shall deliver Underlying
      Shares in accordance with the terms, conditions and time periods set forth
      in
      the Transaction Documents.

     

    4.6  Securities
      Laws Disclosure; Publicity.
      The
      Company shall, by 8:30 a.m. Eastern time on the Trading Day following the date
      hereof, issue a Current Report on Form 8-K disclosing the material terms of
      the
      transactions contemplated hereby, and shall attach the Transaction Documents
      thereto. The Company and each Purchaser shall consult with each other in issuing
      any other press releases with respect to the transactions contemplated hereby,
      and neither the Company nor any Purchaser shall issue any such press release
      or
      otherwise make any such public statement without the prior consent of the
      Company, with respect to any press release of any Purchaser, or without the
      prior consent of each Purchaser, with respect to any press release of the
      Company, which consent shall not unreasonably be withheld or delayed, except
      if
      such disclosure is required by law, in which case the disclosing party shall
      promptly provide the other party with prior notice of such public statement
      or
      communication. Notwithstanding the foregoing, the Company shall not publicly
      disclose the name of any Purchaser, or include the name of any Purchaser in
      any
      filing with the Commission or any regulatory agency or Trading Market, without
      the prior written consent of such Purchaser, except (i) as required by federal
      securities law in connection with (A) any registration statement contemplated
      by
      the Registration Rights Agreement and (B) the filing of final Transaction
      Documents (including signature pages thereto) with the Commission and (ii)
      to
      the extent such disclosure is required by law or Trading Market regulations,
      in
      which case the Company shall provide the Purchasers with prior notice of such
      disclosure permitted under this subclause (ii).

     

    
      
        
        

      

      
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    4.7  Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, with the consent of the
      Company, any other Person, that any Purchaser is an “Acquiring Person” under any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or similar anti-takeover plan or
      arrangement in effect or hereafter adopted by the Company, or that any Purchaser
      could be deemed to trigger the provisions of any such plan or arrangement,
      by
      virtue of receiving Securities under the Transaction Documents or under any
      other agreement between the Company and the Purchasers.

     

    4.8  Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company covenants and agrees
      that
      neither it nor any other Person acting on its behalf will provide any Purchaser
      or its agents or counsel with any information that the Company believes
      constitutes material non-public information, unless prior thereto such Purchaser
      shall have executed a written agreement regarding the confidentiality and use
      of
      such information. The Company understands and confirms that each Purchaser
      shall
      be relying on the foregoing representations in effecting transactions in
      securities of the Company.

     

    4.9  Use
      of
      Proceeds.
      Except
      as set forth on Schedule
      4.9
      attached
      hereto, the Company shall use the net proceeds from the sale of the Securities
      hereunder for working capital purposes and not for the satisfaction of any
      portion of the Company’s debt (other than payment of trade payables in the
      ordinary course of the Company’s business and prior practices), to redeem any
      Common Stock or Common Stock Equivalents or to settle any outstanding
      litigation.

     

    4.10  Reimbursement.
      If any
      Purchaser becomes involved in any capacity in any Proceeding by or against
      any
      Person who is a stockholder of the Company (except as a result of sales,
      pledges, margin sales and similar transactions by such Purchaser to or with
      any
      other stockholder), solely as a result of such Purchaser’s acquisition of the
      Securities under this Agreement, the Company will reimburse such Purchaser
      for
      its reasonable legal and other expenses (including the cost of any investigation
      preparation and travel in connection therewith) incurred in connection
      therewith, as such expenses are incurred. The reimbursement obligations of
      the
      Company under this paragraph shall be in addition to any liability which the
      Company may otherwise have, shall extend upon the same terms and conditions
      to
      any Affiliates of the Purchasers who are actually named in such action,
      proceeding or investigation, and partners, directors, agents, employees and
      controlling persons (if any), as the case may be, of the Purchasers and any
      such
      Affiliate, and shall be binding upon and inure to the benefit of any successors,
      assigns, heirs and personal representatives of the Company, the Purchasers
      and
      any such Affiliate and any such Person. The Company also agrees that neither
      the
      Purchasers nor any such Affiliates, partners, directors, agents, employees
      or
      controlling persons shall have any liability to the Company or any Person
      asserting claims on behalf of or in right of the Company solely as a result
      of
      acquiring the Securities under this Agreement.

     

    4.11  Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.11, the Company will indemnify and hold
      each
      Purchaser and its directors, officers, shareholders, members, partners,
      investment advisers, employees and agents (and any other Persons with a
      functionally equivalent role of a Person holding such titles notwithstanding
      a
      lack of such title or any other title), each Person who controls such Purchaser
      (within the meaning of Section 15 of the Securities Act and Section 20 of the
      Exchange Act), and the directors, officers, shareholders, agents, members,
      partners or employees (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title) of such controlling person (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing reasonably acceptable to the
      Purchaser Party. Any Purchaser Party shall have the right to employ separate
      counsel in any such action and participate in the defense thereof, but the
      fees
      and expenses of such counsel shall be at the expense of such Purchaser Party
      except to the extent that (i) the employment thereof has been specifically
      authorized by the Company in writing, (ii) the Company has failed after a
      reasonable period of time to assume such defense and to employ counsel or (iii)
      in such action there is, in the reasonable opinion of such separate counsel,
      a
      material conflict on any material issue between the position of the Company
      and
      the position of such Purchaser Party, in which case the Company shall be
      responsible for the reasonable fees and expenses of no more than one such
      separate counsel. The Company will not be liable to any Purchaser Party under
      this Agreement (i) for any settlement by a Purchaser Party effected without
      the
      Company’s prior written consent, which shall not be unreasonably withheld or
      delayed; or (ii) to the extent, but only to the extent that a loss, claim,
      damage or liability is attributable to any Purchaser Party’s breach of any of
      the representations, warranties, covenants or agreements made by such Purchaser
      Party in this Agreement or in the other Transaction Documents.

     

    
      
        
        

      

      
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    4.12  Reservation
      and Listing of Securities.

     

    (a)  The
      Company shall maintain a reserve from its duly authorized shares of Common
      Stock
      for issuance pursuant to the Transaction Documents in such number as may be
      required to fulfill its obligations in full under the Transaction
      Documents.

     

    (b)  If,
      on
      any date, the number of authorized but unissued (and otherwise unreserved)
      shares of Common Stock is less than the Required Minimum on such date, then
      the
      Board of Directors of the Company shall use commercially reasonable efforts
      to
      amend the Company’s certificate or articles of incorporation to increase the
      number of authorized but unissued shares of Common Stock to at least the
      Required Minimum at such time, as soon as possible and in any event not later
      than the 75th day after such date.

     

    
      
        
        

      

      
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    (c)  The
      Company shall, if applicable: (i) in the time and manner required by the
      principal Trading Market, prepare and file with such Trading Market an
      additional shares listing application covering a number of shares of Common
      Stock at least equal to the Required Minimum on the date of such application,
      (ii) take all steps reasonably necessary to cause such shares of Common Stock
      to
      be approved for listing on such Trading Market as soon as possible thereafter,
      (iii) provide to the Purchasers evidence of such listing, and (iv) maintain
      the
      listing of such Common Stock on any date at least equal to the Required Minimum
      on such date on such Trading Market or another Trading Market. 

     

    4.13  Participation
      in Future Financing.
      

     

    (a)  Subject
      to Section 4.13(g), from the date hereof until the date that is the 9 month
      anniversary of the Effective Date of the second Registration Statement filed
      pursuant to the Registration Rights Agreement, upon any issuance by the Company
      or any of its Subsidiaries of Common Stock or Common Stock Equivalents (a
“Subsequent
      Financing”),
      each
      Purchaser shall have the right to participate in up to an amount of the
      Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
      Maximum”)
      on the
      same terms, conditions and price provided for in the Subsequent Financing.
      

     

    (b)  Subject
      to Section 4.8, at least 5 Trading Days prior to the closing of the Subsequent
      Financing, the Company shall deliver to each Purchaser a written notice of
      its
      intention to effect a Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Purchaser, and only upon a request by such Purchaser, for
      a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      1
      Trading Day after such request, deliver a Subsequent Financing Notice to such
      Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing, the amount of proceeds intended
      to be raised thereunder, the Person or Persons through or with whom such
      Subsequent Financing is proposed to be effected, and attached to which shall
      be
      a term sheet or similar document relating thereto. In the event a Subsequent
      Financing is not consummated and publicly announced within 10 calendar days
      following the date such Subsequent Financing Notice is first sent to a
      Purchaser, the Company shall, on such 10th
      calendar
      day, issue a press release regarding such Subsequent Financing Notice pursuant
      to Rule 135c under the Securities Act containing only the information regarding
      such Subsequent Financing that is permitted to be disclosed
      thereunder.

     

    (c)  Any
      Purchaser desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice that the Purchaser
      is willing to participate in the Subsequent Financing, the amount of the
      Purchaser’s participation, and that the Purchaser has such funds ready, willing,
      and available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from a Purchaser as of such
      5th
      Trading
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate. 

     

    
      
        
        

      

      
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    (d)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, notifications
      by
      the Purchasers of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Subsequent Financing, then the Company may effect the
      remaining portion of such Subsequent Financing on the terms and with the Persons
      set forth in the Subsequent Financing Notice. 

     

    (e)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers seeking
      to
      purchase more than the aggregate amount of the Participation Maximum, each
      such
      Purchaser shall have the right to purchase the greater of (a) their Pro Rata
      Portion (as defined below) of the Participation Maximum and (b) the difference
      between the Participation Maximum and the aggregate amount of participation
      by
      all other Purchasers.  “Pro
      Rata Portion”
is
      the
      ratio of (x) the Subscription Amount of Securities purchased at the First and
      Second Closing by a Purchaser participating under this Section 4.13 and (y)
      the
      sum of the aggregate Subscription Amounts of Securities purchased on the First
      and Second Closing by all Purchasers participating under this Section
      4.13.

     

    (f)  The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within 60 Trading Days after the date of the
      initial Subsequent Financing Notice. 

     

    (g)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of an Exempt
      Issuance.

     

    4.14  Subsequent
      Equity Sales.
      

     

    (a)  From
      the
      date hereof until 90 days after the Effective Date of the second Registration
      Statement filed pursuant to the Registration Rights Agreement, neither the
      Company nor any Subsidiary shall issue shares of Common Stock or Common Stock
      Equivalents in a financing transaction; provided,
      however,
      the 90
      day period set forth in this Section 4.14 shall be extended for the number
      of
      Trading Days during such period in which (i) trading in the Common Stock is
      suspended by any Trading Market, or (ii) following the Effective Date of such
      second Registration Statement, a Registration Statement is not effective or
      the
      prospectus included in the Registration Statement(s) may not be used by the
      Purchasers for the resale of the Underlying Shares. 

     

    
      
        
        

      

      
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    (b)  From
      the
      date hereof until such time as no Purchaser holds any of the Securities, the
      Company shall be prohibited from effecting or entering into an agreement to
      effect any Subsequent Financing involving a “Variable Rate Transaction”. The
      term “Variable
      Rate Transaction”
shall
      mean a transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock
      (for
      purposes of clarification, this does not prohibit the issuance of securities
      with customary "weighted average" anti-dilution adjustments which adjust a
      fixed
      conversion or exercise price of securities sold by the Company in the
      future) or
      (ii)
      enters into any agreement, including, but not limited to, an equity line of
      credit, whereby the Company may sell securities at a future determined price.
      

     

    (c)  From
      the
      date hereof until such time as no Purchaser holds any of the Debentures, in
      the
      event the Company issues or sells any shares of Common Stock or Common Stock
      Equivalents, if a Purchaser reasonably believes that any of the terms and
      conditions thereunder are more favorable to such investors as the terms and
      conditions granted hereunder, upon notice to the Company by such Purchaser
      the
      Company shall amend the terms of this transaction as to such Purchaser only
      so
      as to give such Purchaser the benefit of such more favorable terms or
      conditions. 

     

    (d)  Notwithstanding
      the foregoing, this Section 4.14 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance. 

     

    4.15  Equal
      Treatment of Purchasers.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. Further, the Company shall not make any payment on the
      Debentures in amounts which are disproportionate to the respective principal
      amounts outstanding on the Debentures at any applicable time. For clarification
      purposes, this provision constitutes a separate right granted to each Purchaser
      by the Company and negotiated separately by each Purchaser, and is intended
      for
      the Company to treat the Purchasers as a class and shall not in any way be
      construed as the Purchasers acting in concert or as a group with respect to
      the
      purchase, disposition or voting of Securities or otherwise.

     

    4.16  Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section 4.6.
      Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.6, such Purchaser will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser understands and acknowledges, severally and not jointly with any
      other
      Purchaser, that the Commission currently takes the position that coverage of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the applicable Securities
      is a
      violation of Section 5 of the Securities Act, as set forth in Item 65, Section
      A, of the Manual of Publicly Available Telephone Interpretations, dated July
      1997, compiled by the Office of Chief Counsel, Division of Corporation Finance.
      Notwithstanding the foregoing, no Purchaser makes any representation, warranty
      or covenant hereby that it will not engage in Short Sales in
      the
      securities of the Company after the time that the transactions contemplated
      by
      this Agreement are first publicly announced as described in Section 4.6.
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the covenant set forth
      above
      shall only apply with respect to the portion of assets managed by the portfolio
      manager that made the investment decision to purchase the Securities covered
      by
      this Agreement.

     

    
      
        
        

      

      
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    4.17  Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof, promptly upon request
      of any Purchaser. The Company shall take such action as the Company shall
      reasonably determine is necessary in order to obtain an exemption for, or to
      qualify the Securities for, sale to the Purchasers at the applicable Closing
      under applicable securities or “Blue Sky” laws of the states of the United
      States, and shall provide evidence of such actions promptly upon request of
      any
      Purchaser.

     

    4.18 Capital
      Changes.
      Until
      the one year anniversary of the Effective Date of the second Registration
      Statement filed pursuant to the Registration Rights Agreement, the Company
      shall
      not undertake a reverse or forward stock split or reclassification of the Common
      Stock without the prior written consent of the Purchasers holding a majority
      in
      principal amount outstanding of the Debentures.

     

    4.19 Charter
      Amendment.
      The
      Company shall hold a special meeting of shareholders (which may also be at
      the
      annual meeting of shareholders) at the earliest practical date after the Closing
      Date, but in any event on or before July 31, 2006 for the purpose of amending
      its certificate of incorporation to increase the number of authorized shares
      of
      Common Stock to at least 900,000,000 shares (the “Charter
      Amendment”),
      with
      the recommendation of the Company’s Board of Directors that such proposal be
      approved, and the Company shall solicit proxies from its shareholders in
      connection therewith in the same manner as all other management proposals in
      such proxy statement and all management-appointed proxyholders shall vote their
      proxies in favor of such proposal. The failure of the Charter Amendment to
      be
      effected for any reason by July 31, 2006, shall be deemed an Event of Default
      under the Debentures.

     

    
      
        
        

      

      
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    4.20 Net
      Operating Loss. The
      Company hereby agrees to reduce its consolidated monthly “net operating loss”
to: (i) less than ($750,000) on or before May 31, 2006 and (ii) less than
      ($375,000) by September 30, 2006. For
      purposes of such calculation, “net operating loss” shall be
      operating loss excluding the non-cash charges of depreciation and amortization
      and  stock-based compensation, and
      excluding litigation expenses and reimbursements,
      and
      shall be measured on a cumulative basis (for example if the Company’s net
      operating loss for the monthly period ending May 31, 2006 is ($650,000), it
      would have to reduce its net operating loss for the monthly period ending June
      30, 2006 to an amount less than ($850,000) in order to comply with the foregoing
      covenant). In addition, the Company hereby agrees to reduce its consolidated
      net
      operating loss to an amount less than ($5,000,000) for the period beginning
      on
      May 1, 2006 and ending on December 31, 2006. For purposes of verifying the
      foregoing, in addition to information included in the Company’s periodic reports
      filed with the Commission following the date hereof, on or before the
      15th
      calendar
      day of each month following the date hereof, the Company hereby agrees to file
      a
      Current Report on Form 8-K that identifies the net operating loss for the
      applicable monthly or other period. The failure of the Company to reduce its
      net
      operating loss or file a Current Report on Form 8-K in accordance with this
      Section 4.20 shall be deemed an Event of Default under the Debentures.

     

     

    ARTICLE
      V. 

    MISCELLANEOUS

     

    5.1  Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the First Closing has not been consummated on or before April 30,
      2006; provided,
      however,
      that no
      such termination will affect the right of any party to sue for any breach by
      the
      other party (or parties).

     

    5.2  Fees
      and Expenses.
      At the
      First Closing, the Company has agreed to reimburse Basso Capital Management,
      L.P. (“Basso”)
      $25,000 for its out-of-pocket legal fees and expenses, $10,000 of which has
      been
      paid prior to the First Closing. The Company shall deliver, prior to each
      Closing, a completed and executed copy of the Closing Statement, attached hereto
      as Annex
      A.
      Except
      as expressly set forth in the Transaction Documents to the contrary, each party
      shall pay the fees and expenses of its advisers, counsel, accountants and other
      experts, if any, and all other expenses incurred by such party incident to
      the
      negotiation, preparation, execution, delivery and performance of this Agreement.
      The Company shall pay all transfer agent fees, stamp taxes and other taxes
      and
      duties levied in connection with the delivery of any Securities to the
      Purchasers.

     

    5.3  Entire
      Agreement.
      The
      Transaction Documents, together with the exhibits and schedules thereto, contain
      the entire understanding of the parties with respect to the subject matter
      hereof and supersede all prior agreements and understandings, oral or written,
      with respect to such matters, which the parties acknowledge have been merged
      into such documents, exhibits and schedules.

     

    
      
        
        

      

      
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    5.4  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be in writing and shall be deemed given and effective
      on the earliest of (a) the date of transmission, if such notice or communication
      is delivered via facsimile at the facsimile number set forth on the signature
      pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading
      Day,
      (b) the next Trading Day after the date of transmission, if such notice or
      communication is delivered via facsimile at the facsimile number set forth
      on
      the signature pages attached hereto on a day that is not a Trading Day or later
      than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd
      Trading
      Day following the date of mailing, if sent by U.S. nationally recognized
      overnight courier service, or (d) upon actual receipt by the party to whom
      such
      notice is required to be given. The address for such notices and communications
      shall be as set forth on the signature pages attached hereto.

     

    5.5  Amendments;
      Waivers.
      No
      provision of this Agreement may be waived, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and Purchasers holding at least 75% in interest of the then outstanding
      Securities or, in the case of a waiver, by the party against whom enforcement
      of
      any such waived provision is sought. No waiver of any default with respect
      to
      any provision, condition or requirement of this Agreement shall be deemed to
      be
      a continuing waiver in the future or a waiver of any subsequent default or
      a
      waiver of any other provision, condition or requirement hereof, nor shall any
      delay or omission of any party to exercise any right hereunder in any manner
      impair the exercise of any such right.

     

    5.6  Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    5.7  Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the parties and
      their successors and permitted assigns. The Company may not assign this
      Agreement or any rights or obligations hereunder without the prior written
      consent of each Purchaser (other than by merger). Any Purchaser may assign
      any
      or all of its rights under this Agreement to any Person to whom such Purchaser
      assigns or transfers any Securities, provided such transferee agrees in writing
      to be bound, with respect to the transferred Securities, by the provisions
      of
      the Transaction Documents that apply to the “Purchasers”.

     

    5.8  No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.11.

     

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

     

    
      
        
        

      

      
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    5.10  Survival.
      The
      representations, warranties, covenants and other agreements contained herein
      shall survive the Closings and the delivery, exercise and/or conversion of
      the
      Securities, as applicable, for the applicable statute of
      limitations.

     

    5.11  Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile or “.pdf” signature page were an original thereof.

     

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

     

    5.13  Rescission
      and Withdrawal Right.
      Notwithstanding anything to the contrary contained in (and without limiting
      any
      similar provisions of) any of the other Transaction Documents, whenever any
      Purchaser exercises a right, election, demand or option under a Transaction
      Document and the Company does not timely perform its related obligations within
      the periods therein provided, then such Purchaser may rescind or withdraw,
      in
      its sole discretion from time to time upon written notice to the Company, any
      relevant notice, demand or election in whole or in part without prejudice to
      its
      future actions and rights; provided,
      however,
      in the
      case of a rescission of a conversion of a Debenture or exercise of a Warrant,
      the Purchaser shall be required to return any shares of Common Stock subject
      to
      any such rescinded conversion or exercise notice.

     

    
      
        
        

      

      
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    5.14  Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall issue or cause to be issued in exchange and
      substitution for and upon cancellation thereof (in the case of mutilation),
      or
      in lieu of and substitution therefor, a new certificate or instrument, but
      only
      upon receipt of evidence reasonably satisfactory to the Company of such loss,
      theft or destruction. The applicant for a new certificate or instrument under
      such circumstances shall also pay any reasonable third-party costs (including
      customary indemnity) associated with the issuance of such replacement
      Securities.

     

    5.15  Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Purchasers and the Company
      will
      be entitled to specific performance under the Transaction Documents. The parties
      agree that monetary damages may not be adequate compensation for any loss
      incurred by reason of any breach of obligations contained in the Transaction
      Documents and hereby agrees to waive and not to assert in any action for
      specific performance of any such obligation the defense that a remedy at law
      would be adequate. 

     

    5.16  Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to any Purchaser pursuant
      to
      any Transaction Document or a Purchaser enforces or exercises its rights
      thereunder, and such payment or payments or the proceeds of such enforcement
      or
      exercise or any part thereof are subsequently invalidated, declared to be
      fraudulent or preferential, set aside, recovered from, disgorged by or are
      required to be refunded, repaid or otherwise restored to the Company, a trustee,
      receiver or any other person under any law (including, without limitation,
      any
      bankruptcy law, state or federal law, common law or equitable cause of action),
      then to the extent of any such restoration the obligation or part thereof
      originally intended to be satisfied shall be revived and continued in full
      force
      and effect as if such payment had not been made or such enforcement or setoff
      had not occurred.

     

    5.17  Usury.
      To the
      extent it may lawfully do so, the Company hereby agrees not to insist upon
      or
      plead or in any manner whatsoever claim, and will resist any and all efforts
      to
      be compelled to take the benefit or advantage of, usury laws wherever enacted,
      now or at any time hereafter in force, in connection with any claim, action
      or
      proceeding that may be brought by any Purchaser in order to enforce any right
      or
      remedy under any Transaction Document. Notwithstanding any provision to the
      contrary contained in any Transaction Document, it is expressly agreed and
      provided that the total liability of the Company under the Transaction Documents
      for payments in the nature of interest shall not exceed the maximum lawful
      rate
      authorized under applicable law (the “Maximum
      Rate”),
      and,
      without limiting the foregoing, in no event shall any rate of interest or
      default interest, or both of them, when aggregated with any other sums in the
      nature of interest that the Company may be obligated to pay under the
      Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
      contract rate of interest allowed by law and applicable to the Transaction
      Documents is increased or decreased by statute or any official governmental
      action subsequent to the date hereof, the new maximum contract rate of interest
      allowed by law will be the Maximum Rate applicable to the Transaction Documents
      from the effective date forward, unless such application is precluded by
      applicable law. If under any circumstances whatsoever, interest in excess of
      the
      Maximum Rate is paid by the Company to any Purchaser with respect to
      indebtedness evidenced by the Transaction Documents, such excess shall be
      applied by such Purchaser to the unpaid principal balance of any such
      indebtedness or be refunded to the Company, the manner of handling such excess
      to be at such Purchaser’s election.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    

     

    5.18  Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other Transaction Document, and no action taken by any Purchaser
      pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
      an association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including without limitation the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. For reasons of administrative convenience only, Purchasers and their
      respective counsel have chosen to communicate with the Company through FW.
      FW
      does not represent all of the Purchasers but only Basso. The Company has elected
      to provide all Purchasers with the same terms and Transaction Documents for
      the
      convenience of the Company and not because it was required or requested to
      do so
      by the Purchasers.

     

    5.19  Liquidated
      Damages.
      The
      Company’s obligations to pay any partial liquidated damages or other amounts
      owing under the Transaction Documents is a continuing obligation of the Company
      and shall not terminate until all unpaid partial liquidated damages and other
      amounts have been paid notwithstanding the fact that the instrument or security
      pursuant to which such partial liquidated damages or other amounts are due
      and
      payable shall have been canceled.

     

    5.20  Construction.
      The
      parties agree that each of them and/or their respective counsel has reviewed
      and
      had an opportunity to revise the Transaction Documents and, therefore, 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 the Transaction Documents or any amendments hereto.

     

    (Signature
      Pages Follow)

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
      Agreement to be duly executed by their respective authorized signatories as
      of
      the date first indicated above.

     

    
      	
              DOBI
                MEDICAL INTERNATIONAL, INC.

               

            	
              Address
                for Notice:

              1200
                MacArthur Blvd.

              Mahwah,
                NJ 07430

              Tel:
                201.760.6464

              Fax:
                201.760.8860

              Attn:
                Frank M. Puthoff, Esq.

              General
                Counsel and Secretary

            
	
              By: 
                /s/ Michael R. Jorgensen   
                

              Name:
                Michael R. Jorgensen

              Title:
                Executive Vice President and

              Chief
                Financial Officer

               

            	 
	
              With
                a copy to (which shall not constitute notice):

               

              Greenberg
                Traurig, LLP

              MetLife
                Building

              200
                Park Avenue, 15th
                Floor

              New
                York, NY 10166

              Tel:
                212.801.9200

              Fax:
                212.801.6400

              Attn:
                Spencer G. Feldman, Esq.

            	 

    

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    

    [PURCHASER
      SIGNATURE PAGES TO DBMI SECURITIES PURCHASE AGREEMENT]

    

    IN
      WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
      to be duly executed by their respective authorized signatories as of the date
      first indicated above.

     

    Name
      of
      Purchaser: ________________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      __________________________________

     

    Name
      of
      Authorized Signatory:
      ____________________________________________________

     

    Title
      of
      Authorized Signatory:
      _____________________________________________________

     

    Email
      Address of Purchaser:
      ________________________________________________

     

    Facsimile
      Number of Purchaser:
      ________________________________________________

    

    Address
      for Notice of Purchaser:

     

    
 

    Address
      for Delivery of Securities for Purchaser (if not same as above):

     

    
 

    First
      Closing Subscription Amount:

    First
      Closing Principal Amount:

    Second
      Closing Subscription Amount:

    Second
      Closing Principal Amount:

    Series
      A
      Warrant Shares:

    Series
      B
      Warrant Shares:

    Series
      C
      Warrant Shares:

    

    Purchasers
      that wish to have a 9.99% beneficial ownership limitation in their Debentures
      and Warrants rather than a 4.99% beneficial ownership limitation please indicate
      by checking here: _________ 

    

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    
      
        
        

      

      
        38EXHIBIT
        10.2

      

      SECURITY
        AGREEMENT

      

      SECURITY
        AGREEMENT, dated as of April 28, 2006 (this “Agreement”),
        among
        DOBI Medical International, Inc., a Delaware corporation
        (the
        “Company”)
        and
        all of the Subsidiaries of the Company
        (such
        subsidiaries,
        the
“Guarantors”)
        (the
        Company and Guarantors are collectively
        referred to as the “Debtors”)
        and
        the holder or holders of the Company’s Convertible Debentures due August 28,
        2007 in the original aggregate principal amount of up to $6,000,000 (the
        “Debentures”),
        signatory hereto, their endorsees, transferees and assigns (collectively
        referred to as, the “Secured
        Parties”).

      

      W
        I T N E S S E T H:

      

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

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

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

      

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

       

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

      

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

      

      (v) All
        commercial tort claims;

      

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

      

      (vii) All
        investment property;

      

       (viii) All
        supporting obligations; and

      

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

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      

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

      

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

       

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

      

      (b) “Intellectual
        Property”
means
        the collective reference to all rights, priorities and privileges relating
        to
        intellectual property, whether arising under United States, multinational
        or
        foreign laws or otherwise, including, without limitation, (i) all copyrights
        arising under the laws of the United States, any other country or any political
        subdivision thereof, whether registered or unregistered and whether published
        or
        unpublished, all registrations and recordings thereof, and all applications
        in
        connection therewith, including, without limitation, all registrations,
        recordings and applications in the United States Copyright Office, (ii) all
        letters patent of the United States, any other country or any political
        subdivision thereof, all reissues and extensions thereof, and all applications
        for letters patent of the United States or any other country and all divisions,
        continuations and continuations-in-part thereof, (iii) all trademarks, trade
        names, corporate names, company names, business names, fictitious business
        names, trade dress, service marks, logos, domain names and other source or
        business identifiers, and all goodwill associated therewith, now existing
        or
        hereafter adopted or acquired, all registrations and recordings thereof,
        and all
        applications in connection therewith, whether in the United States Patent
        and
        Trademark Office or in any similar office or agency of the United States,
        any
        State thereof or any other country or any political subdivision thereof,
        or
        otherwise, and all common law rights related thereto, (iv) all trade secrets
        arising under the laws of the United States, any other country or any political
        subdivision thereof, (v) all rights to obtain any reissues, renewals or
        extensions of the foregoing, (vi) all licenses for any of the foregoing,
        and
        (vii) all causes of action for infringement of the foregoing.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

      (f)
         “Permitted
        Lien”
shall
        have the meaning set forth in the Debentures.

      

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

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

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

      

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

      

      (h) The
        execution, delivery and performance of this Agreement by the Debtors does
        not
        (i) violate any of the provisions of any Organizational Documents of any
        Debtor
        or any judgment, decree, order or award of any court, governmental body or
        arbitrator or any applicable law, rule or regulation applicable to any Debtor
        or
        (ii) conflict with, or constitute a default (or an event that with notice
        or
        lapse of time or both would become a default) under, or give to others any
        rights of termination, amendment, acceleration or cancellation (with or without
        notice, lapse of time or both) of, any agreement, credit facility, debt or
        other
        instrument (evidencing any Debtor's debt or otherwise) or other understanding
        to
        which any Debtor is a party or by which any property or asset of any Debtor
        is
        bound or affected. No consent (including, without limitation, from stockholders
        or creditors of any Debtor) is required for any Debtor to enter into and
        perform
        its obligations hereunder.

      

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

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      

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

       

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

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      

      7. Duty
        To Hold In Trust.
        

      

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

      

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

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      

      8. Rights
        and Remedies Upon Default.
        

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

       

      (c) 
        For the purpose of enabling the Agent to further exercise rights and remedies
        under this Section 8 or elsewhere provided by agreement or applicable law,
        each
        Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured
        Parties, to the extent it is in such Debtor’s power, an irrevocable,
        nonexclusive license (exercisable without payment of royalty or other
        compensation to such Debtor) to use, license or sublicense following an Event
        of
        Default, any Intellectual Property now owned or hereafter acquired by such
        Debtor, and wherever the same may be located, and including in such license
        access to all media in which any of the licensed items may be recorded or
        stored
        and to all computer software and programs used for the compilation or printout
        thereof.

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      

      9. Applications
        of Proceeds.
        The
        proceeds of any such sale, lease or other disposition of the Collateral
        hereunder shall be applied first, to the actual expenses of retaking, holding,
        storing, processing and preparing for sale, selling, and the like (including,
        without limitation, any taxes, fees and other costs incurred in connection
        therewith) of the Collateral, to the reasonable attorneys’ fees and expenses
        incurred by the Secured Parties in enforcing their rights hereunder and in
        connection with collecting, storing and disposing of the Collateral, and
        then to
        satisfaction of the Obligations pro rata among the Secured Parties (based
        on
        then-outstanding principal amounts of Debentures at the time of any such
        determination), and to the payment of any other amounts required by applicable
        law, after which the Secured Parties shall pay to the applicable Debtor any
        surplus proceeds. If, upon the sale, license or other disposition of the
        Collateral, the proceeds thereof are insufficient to pay all amounts to which
        the Secured Parties are legally entitled, the Debtors will be liable for
        the
        deficiency, together with interest thereon, at the rate of 10% per annum
        or the
        lesser amount permitted by applicable law (the “Default
        Rate”),
        and
        the reasonable fees of any attorneys employed by the Secured Parties to collect
        such deficiency. To the extent permitted by applicable law, each Debtor waives
        all claims, damages and demands against the Secured Parties arising out of
        the
        repossession, removal, retention or sale of the Collateral, unless due solely
        to
        the gross negligence or willful misconduct of the Secured Parties as determined
        by a final judgment (not subject to further appeal) of a court of competent
        jurisdiction.

      

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

       

      11. Costs
        and Expenses.
        Each
        Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
        incurred in connection with any filing required hereunder, upon presentation
        of
        documentary evidence thereof, including without limitation, any financing
        statements pursuant to the UCC, continuation statements, partial releases
        and/or
        termination statements related thereto or any expenses of any searches
        reasonably required by the Secured Parties. The Debtors shall also pay all
        other
        claims and charges which in the reasonable opinion of the Secured Parties
        might
        prejudice, imperil or otherwise affect the Collateral or the Security Interest
        therein. The Debtors will also, upon demand, pay to the Secured Parties the
        amount of any and all reasonable expenses, including the reasonable fees
        and
        expenses of its counsel and of any experts and agents, which the Secured
        Parties
        may incur in connection with (i) the enforcement of this Agreement, (ii)
        the
        custody or preservation of, or the sale of, collection from, or other
        realization upon, any of the Collateral, or (iii) the exercise or enforcement
        of
        any of the rights of the Secured Parties under the Debentures. Until so paid,
        any fees payable hereunder not paid within twenty (20) days of written request
        by the Secured Parties shall be added to the principal amount of the Debentures
        and shall bear interest at the Default Rate.

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      

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

      

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

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      

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

      

      15. Power
        of Attorney; Further Assurances.

      

      (a) Each
        Debtor authorizes the Secured Parties, and does hereby make, constitute and
        appoint the Secured Parties and their respective officers, agents, successors
        or
        assigns with full power of substitution, as such Debtor’s true and lawful
        attorney-in-fact, with power, in the name of the various Secured Parties
        or such
        Debtor, to, after the occurrence and during the continuance of an Event of
        Default, (i) endorse any note, checks, drafts, money orders or other instruments
        of payment (including payments payable under or in respect of any policy
        of
        insurance) in respect of the Collateral that may come into possession of
        the
        Secured Parties; (ii) to sign and endorse any financing statement pursuant
        to
        the UCC or any invoice, freight or express bill, bill of lading, storage
        or
        warehouse receipts, drafts against debtors, assignments, verifications and
        notices in connection with accounts, and other documents relating to the
        Collateral; (iii) to pay or discharge taxes, liens, security interests or
        other
        encumbrances at any time levied or placed on or threatened against the
        Collateral; (iv) to demand, collect, receipt for, compromise, settle and
        sue for
        monies due in respect of the Collateral; (v) to transfer any Intellectual
        Property or provide licenses respecting any Intellectual Property; and (vi)
        generally, at the option of the Secured Parties, and at the expense of the
        Debtors, at any time, or from time to time, to execute and deliver any and
        all
        documents and instruments and to do all acts and things which the Secured
        Parties deem necessary to protect, preserve and realize upon the Collateral
        and
        the Security Interest granted therein in order to effect the intent of this
        Agreement and the Debentures all as fully and effectually as the Debtors
        might
        or could do; and each Debtor hereby ratifies all that said attorney shall
        lawfully do or cause to be done by virtue hereof. This power of attorney
        is
        coupled with an interest and shall be irrevocable for the term of this Agreement
        and thereafter as long as any of the Obligations shall be outstanding.
The
        designation set forth herein shall be deemed to amend and supersede any
        inconsistent provision in the Organizational Documents or other documents
        or
        agreements to which any Debtor is subject or to which any Debtor is a party.
        Without
        limiting the generality of the foregoing, after the occurrence and during
        the
        continuance of an Event of Default, each Secured Party is specifically
        authorized to execute and file any applications for or instruments of transfer
        and assignment of any patents, trademarks, copyrights or other Intellectual
        Property with the United States Patent and Trademark Office and the United
        States Copyright Office.

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

      18. Appointment
        of Agent.
        The
        Secured Parties hereby appoint CSC Trust Company of Delaware (in its individual
        capacity, together with its successors and assigns, “CSCTC”) to act as their
        agent (in such capacity, and together with its successors and assigns,
“Agent”)
        for
        purposes of exercising only those rights, duties and obligations expressly
        required to be performed by it hereunder. Such appointment shall continue
        until
        revoked in writing by a Majority
        in Interest, or until such time as CSCTC resigns as Agent hereunder, at which
        time a Majority in Interest
        shall
        appoint a new Agent.
        The
        Agent
        (as such and in its individual capacity) shall have the rights, responsibilities
        and immunities set forth in Annex
        B
        hereto.
        The Secured Parties shall be those persons listed in the Debenture Register
        (as
        defined in the Debentures) maintained by the Company. Promptly upon the Agent’s
        request therefor, the Company shall provide to the Agent, at the Company’s
        expense, a certified copy of the Debenture Register, and the Agent shall
        be
        fully protected in relying on such Debenture Register for purposes of
        identifying the Secured Parties and the Majority in Interest
        hereunder.

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

      

      19. Miscellaneous.

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      

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

      

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

      

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

      

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

      

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

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      

      (j) 
        All Debtors shall jointly and severally be liable for the obligations of
        each
        Debtor to the Secured Parties, the Agent, CSCTC, and their respective partners,
        members, shareholders, officers, directors, employees and agents
        hereunder.

      

      (k) Each
        Debtor shall indemnify, reimburse and hold harmless the Secured Parties,
        CSCTC,
        the Agent, and their respective partners, members, shareholders, officers,
        directors, employees and agents (collectively, “Indemnitees”)
        from
        and against any and all losses, claims, liabilities, damages, penalties,
        suits,
        costs and expenses, of any kind or nature, (including fees relating to the
        cost
        of investigating and defending any of the foregoing) imposed on, incurred
        by or
        asserted against such Indemnitee in any way related to or arising from or
        alleged to arise from this Agreement or the Collateral, except any such losses,
        claims, liabilities, damages, penalties, suits, costs and expenses which
        result
        from the gross negligence or willful misconduct of the Indemnitee as determined
        by a final, nonappealable decision of a court of competent jurisdiction.
        This
        indemnification provision is in addition to, and not in limitation of, any
        other
        indemnification provision in the Debentures, the Purchase Agreement (as such
        term is defined in the Debentures) or any other agreement, instrument or
        other
        document executed or delivered in connection herewith or therewith. The
        indemnities contained in this Section 19(k) shall survive the termination
        or
        expiration of this Agreement or the Transaction Documents and shall survive
        the
        removal or resignation of the Agent.

      

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

      

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

      

      [SIGNATURE
        PAGES FOLLOW]

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

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

      

      
        	
                DOBI
                  MEDICAL INTERNATIONAL, INC.

              
	
                 

                By:
                  /s/
                  Michael R. Jorgensen     

                Name:
                  Michael R. Jorgensen

                Title:
                  Executive Vice President and

                Chief
                  Financial Officer

              
	 
	
                DOBI
                  MEDICAL SYSTEMS, INC.

                 

                 

              
	
                By:
                  /s/
                  Michael R. Jorgensen     

                Name:
                  Michael R. Jorgensen

                Title:
                  Executive Vice President and

                Chief
                  Financial Officer

              

      

      

      The
        undersigned hereby acknowledges its acceptance of appointment as Agent in
        accordance with the terms hereof:

      

      CSC
        TRUST COMPANY OF DELAWARE

      

      By:
        Robert W.
        Eaddy          

      Name:
        Robert W. Eaddy  

      Title:
        Sr. Vice President

      

       

      

      [SIGNATURE
        PAGE OF HOLDERS FOLLOWS]

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

      [SIGNATURE
        PAGE OF HOLDERS TO DBMI SA]

       

      Name
        of
        Investing Entity: __________________________

      Signature
        of Authorized Signatory of Investing entity:
        _________________________

      Name
        of
        Authorized Signatory: _________________________

      Title
        of
        Authorized Signatory: __________________________

       

      [SIGNATURE
        PAGE OF HOLDERS FOLLOWS]

      

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

       

      ANNEX
        A

      to

      SECURITY

      AGREEMENT

      

      FORM
        OF ADDITIONAL DEBTOR JOINDER

      

      Security
        Agreement dated as of April 28, 2006 made by

      DOBI
        Medical International, Inc.

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

      to
        and in
        favor of

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

      

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

      

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

      

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

      

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

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

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

      

       

       

      
        	 	 	 [Name
                of
                Additional Debtor]
	 	 
	 
 	 
 	 
 
	 	 	By: 
	 	 
	 	Name:
	 	Title:
	 	 
	 	Address:
	 	 
	 Dated: 	 

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      ANNEX
        B

      to

      SECURITY

      AGREEMENT

      

      THE
        AGENT

      

      1. Appointment. The
        Secured Parties (all capitalized terms used herein and not otherwise defined
        shall have the respective meanings provided in the Security Agreement to
        which
        this Annex B is attached (including this Annex B, the "Agreement")),
        by
        their acceptance of the benefits of the Agreement, hereby designate CSCTC
        as the
        Agent to act as specified in the Agreement. Each Secured Party shall be deemed
        irrevocably to authorize the Agent to take only such action on its behalf
        under
        the provisions of the Agreement and to exercise only such powers and to perform
        only such duties hereunder as are specifically delegated to or required to
        be
        performed by the Agent by the terms hereof, or as specifically directed in
        writing by a Majority in Interest, and such other powers as are reasonably
        incidental thereto. The Agent may perform any of its rights, duties or
        obligations hereunder by or through its agents or employees,
        and
        other than in the case of gross negligence, fraud or willful misconduct,
        the
        Agent shall not be personally liable for the conduct or misconduct of such
        agents or employees if such agents or employees shall have been selected
        by the
        Agent with reasonable care.

      

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

      

      3. Lack
        of Reliance on the Agent.
        Independently and without reliance upon the Agent, each Secured Party, to
        the
        extent it deems appropriate, has made and shall continue to make (i) its
        own
        independent investigation of the financial condition and affairs of the Company
        and its subsidiaries in connection with such Secured Party’s investment in the
        Debtors, the creation and continuance of the Obligations, the transactions
        contemplated by the Transaction Documents, and the taking or not taking of
        any
        action in connection therewith, and (ii) its own appraisal of the
        creditworthiness of the Company and its subsidiaries, and of the value of
        the
        Collateral from time to time, and the Agent shall have no duty or
        responsibility, either initially or on a continuing basis, to provide any
        Secured Party with any credit, market or other information with respect thereto,
        whether coming into its possession before any Obligations are incurred or
        at any
        time or times thereafter. The Agent shall not be responsible to the Debtors
        or
        any Secured Party for any recitals, statements, information, representations
        or
        warranties herein or in any document, certificate or other writing delivered
        in
        connection herewith, or for the execution, effectiveness, genuineness, validity,
        enforceability, perfection, collectibility, priority or sufficiency of the
        Agreement or any other Transaction Document, or for the financial condition
        of
        the Debtors or the value of any of the Collateral, or be required to make
        any
        inquiry concerning either the performance or observance of any of the terms,
        provisions or conditions of the Agreement or any other Transaction Document,
        or
        the financial condition of the Debtors, or the value of any of the Collateral,
        or the existence or possible existence of any default or Event of Default
        under
        the Agreement, the Debentures or any of the other Transaction
        Documents.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

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

      

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

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

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

      

      7. Resignation
        by the Agent. 

      

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

      

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

      

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

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      8.
        Rights
        with respect to Collateral.
        Each
        Secured Party agrees with all other Secured Parties and the Agent (i) that
        it
        shall not, and shall not attempt to, exercise any rights with respect to
        its
        security interest in the Collateral, whether pursuant to any other agreement
        or
        otherwise (other than pursuant to this Agreement), or take or institute any
        action against the Agent or any of the other Secured Parties in respect of
        the
        Collateral or its rights hereunder (other than any such action arising from
        the
        breach of this Agreement) and (ii) that such Secured Party has no other rights
        with respect to the Collateral other than as set forth in this Agreement
        and the
        other Transaction Documents. Upon the acceptance of any appointment as Agent
        hereunder by a successor Agent, such successor Agent shall thereupon succeed
        to
        and become vested with all the rights, powers, privileges and duties of the
        retiring Agent and the retiring Agent shall be discharged from its duties
        and
        obligations under the Agreement, all without the need for further action
        by any
        person.  After any retiring Agent’s resignation or removal hereunder as
        Agent, the provisions of the Agreement including this Annex B shall inure
        to its
        benefit as to any actions taken or omitted to be taken by it while it was
        Agent.

      

      9.
        Compensation;
        Financial Liability.
        CSCTC
        shall receive from the Company as compensation for its services hereunder
        such
        fees as are set forth on Schedule A hereto and CSCTC shall be entitled to
        be
        reimbursed for its other reasonable expenses hereunder.
        No
        provision of this Agreement or any Transaction Document shall require the
        Agent
        to expend or risk its own funds or otherwise incur any personal financial
        liability in the performance of any of its rights or powers hereunder, nor
        shall
        the Agent be personally liable for indebtedness evidenced by or arising under
        any of the Transaction Documents.

       

      10.
        Merger
        or Consolidation of the Agent.
        Any
        entity into which the Agent may be merged or converted or with which it may
        be
        consolidated, or any entity resulting from any merger, conversion or
        consolidation to which such Agent shall be a party, or any entity to which
        substantially all the corporate trust business of the Agent may be transferred,
        shall, subject to the preceding sentence, be the Agent under this Agreement
        without further act.

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