Document:

Exhibit 10.2

 

 

LAURUS MASTER FUND, LTD.

 

and

 

ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION

 

Dated: August         , 2003

 

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  (a)
  General Definitions

  
	
   

  	
  (b) Accounting
  Terms

  
	
   

  	
  (c) Other Terms

  
	
   

  	
  (d)
  Rules of Construction

  
	
   

  	
   

  
	
  2.

  	
  Credit Advances

  
	
   

  	
   

  
	
  3.

  	
  Repayment
  of the Loans

  
	
   

  	
   

  
	
  4.

  	
  Procedure for
  Revolving Credit Advances

  
	
   

  	
   

  
	
  5.

  	
  Interest
  and Payments

  
	
   

  	
  (a) Interest.

  
	
   

  	
  (b) Payments.

  
	
   

  	
   

  
	
  6.

  	
  Security
  Interest

  
	
   

  	
   

  
	
  7.

  	
  Representations,
  Warranties and Covenants Concerning the Collateral

  
	
   

  	
   

  
	
  8.

  	
  Payment of
  Accounts

  
	
   

  	
   

  
	
  9.

  	
  Collection and
  Maintenance of Collateral

  
	
   

  	
   

  
	
  10.

  	
  Inspections and Appraisals

  
	
   

  	
   

  
	
  11.

  	
  Financial
  Reporting

  
	
   

  	
   

  
	
  12.

  	
  Additional
  Representations and Warranties

  
	
   

  	
   

  
	
  13.

  	
  Covenants.  The Company covenants as follows:

  
	
   

  	
   

  
	
  14.

  	
  Further Assurances

  
	
   

  	
   

  
	
  15.

  	
  Term of
  Agreement

  
	
   

  	
   

  
	
  16.

  	
  Termination
  of Lien

  
	
   

  	
   

  
	
  17.

  	
  Events of Default

  
	
   

  	
   

  
	
  18.

  	
  Remedies

  

 

i

 

	
  19.

  	
  Waivers

  
	
   

  	
   

  
	
  20.

  	
  Expenses

  
	
   

  	
   

  
	
  21.

  	
  Assignment By Laurus

  
	
   

  	
   

  
	
  22.

  	
  No Waiver; Cumulative
  Remedies

  
	
   

  	
   

  
	
  23.

  	
  Application
  of Payments

  
	
   

  	
   

  
	
  24.

  	
  No
  Shorting.

  
	
   

  	
   

  
	
  25.

  	
  Indemnity

  
	
   

  	
   

  
	
  26.

  	
  Revival

  
	
   

  	
   

  
	
  27.

  	
  Notices

  
	
   

  	
   

  
	
  28.

  	
  Governing Law,
  Jurisdiction and Waiver of Jury

  
	
   

  	
   

  
	
  (d)

  	
  Limitation
  of Liability

  
	
   

  	
   

  
	
  29.

  	
  Entire
  Understanding

  
	
   

  	
   

  
	
  30.

  	
  Severability

  
	
   

  	
   

  
	
  31.

  	
  Captions

  
	
   

  	
   

  
	
  32.

  	
  Counterparts;
  Telecopier Signatures

  
	
   

  	
   

  
	
  33.

  	
  Construction

  
	
   

  	
   

  
	
  34.

  	
  Publicity

  
	
   

  	
   

  
	
  35.

  	
  Public Resale.

  
	
   

  	
   

  
	
  36.

  	
  Affiliate or Third
  Party Sales.

  
	
   

  	
   

  
	
  37.

  	
  Representations and
  Warranties of Laurus

  
	
   

  	
   

  
	
  38.

  	
  Accredited Investor.

  

 

ii

 

SECURITY AGREEMENT

 

This
Security Agreement is made as of August 14, 2003 by and between LAURUS MASTER
FUND, LTD., a Cayman Islands corporation (“Laurus”) Artemis International Solutions
Corporation, a Delaware corporation (the “Company”) and Artemis International
Solutions Ltd., a United Kingdom corporation (the “Guarantor Subsidiary”).

 

BACKGROUND

 

The
Company has requested that Laurus make advances available to the Company; and

 

Laurus
has agreed to make such advances to the Company on the terms and conditions set
forth in this Agreement.

 

AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

 

the Ancillary Agreements shall include any and all modifications
or amendments thereto and any and all extensions or renewals thereof.

 

2.     Credit Advances.

 

(a)           (i)        Subject
to the terms and conditions set forth herein and in the Ancillary Agreements,
Laurus may make revolving credit advances (the “Revolving Credit Advances”) to
the Company from time to time during the Term which, in the aggregate at any
time outstanding, will not exceed the lesser of (x) (I) the Capital
Availability Amount minus (II)  such
reserves as Laurus may reasonably in its good faith judgment deem proper and
necessary from time to time to preserve and protect Collateral (the “Reserves”)
or (y) an amount equal to (I) the Accounts Availability minus (II) the
Reserves.  The amount derived at any
time from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to as
the “Formula Amount”.

 

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

 

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

 

(iv)         If
the Company or Guarantor Subsidiary does not pay any undisputed interest, fees,
costs or charges to Laurus when due, the Company shall thereby be deemed to
have requested, and Laurus is hereby authorized at its discretion to make and
charge to the Company’s account, a Revolving Credit Advance to the Company as
of such date in an amount equal to such unpaid interest, fees, costs or
charges.

 

(v)          If
the Company at any time is in Default of any of its Obligations and such
default has a Material Adverse Effect, Laurus may, after reasonable time to
cure, but need not, perform or observe such covenant on behalf and in the name,
place and stead of the Company (-or, at Laurus’ option, in Laurus’ name) and
may, after reasonable time to cure, but need not, take any and all other
actions which Laurus may deem necessary to cure or correct such failure
(including the payment of taxes, the satisfaction of Liens, the performance of
obligations owed to Account Debtors, lessors or other obligors, the procurement
and maintenance of insurance, the execution of assignments, security agreements
and financing statements, and the endorsement of instruments).  The amount of all reasonable monies expended
and all reasonable costs and expenses (including attorneys’ fees and legal
expenses) incurred by Laurus in connection with or as a result of the failure
by the Company to perform such agreements or the taking of such action by
Laurus shall be, provided that Laurus prevails, charged to the Company’s
account as a Revolving Credit Advance and added to the Obligations.  To facilitate Laurus’ performance or
observance of such covenants of the Company, upon the occurrence and
continuance of an Event of Default, and for so long as such Event of Default
shall be continuing beyond any applicable grace period, the Company, without
further action by any party hereto irrevocably appoints Laurus, or Laurus’
delegate, acting alone, as the Company’s attorney in fact (which appointment is
coupled with an interest) with the right (but 

 

2

 

not the duty) from time to time, and for the sole purpose of
protecting the Collateral, to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Company any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Company.  Any and all actions taken by Laurus pursuant
to any grant of power of attorney granted to it in this Agreement shall be
taken reasonably and in good faith.

 

(vi)          Laurus
will account to the Company monthly with a written statement of all Loans and
other advances, charges and payments made pursuant to this Agreement, and such
account rendered by Laurus shall be deemed final, binding and conclusive unless
Laurus is notified by the Company in writing to the contrary within fifteen
(15) days of the date of receipt by the Company of such written statement of
such account. If the Company shall dispute any entry on the written statement
it shall specify such dispute for each account specifying the item or items to
which objection is made. Laurus and the Company hereby agree that time is of
the essence in such disputes and to fully cooperate to resolve any such
disputes in good faith.

 

(vii)         During
the Term, the Company may borrow, prepay and reborrow Revolving Credit
Advances, all in accordance with the terms and conditions hereof.

 

(viii)         If
any Eligible Account is not paid by the Account Debtor within ninety (90) days
after the date that such Eligible Account was invoiced or if any Account Debtor
asserts a deduction, dispute, contingency, set-off, or counterclaim with
respect to any Eligible Account, the Company may (A) replace such Eligible
Account with an equivalent Eligible Account or additional collateral,
(provided, however, that the existing Eligible Accounts are not sufficient to
cover the outstanding balance of the Obligations) or (B) reimburse Laurus for
the amount of the Revolving Credit Advance made with respect to such Eligible.

 

(b)          Following the occurrence of an Event
of Default, Laurus may, at its option, elect to convert the credit facility
contemplated hereby to an accounts receivable purchase facility.  Upon such election by Laurus (subsequent
notice of which Laurus shall provide to the Company), the Company and Guarantor
Subsidiary shall be deemed to hereby have sold, assigned, transferred, conveyed
and delivered to Laurus, and Laurus shall be deemed to have purchased, at a
price of not less than 85% of the amount of the outstanding Accounts, and
received from the Company and Guarantor Subsidiary, all right, title and
interest of the Company and Guarantor Subsidiary in and to all Accounts which
shall at any time constitute Eligible Accounts (the “Receivables
Purchase”).  All outstanding Loans
hereunder shall be deemed obligations under such accounts receivable purchase
facility.  The conversion to an accounts
receivable purchase facility in accordance with the terms hereof shall be
deemed an exercise by Laurus of its secured creditor rights under Article 9 of
the UCC but shall not prevent Laurus from pursuing any other remedies otherwise
available to it.  Immediately following
Laurus’ request, the Company shall execute and cause Guarantor Subsidiary to
execute all such further documentation as may be required by Laurus to more
fully set forth the accounts receivable purchase facility herein contemplated,
including, without limitation, and subject to the Company’s approval, which
approval shall not be unreasonably withheld, Laurus’ standard form of accounts
receivable purchase agreement and account debtor notification letters, but the 

 

3

 

Company’s or Guarantor Subsidiary’s failure to enter into any such
documentation shall not impair or affect the Receivables Purchase in any manner
whatsoever.

 

3.            Repayment of the Loans.  The Company shall be required to (a) make a
mandatory prepayment hereunder within ten (10) days of the date on which the
aggregate outstanding principal balance of the Revolving Credit Advances made
by Laurus to the Company hereunder is in excess of the Formula Amount, in an
amount equal to such excess; and (b) repay on the expiration of the Term (i)
the then aggregate outstanding principal balance of the Loans made by Laurus to
the Company hereunder together with accrued and unpaid interest, fees and
charges and (ii) all other amounts owed Laurus under this Agreement and the
Ancillary Agreements.  Any payments of
principal, interest, fees or any other amounts payable hereunder or under any
Ancillary Agreement shall be made prior to 12:00 noon (New York time) on the
due date thereof in immediately available funds.

 

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

 

5.            Interest and Payments.

 

(a)           Interest.

 

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

 

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

 

(iii)      Effective
upon the occurrence of any Event of Default and for so long as any Event of
Default shall be continuing beyond any applicable grace period, the Contract
Rate shall automatically be increased to one and one-half percent (1.5%) per
month (such increased rate, the “Default Rate”), and all outstanding
Obligations, including unpaid 

 

4

 

interest, shall continue to accrue interest from the date of such
Event of Default at the Default Rate applicable to such Obligations until such
Event of Default is cured.

 

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

 

(v)        The
Company shall pay principal, interest and, except for any amounts disputed in
good faith, all other amounts payable hereunder, or under any Ancillary
Agreement, without any deduction whatsoever, including any deduction for any
set-off or counterclaim.

 

(b)   Payments.

 

(i)         Closing/Annual
Payments.  Upon execution of this
Agreement by the Company and Laurus, the Company shall pay to Laurus Capital
Management, LLC a closing payment in an amount equal to three and one half
percent (3.5%) of the Capital Availability Amount.  Such payment shall be deemed fully earned on the Closing Date and
shall not be subject to rebate or proration for any reason.

 

(ii)        Collateral
Management Payment.  For
underwriting, processing and supervising the Company’s and Guarantor
Subsidiary’s Accounts, the Company shall pay Laurus a monthly collateral
management payment in an amount equal to 0.075% of the average outstanding
Revolving Credit Advances during the immediately preceding month.  Such payment shall be payable on the first
day of each month in arrears by a charge by Laurus to the Company’s account.  Notwithstanding the foregoing, any unpaid
fee shall be immediately due and payable upon termination of this Agreement.

 

(iii)       Unused
Line Payment.  If, for any month,
the average outstanding Revolving Credit Advances (the “Average Revolving
Amount”) are less than the Capital Availability Amount, the Company shall pay
to Laurus at the end of such month a payment (calculated on a per annum basis)
in an amount equal to 0.40% of the amount by which the Capital Availability
Amount exceeds the Average Revolving Amount. 
Notwithstanding the foregoing, any unpaid fee shall be immediately due
and payable upon termination of this Agreement.

 

(iv)       Overadvance
Payment.  Without affecting the
Company’s obligation to immediately repay any Loans which exceed the amounts
permitted by Section 2 (“Overadvances”), in the event an Overadvance occurs or
is made by Laurus, all such Overadvances shall bear interest at a monthly rate
equal to 0.25% of the amount of such Overadvances for each month or portion
thereof as such amounts shall be outstanding.

 

(v)        Financial
Information Default.  Without
affecting Laurus’ other rights and remedies, in the event the Company fails to
deliver the financial information required by Section 11 on or before the date
required by this Agreement, the Company shall pay Laurus a 

 

5

 

fee in the
amount of $250.00 per week (or portion thereof) for each such failure until
such failure is cured to Laurus’ satisfaction or waived in writing by
Laurus.  Such fee shall be charged to
the Company’s account upon the occurrence of each such failure.  Such fee shall not apply in the case where
such failure of timely delivery was due to reasonable cause.

 

6.    Security Interest.

 

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

 

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

 

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

 

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

 

(b)   Neither the Company nor the Subsidiary
Guarantor shall encumber, mortgage, pledge, assign or grant any Lien in any
Collateral of the Company or the Subsidiary Guarantor any of the Company’s or
the Subsidiary Guarantor’s other assets to anyone other than Laurus and except
for Permitted Liens.

 

6

 

(c)   The Liens granted pursuant to this Agreement,
upon completion of the filings and other actions listed on Exhibit 7(c) (which,
in the case of all filings and other documents referred to in said Exhibit,
have been delivered to Laurus in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of Laurus as security for
the prompt and complete payment and performance of the Obligations, enforceable
in accordance with the terms hereof against any and all creditors of and any
purchasers from the Company and the Subsidiary Guarantor, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors’ rights, and (b)
general principles of equity that restrict the availability of equitable or
legal remedies, and such security interest is prior to all other Liens in
existence on the date hereof.

 

(d)    To the Company’s knowledge, except for Liens
held by Foothill Capital Corporation, no effective security agreement,
mortgage, deed of trust, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the Collateral
is or will be on file or of record in any public office, except those relating
to Permitted Liens or those that would fail to have a Material Adverse Effect.

 

(e)   Neither the Company nor the Subsidiary
Guarantor shall dispose of any of the Collateral whether by sale, lease or
otherwise except in the ordinary course of business and for the disposition or
transfer in the ordinary course of business during any fiscal year of obsolete
and worn-out Equipment having an aggregate fair market value of not more than
$75,000 and only to the extent that (i) the proceeds of any such disposition
are used to acquire replacement Equipment which is subject to Laurus’ first
priority security interest or (ii) the proceeds of which are remitted to Laurus
in reduction of the Obligations.

 

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

 

(g)   Each of theCompany and the Subsidiary
Guarantor shall promptly, and in any event within four (4) Business Days after
the same is acquired by it, notify Laurus of any commercial tort claim (as
defined in the UCC), directly related to the Collateral, acquired by it and
unless otherwise consented by Laurus, the Company and or the the Subsidiary
Guarantor shall enter into a supplement to this Agreement granting to Laurus a
Lien in such commercial tort claim.

 

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

 

7

 

(i)    If the Company or the Subsidiary Guarantor
retains possession of any Chattel Paper or Instrument with Laurus’ consent,
such Chattel Paper and Instruments shall be marked with the following
legend:  “This writing and obligations
evidenced or secured hereby are subject to the security interest of Laurus
Master Fund, Ltd.”

 

(j)    The Company shall perform in a reasonable
time all other steps requested by Laurus to obtain termination of the Foothill
Capital Corporation Liens, and create and maintain in Laurus’ favor a valid
perfected first Lien in all Collateral subject only to Permitted Liens.

 

(k)   The Company and/or the Subsidiary Guarantor
shall notify Laurus promptly and in any event within five (5) Business Days
after obtaining actual knowledge thereof (i) of any material event or
circumstance that to the Company’s or the Subsidiary Guarantor’s knowledge
would cause Laurus to consider any then existing Account as no longer
constituting an Eligible Account; (ii) of any material delay in the Company’s
or Guarantor Subsidiary’s performance of any of its obligations to any Account
Debtor; (iii) of any assertion by any Account Debtor of any material claims,
offsets or counterclaims; (iv) of any allowances, credits and/or monies granted
by the Company or Guarantor Subsidiary to any Account Debtor; (v) of all
material adverse information relating to the financial condition of an Account
Debtor; (vi) of any material return of goods; and (vii) of any loss, damage or
destruction of any of the Collateral.

 

(l)    All Eligible Accounts (i) represent complete
bona fide transactions which, to the Company’s knowledge, require no further
act under any circumstances on the Company’s or Guarantor Subsidiary’s part to
make such Accounts payable by the Account Debtors, (ii) are not subject to any
present, contingent or, to the Company’s knowledge, future offsets or
counterclaims, and (iii) do not represent bill and hold sales, consignment
sales, guaranteed sales, sale or return or other similar understandings or obligations
of any Affiliate or Subsidiary of the Company. 
Neither the Company nor Guarantor Subsidiary has made, and will not
make, except in the ordinary course of business consistent with past practice,
any agreement with any Account Debtor for any extension of time for the payment
of any Account, any compromise or settlement for less than the full amount
thereof, any release of any Account Debtor from liability therefor, or any
deduction therefrom except a discount or allowance for prompt or early payment allowed
by the Company or Guarantor Subsidiary in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.

 

(m)  Each of the Company and the Subsidiary
Guarantor shall keep and maintain its Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall,
consistent with industry practices, at all times be maintained and preserved.  Each of the Company the Subsidiary Guarantor
shall use its best efforts to avoid having any such items become a Fixture to
real estate or accessions to other personal property.

 

(n)   Each of the Company and the Subsidiary
Guarantor shall maintain and keep all of its Books and Records concerning the
Collateral at the Company’s executive offices listed in Exhibit 12(d).

 

8

 

(o)   Each of the Company and the Subsidiary
Guarantor shall maintain and keep the Collateral at the addresses listed in
Exhibit 12(d), provided, that the Company and the Subsidiary Guarantor may
change such locations or open a new location, provided that it provides Laurus
at least thirty (30) days prior written notice of such changes or new location
and (ii) prior to such change or opening of a new location it executes and
delivers to Laurus such agreements as Laurus may request, including landlord
agreements, mortgagee agreements and warehouse agreements, each in form and
substance reasonably satisfactory to Laurus.

 

(p)   Exhibit 7(p) lists all banks and other
financial institutions at which the Company and the Subsidiary Guarantor
maintains deposits and/or other accounts, and such Exhibit correctly identifies
the name, address and telephone number of each such depository, the name in
which the account is held, a description of the purpose of the account, and the
complete account number.  Neither the
Company nor the Subsidiary Guarantor shall establish any depository or other
bank account of any with any financial institution (other than the accounts set
forth on Exhibit 7(p) without Laurus’ prior written consent, which consent
shall not be unreasonably withheld.

 

8.     Payment of Accounts.

 

(a)   The Company will direct all of its present
and future Account Debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the lockbox
maintained by the Company (the “Lockbox”) with Commerce Bank pursuant to the
terms of the Lockbox Agreement dated August    , 2003 or such
other financial institution reasonably acceptable to Laurus in writing as may
be selected by the Company (the “Lockbox Bank”).  On or prior to the Closing Date, the Company shall and shall
cause the Lockbox Bank to enter into all such documentation acceptable to
Laurus pursuant to which, among other things, the Lockbox Bank agrees to:  (a) sweep the Lockbox on a daily basis and
deposit all checks received therein to an account designated by Laurus in
writing and (b) comply only with the instructions or other directions of Laurus
concerning the Lockbox.  All of the
Company’s invoices, account statements and other written or oral communications
directing, instructing, demanding or requesting payment of any Account of the
Company or any other amount constituting Collateral shall conspicuously direct
that all payments be made to the Lockbox or such other address as Laurus may
direct in writing.  If, notwithstanding
the instructions to Account Debtors, the Company receives any payments, the Company
shall immediately remit such payments to Laurus in their original form with all
necessary endorsements.  Until so
remitted, the Company shall hold all such payments in trust for and as the
property of Laurus and shall not commingle such payments with any of its other
funds or property.  The Company shall
pay Laurus five percent (5%) of the amount of any payment so received by the
Company and not delivered in kind to Laurus within ten (10) Business Days
following the Company’s receipt thereof.

 

(b)   The Subsidiary
Guarantor will direct all of its present and future Account Debtors and other
Persons obligated to make payments constituting Collateral to make such
payments directly to the lockbox maintained by the Subsidiary Guarantor (the
“Lockbox”) with Commerce Bank pursuant to the terms of the Lockbox Agreement
dated August    , 2003 or such other financial institution
reasonably acceptable to Laurus in writing as may be selected by the Subsidiary
Guarantor (the “the Subsidiary Guarantor Lockbox Bank”).  Within 20 days of the 

 

9

 

Closing Date, the Subsidiary Guarantor shall and shall cause the
Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant
to which, among other things, the Lockbox Bank agrees to:  (a) sweep the Lockbox on a daily basis and
deposit all checks received therein to an account designated by Laurus in
writing and (b) comply only with the instructions or other directions of Laurus
concerning the Lockbox.  All of the
Subsidiary Guarantor’s invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of any
Account of the Subsidiary Guarantor or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox or such
other address as Laurus may direct in writing. 
If, notwithstanding the instructions to Account Debtors, the Subsidiary
Guarantor receives any payments, the Subsidiary Guarantor shall immediately remit
such payments to Laurus in their original form with all necessary
endorsements.  Until so remitted, the
Subsidiary Guarantor shall hold all such payments in trust for and as the
property of Laurus and shall not commingle such payments with any of its other
funds or property.  The Subsidiary
Guarantor shall pay Laurus five percent (5%) of the amount of any payment so
received by the Subsidiary Guarantor and not delivered in kind to Laurus within
ten (10) Business Days following the Subsidiary Guarantor’s receipt thereof.

 

(c)   At Laurus’ election, if an Event of Default
has occurred and is continuing beyond any applicable grace period, Laurus may
notify the Company’s Account Debtors of Laurus’ security interest in the
Accounts, collect them directly and charge the reasonable collection costs and
expenses thereof to the Company’s account.

 

9.     Collection and Maintenance of
Collateral.

 

(a)   Laurus may verify the Company’s and Guarantor
Subsidiary’s Accounts utilizing an audit control company or any other agent of
Laurus.

 

(b)   Laurus will credit (conditional upon final
collection) all proceeds of Accounts to the Company’s account one (1) Business
Day after receipt by Laurus of good funds in dollars of the United States of
America in Laurus’ account.  Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall
be deemed received on the next Business Day.

 

(c)   As Laurus receives the proceeds of Accounts,
it shall apply such proceeds to (A) Revolving Credit Advances including
Overadvances made by Laurus, if any, (B) the interest and fees earned by Laurus
with respect to such Accounts, and (C) any undisputed amounts otherwise due
Laurus pursuant to Sections 2, 5(b), 20 and 24 hereof which have theretofore
not been paid, and if no Revolving Credit Advances are then outstanding, pay to
the Company within two (2) business days the aggregate amount (in excess of
$7,500) so collected.  Following the
occurrence and during the continuance of an Event of Default, Laurus shall have
the right to apply all proceeds of Accounts to the Obligations in such order as
Laurus shall elect.

 

10.   Inspections and Appraisals.  Once each calendar quarter, during normal
business hours, and with prior seventy-two (72) hours notice, Laurus, and/or
any agent of Laurus shall have the right to (a) have access to, visit, inspect,
review, evaluate and make physical verification and appraisals of the Company’s
or the Subsidiary Guarantor’s properties and the Collateral, (b) inspect, audit
and copy and make extracts from the Company’s or the Subsidiary Guarantor’s
Books and Records, including management letters prepared by independent 

 

10

 

accountants, and (c) discuss with the Company’s or the Subsidiary
Guarantor’s principal officers, and independent accountants, the Company’s or
the Subsidiary Guarantor’s business, assets, liabilities, financial condition,
results of operations and business prospects. 
Each of the Company and the Subsidiary Guarantor will deliver to Laurus
any instrument reasonably necessary for Laurus to obtain records from any
service bureau maintaining records for the Company or the the Subsidiary
Guarantor.  If any internally prepared
financial information, including that required under this Section is unsatisfactory
in any manner to Laurus, Laurus may request that the Accountants review the
same.

 

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

 

(a)   As soon as available, and in any event within
ninety (90) days after the end of each fiscal year of the Company or the
Subsidiary Guarantor, the Company’s or the Subsidiary Guarantor’s, on a
consolidated basis, audited financial statements with a report of independent
certified public accountants of recognized standing selected by Company or the
Subsidiary Guarantor and reasonably acceptable to Laurus (the “Accountants”),
which annual financial statements shall include the Company’s and the
Subsidiary Guarantor’s balance sheet as at the end of such fiscal year and the
related statements of the Company’s or the Subsidiary Guarantor’s income,
retained earnings and cash flows for the fiscal year then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis, all in
reasonable detail and prepared in accordance with GAAP, together with copies of
any management letters prepared by such accountants;

 

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

 

(c)   Within twenty (20) days after the end of each
month (or upon the occurrence and continuance of an Event of Default more
frequently if Laurus so requests), agings of the Company’s and Guarantor
Subsidiary’s Accounts, unaudited trial balances and their accounts payable and
a calculation of the Company’s and Guarantor Subsidiary’s Accounts, Eligible
Accounts and Inventory as at the end of such month

 

(d)   Promptly after (i) the filing thereof, copies
of the Company’s most recent registration statements and annual, quarterly,
monthly or other regular reports which the

 

11

 

Company files with the Securities and Exchange Commission, and
(ii) the issuance thereof, copies of such financial statements, reports and
proxy statements as the Company shall send to its stockholders.

 

12.   Additional Representations and
Warranties.  Each of the
Company and the Subsidiary Guarantor jointly and severally represents and
warrants (each of which such representations and warranties shall be deemed
repeated upon the making of a request for a Revolving Credit Advance and made
as of the time of each Revolving Credit Advance made hereunder), as applicable,
as follows:

 

(a)   Each of the Company and the Subsidiary
Guarantor is a corporation duly incorporated and validly existing under the
laws of the jurisdiction of its incorporation and duly qualified and in good
standing in every other state or jurisdiction in which the nature of the
Company’s or the Subsidiary Guarantor’s business requires such qualification.

 

(b)   The execution, delivery and performance of
this Agreement and the Ancillary Agreements (i) have been duly authorized, (ii)
are not in contravention of the Company’s nor the Subsidiary Guarantor’s
certificate of incorporation, by-laws or of any indenture, agreement or
undertaking to which the Company or the Subsidiary Guarantor is a party or by
which the Company or the Subsidiary Guarantor is bound and (iii) are within the
Company’s and the Subsidiary Guarantor’s corporate powers.

 

(c)   This Agreement and the Ancillary Agreements
executed and delivered by the Company and the Subsidiary Guarantor are the
Company’s and the Subsidiary Guarantor’s legal, valid and binding obligations,
enforceable in accordance with their terms.

 

(d)   Exhibit 12(d) sets forth both the Company’s
name and the Subsidiary Guarantor’s name as it appears in official filing in
the state of its incorporation, the type of entity of each, the organizational
identification number issued by the Company’s and the the Subsidiary
Guarantor’s state of incorporation or a statement that no such number has been
issued, the Company’s and the Subsidiary Guarantor’s state of incorporation,
and the location of the Company’s the Subsidiary Guarantor’s chief executive
office, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept (including in each
case the county of such locations) and, except as set forth in such Exhibit
12(d), such locations have not changed during the preceding twelve months.  As of the Closing Date, during the prior two
years, except as set forth in Exhibit 12(d), neither the Company nor the
Subsidiary Guarantor has been known as or conducted business in any other name
(including trade names).  The Company
has only one state of incorporation.

 

(e)   Based upon the Employee Retirement Income
Security Act of 1974 (“ERISA”), and the regulations and published
interpretations thereunder: (i) the Company has not engaged in any Prohibited
Transactions as defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code, as amended; (ii) the Company has met all applicable
minimum funding requirements under Section 302 of ERISA in respect of its
plans; (iii) the Company has no knowledge of any event or occurrence which
would cause the Pension Benefit Guaranty Corporation to institute proceedings
under Title IV of ERISA to terminate any employee benefit plan(s); (iv) the
Company has no fiduciary responsibility for investments with

 

12

 

respect to any plan existing for the benefit of persons other than
the Company’s employees; and (v) the Company has not withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.

 

(f)

 

(g)   To the best of its knowledge, there is no
pending or threatened litigation, action or proceeding which involves the possibility
of having a Material Adverse Effect.

 

(h)   As of the date of issuance, all balance
sheets and income statements which have been delivered to Laurus fairly,
accurately and properly state the Company’s and the Subsidiary Guarantor’s
financial condition on a basis consistent with that of previous financial
statements and there has been no material adverse change in the Company’s or
the Subsidiary Guarantor’s financial condition as reflected in such statements
since the balance sheet date of the statements last delivered to Laurus and
such statements do not fail to disclose any fact or facts which might have a
Material Adverse Effect on the Company’s or the Subsidiary Guarantor’s
financial condition.

 

(i)    Each of the Company and the Subsidiary
Guarantor possesses all of the Intellectual Property necessary to conduct its
business.  To the best of its knowledge,
there has been no assertion or claim of violation or infringement with respect
to any Intellectual Property.  Exhibit
12(i) sets forth all Intellectual Property of the Company.

 

(j)    Neither this Agreement, the exhibits and
schedules hereto, the Ancillary Agreements nor any other document delivered by
the Company or Guarantor Subsidiary to Laurus or its attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain, on the date when made, any untrue statement of a material
fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.  Any
financial projections and other estimates provided to Laurus by the Company
were based on the Company’s experience in the industry and on assumptions of
fact and opinion as to future events which the Company, at the date of the
issuance of such projections or estimates, believed to be reasonable.  As of the date hereof no facts have come to
the attention of the Company that would, in its opinion, require the Company to
revise or amplify in any material respect the assumptions underlying such
projections and other estimates or the conclusions derived there from.

 

(k)   The issuance of the Note will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
“Securities Act”), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.  Neither the Company nor any of its
Affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.

 

(l)    The common stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act and the
Company has timely filed all proxy statements, reports, 

 

13

 

schedules, forms, statements and other documents required to be
filed by it under the Exchange Act.  The
Company has furnished Laurus with copies of (i) its Annual Report on Form 10-K
for the fiscal year ended December 31, 2002 and (ii) its Quarterly Reports on
Form 10-Q for the fiscal quarter ended March 31, 2003, (the “SEC
Reports”).  Each SEC Report was, at the
time of its filing, in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and
the notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of
the Company included in the SEC Reports comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto.  Such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed) and fairly present in all material respects the financial position
of the Company and its subsidiaries as of 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 year-end audit adjustments)  Notwithstanding
the immediately foregoing, Laurus acknowledges and understands that the Company
has engaged Squar Milner to be its independent auditor to conduct a re-auditing
of its 2001 financial statements (the “Re-Audit”). The Re-Audit is being
conducted because KPMG, the Company’s previous independent auditors, would not
consent to the inclusion of its audit report on the Company’s 2001 annual
report on Form 10-K.  With this
acknowledgement, Laurus agrees that, if the Re-Audit is completed by September
30, 2003 and the 2001 Form 10-K is filed promptly thereafter, the Re-Audit will
not give rise to a breach of any representation or warranty hereunder.

 

(m)  The Company’s common stock is listed for
trading on the OTC Bulletin Board and satisfies all requirements for the
continuation of such listing.  The
Company has not received any notice that its common stock will be delisted from
the OTC Bulletin Board or that its common stock does not meet all requirements
for the continuation of such listing.

 

(n)   Neither the Company, nor any of its
affiliates, nor, to the best of its knowledge, any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offering of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions.  Nor will the Company or any
of its affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.

 

(o)   The Securities are restricted securities as
of the date of this Agreement.  The
Company will not issue any stop transfer order or other order impeding the sale
and delivery of any of the Securities at such time as the Securities are
registered for public sale or an exemption from registration is available,
except as required by federal securities laws.

 

14

 

(p)   The Company understands the nature of the
Securities being issued hereunder and recognizes that they may have a potential
dilutive effect.  The Company
specifically acknowledges that its obligation to issue the shares of Common
Stock upon conversion of the Note is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.

 

(q)   There is no agreement that has not been filed
with the SEC as an exhibit to a registration statement or other applicable form
the breach of which could have a material and adverse effect as to the Company
and its subsidiaries, or would prohibit or otherwise interfere with the ability
of the Company to enter into and perform any of its obligations under this
Agreement or the Registration Rights Agreement executed by the Company in favor
of Laurus in any material respect.

 

13.   Covenants. 
Each of the Company and the Subsidiary Guarantor covenants as
follows:

 

(a)   Neither the Company nor the Subsidiary
Guarantor will, without the prior written consent of Laurus, which consent
shall not be unreasonably withheld, change (i) its name as it appears in the
official filings in the state of its incorporation or formation, (ii) the type
of legal entity it is, (iii) its organization identification number, if any,
issued by its state of incorporation, (iv) its state of incorporation or (v)
amend its certificate of incorporation, by-laws or other organizational
document if such amendment could reasonably be expected have a Material Adverse
Effect. Notwithstanding the foregoing, the amendments to the Company’s
certificate of incorporation proposed and set forth in the resolutions of the
Company’s Board of Directors dated April 14, 2003 and set forth on Schedule
13(a) hereto (the “April 14th Amendments”) shall not require the consent of
Laurus.

 

(b)   The operation of the Company’s and the
Subsidiary Guarantor ‘s business is and will continue to be in compliance in
all material respects with all applicable federal, state and local laws, rules
and ordinances, including to all laws, rules, regulations and orders relating
to taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health safety and environmental matters.

 

(c)   Each of the Company and the Subsidiary
Guarantor will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon the Company or the Subsidiary
Guarantor or any of the Collateral unless such amounts are being diligently
contested in good faith by appropriate proceedings provided that (i) adequate
reserves with respect thereto are maintained on the books of the Company or the
Subsidiary Guarantor in conformity with GAAP and (ii) the related Lien shall
have no effect on the priority of the Liens in favor of Laurus or the value of
the assets in which Laurus has a Lien.

 

(d)   Upon possession of actual knowledge, each of
the Company and the Subsidiary Guarantor will promptly inform Laurus in writing
of: (i) the commencement of all proceedings and investigations by or before
and/or the receipt of any notices from, any governmental or nongovernmental
body and all actions and proceedings in any court or before any arbitrator
against or in any way concerning any event which might singly or in the
aggregate,

 

15

 

have a Material Adverse Effect; (ii) any amendment of the
Company’s or the Subsidiary Guarantor’s certificate of incorporation, by-laws
or other organizational document if such amendment could reasonably be expected
to have a Material Adverse Effect, provided however, that the April 14th
Amendments shall not require the consent of Laurus; (iii) any change which has
had or might have a Material Adverse Effect; (iv) any Event of Default or
Default; (v) any default or any event which with the passage of time or giving
of notice or both would constitute a default under any agreement for the
payment of money to which the Company is a party or by which the Company or the
Subsidiary Guarantor any of the Company’s or the Subsidiary Guarantor’s
properties may be bound which would have a Material Adverse Effect and (vi) any
change in the Company’s or the Subsidiary Guarantor’s name or any other name
used in its business.

 

(e)   Except for present or future indebtedness
expressly subordinated to Laurus, neither the Company nor the Subsidiary
Guarantor, as applicable, will (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other than
the Company’s indebtedness to Laurus and as set forth on Exhibit 13(e)(i) attached
hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
$200,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of negotiable
instruments by a Company for deposit or collection or similar transactions in
the ordinary course of business; (iv) directly or indirectly declare, pay or
make any dividend or distribution on any class of its Stock or apply any of its
funds, property or assets to the purchase, redemption or other retirement of
any Stock of a Company; (v) except as listed on Schedule 10, purchase or hold
beneficially any Stock or other securities or evidences of indebtedness of,
make or permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including any partnership
or joint venture, except (x) travel advances and (y) except for outstanding
loans shown on Schedule    , loans to the Company’s officers and
employees not exceeding at any one time an aggregate of $25,000; (vi) directly
or indirectly, prepay any indebtedness (other than to Laurus), or repurchase,
redeem, retire or otherwise acquire any indebtedness; (vii) materially change
the nature of the business in which it is presently engaged; (viii) change its
fiscal year or make any changes in accounting treatment and reporting practices
without prior written notice to Laurus except as required by GAAP or in the tax
reporting treatment or except as required by law; (ix) enter into any
transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; or (x) bill Accounts under any name except the
present name of the Company.

 

(f)    None of the proceeds of the Loans hereunder
will be used directly or indirectly to “purchase” or “carry” “margin stock” or
to repay indebtedness incurred to “purchase” or “carry” “margin stock” within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.

 

(g)   The Company and the Subsidiary Guarantor will
bear the full risk of loss from any loss of any nature whatsoever with respect
to the Collateral.  At the Company’s own
cost and expense in amounts and with carriers reasonably acceptable to Laurus,
the Company and the Subsidiary Guarantor shall (i) keep all its insurable
properties and properties in which it has an interest insured against the
hazards of fire, flood, sprinkler leakage, those hazards covered by

 

16

 

extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to the Company’s or the Subsidiary Guarantor’s including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company’s or the Subsidiary
Guarantor’s insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company either directly or through Governmental Authority to draw upon such
funds or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury,
death or property damage suffered by others; (iv) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which the Company or the Subsidiary Guarantor is
engaged in business; and (v) furnish Laurus with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting the Company’s workers’
compensation policy, endorsements to such policies naming Laurus as “co-insured”
or “additional insured” and appropriate loss payable endorsements in form and
substance satisfactory to Laurus, naming Laurus as loss payee, and (z) evidence
that as to Laurus the insurance coverage shall not be impaired or invalidated
by any act or neglect of the Company or the Subsidiary Guarantor and the
insurer will provide Laurus with at least thirty (30) days notice prior to
cancellation.  The Company and the
Subsidiary Guarantor shall instruct the insurance carriers that in the event of
any loss thereunder, the carriers shall make payment for such loss to Laurus
and not to the Company and/or the Subsidiary Guarantor and Laurus jointly.  If any insurance losses are paid by check,
draft or other instrument payable to the Company and/or the Subsidiary
Guarantor and Laurus jointly, Laurus may endorse the Company’s name
thereon and do such other things as Laurus may deem advisable to reduce the
same to cash.  Laurus may reasonably
adjust and compromise claims without the prior approval from the Company.  All loss recoveries received by Laurus upon
any such insurance may be applied to the Obligations, in such order as per the
terms of this Agreement.  Any surplus
shall be paid by Laurus to the Company or applied as may be otherwise required
by law.  Any deficiency thereon shall be
paid by the Company or the Subsidiary Guarantor, as applicable, to Laurus, on
demand.

 

(h)   Neither the Company nor the Subsidiary
Guarantor shall at any time permit any undisputed accounts payable to remain
unpaid more than one-hundred twenty (120) days from the due date thereof unless
there exists an agreement in writing between the Company and/or the Subsidiary
Guarantor and any Person with respect to such payable permitting extended
payment terms or a bona fide dispute exists with respect to such accounts
payable, such amounts are being diligently contested in good faith and adequate
reserves with respect thereto are maintained on the books of the Company or the
Subsidiary Guarantor in conformity with GAAP (or its UK equivalent).

 

(i)    The Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to
provide for the conversion of the Note and exercise of the Warrant.

 

(j) 
Future Equity Funding. 
Except as set forth in the Secured Convertible Note nothing in this
Agreement shall be deemed to preclude the Company from any future fund 

 

17

 

raising
efforts through the issuance of Common Stock or any other securities, or
through the issuance of subordinated debt or convertible securities.

 

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

 

15.   Term of Agreement. 
Laurus’ agreement to make Loans and extend financial accommodations
under and in accordance with the terms of this Agreement or any Ancillary
Agreement shall continue in full force and effect until the expiration of the
Initial Term.  At the expiration of the
Initial Term, this Agreement shall be deemed to be automatically renewed for an
additional period equal to the Initial Term and thereafter to be automatically
renewed by succeeding terms of equal length at the end of the first and each
succeeding renewal term (each, a “Renewal Term”), unless (i) the Company shall
(a) deliver written notice of cancellation to Laurus not earlier than 90 days
and not later than 30 days prior to the expiration date of the Initial Term or
any succeeding Renewal Term and (b) has paid in full in cash all Obligations on
or prior to the expiration date of the Initial Term or any Renewal Term, as applicable,
or (ii) Laurus shall deliver written notice of cancellation to the Company not
earlier than 90 days and not later than 30 days prior to the expiration date of
the Initial Term or any succeeding Renewal Term.  At Laurus’ election following the occurrence of an Event of
Default, Laurus may terminate this Agreement. 
The termination of the Agreement shall not affect any of Laurus’ rights
hereunder or any Ancillary Agreement and the provisions hereof and thereof
shall continue to be fully operative until all transactions entered into,
rights or interests created and the Obligations have been disposed of,
concluded or liquidated. 
Notwithstanding this Section 15, the Company may at any time, upon ten
business days prior written notice to Laurus, terminate this Agreement by
prepaying the entire outstanding Obligations in cash plus an additional early
payment fee in an amount equal to two percent (2%) of the Capital Availability
Amount if such prepayment occurs on or before the first anniversary of the date
hereof; one percent (1%)of such amount if such prepayment occurs following the
first anniversary hereof but before the second anniversary hereof;  and zero percent of such amount thereafter;
such fee being intended to compensate Laurus for its costs and expenses
incurred in initially approving this Agreement or extending same.  Upon receipt of irrevocable payment in full
to it of all Obligations and the early payment fee, Laurus shall release its
security interests within three (3) business days..  Such early payment fee shall also be due and payable by to Laurus
upon termination of this Agreement by Laurus after the occurrence of an Event
of Default.

 

16.   Termination of Lien. 
The Liens and rights granted to Laurus hereunder and any Ancillary
Agreements and the financing statements filed in connection herewith or
therewith shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that The Company’ account may from
time to time be temporarily in a zero or credit position, until all of the
Obligations of the Company have been paid or performed in full after the
termination of this Agreement.

 

18

 

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

 

(a)   failure to make payment of any of the
Obligations when required hereunder, provided however, that the Company shall
have five (5) business days to cure such payment default;

 

(b)   failure to pay any taxes when due unless such
taxes are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been provided on the Company’s books or
are less than $25,000;

 

(c)   failure to perform under and/or committing
any material breach of this Agreement or any Ancillary Agreement or any other
agreement between the Company, the Subsidiary Guarantor and Laurus; provided,
however, in the event that such failure is curable, the Company shall have ten
(10) Business Days from the occurrence thereof to cure such failure;

 

(d)   the occurrence of a default under any
agreement to which the Company or the Subsidiary Guarantor is a party with
third parties which has a Material Adverse Effect the Company shall have ten
(10) Business Days from the occurrence thereof to cure such failure;

 

(e)   any material representation, warranty or
statement made by the Company or the Subsidiary Guarantor hereunder, in any
Ancillary Agreement, any certificate, statement or document delivered pursuant
to the terms hereof, or in connection with the transactions contemplated by
this Agreement should at the time made be false or misleading in any material
respect;

 

(f)    an attachment or levy is made upon the
Company’s or the Subsidiary Guarantor’s assets having an aggregate value in
excess of $100,000 or a judgment is rendered against the Company or the
Subsidiary Guarantor’ or the Company’s or the Subsidiary Guarantor’s property
involving a liability of more than $100,000 which shall not have been vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the
entry thereof;

 

(g)   any material change in the Company’s or the
Subsidiary Guarantor’s condition or affairs (financial or otherwise) which has
a Material Adverse Effect and impairs the Collateral or the ability of the
Company or the Subsidiary Guarantor to perform its Obligations the Company
shall have five (5) Business Days from the occurrence thereof to cure such
failure;

 

(h)   any Lien created hereunder or under any
Ancillary Agreement for any reason, except Laurus acts or omissions, ceases to
be or is not a valid and perfected Lien having a first priority interest, and
cannot be substituted with an equivalent perfected Lien of equal priority to
Laurus’ reasonable satisfaction;

 

(i)    if the Company or the Subsidiary Guarantor
shall (i) apply for, consent to or suffer to exist the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt
or insolvent, (v) file a petition seeking 

 

19

 

to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;

 

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

 

(k)   the Guarantor Subsidiary, shall (i) apply
for, consent to or suffer to exist the appointment of, or the taking possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of
its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws or (viii) take any action for the purpose of effecting any of
the foregoing;

 

(l)    the Company or the Subsidiary Guarantor
directly or indirectly sells, assigns, transfers, conveys, or suffers or
permits to occur any sale, assignment, transfer or conveyance of any
Collateral, except as permitted herein;

 

(m)  a default by the Company in the payment, when
due, of any principal of or interest on any other indebtedness for money
borrowed in an amount greater than $25,000, which is not cured within any
applicable cure or grace period;

 

(n)   the occurrence of a change in controlling
ownership of the Company that could reasonably be expected to have a Material
Adverse Effect, provided that, notwithstanding any provisions in this Agreement or the
Ancillary Agreements, all events listed in Section 21(b) of
this Agreement shall not be deemed a change in controlling ownership of the
Company that would trigger an Event of Default hereunder;

 

(o)   the indictment and conviction of the Company,
any officer of the Company under any criminal statute, or commencement of
criminal or civil proceeding against the Company or any officer of the Company
pursuant to which statute or proceeding penalties or remedies sought or
available include forfeiture of the Collateral;

 

(p)   if an Event of Default shall occur under and
as defined in the Note; or

 

(q)   the Company or any Guarantor shall breach any
term or provision of any Ancillary Agreement which is not cured within any
applicable cure or grace period;

 

(r)    if any Guarantor attempts to terminate,
challenges the validity of, or its liability under any Guaranty or any
Guarantor Security Agreement; or

 

(s)   should any Guarantor default in its
obligations under any Guaranty or any Guarantor Security Agreement or if any
proceeding shall be brought to challenge the validity, 

 

20

 

binding effect of any Guaranty or any Guarantor Security Agreement
or should any Guarantor breach any representation, warranty or covenant
contained in any Guaranty Agreement or any Guarantor Security Agreement or
should any Guaranty or Guarantor Security Agreement cease to be a valid,
binding and enforceable obligation.

 

18.   Remedies.  If an Event of
Default has occurred and is continuing beyond any applicable grace period,
Laurus shall have the right to demand repayment in full of all Obligations,
whether or not otherwise due.  Until all
Obligations have been fully satisfied, Laurus shall retain its Lien in all
Collateral.  Laurus shall have, in
addition to all other rights provided herein, the rights and remedies of a
secured party under the UCC, and under other applicable law, all other legal
and equitable rights to which Laurus may be entitled, including the right to
take immediate possession of the Collateral, to require a Company to assemble
the Collateral, at the Company’s expense, and to make it available to Laurus at
the Company’s place of business and to enter any of the premises of a Company
or wherever the Collateral shall be located, with or without force or process
of law, and to keep and store the same on said premises until sold (and if said
premises be the property of the Company, the Company agrees not to charge
Laurus for storage thereof), and the right to apply for the appointment of a
receiver for the Company’s property. 
Further, Laurus may, at any time or times after the occurrence of an
Event of Default continuing beyond any applicable grace period, sell and
deliver all Collateral held by or for Laurus at public or private sale, in a
commercially reasonable manner (as this term is defined in the UCC), for cash,
at commercially reasonable prices or Laurus may otherwise recover upon the
Collateral in any commercially reasonable manner as Laurus, in its sole discretion,
deems advisable.  The requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to the
Company at the Company’s address as shown in Laurus’ records, at least ten (10)
days before the time of the event of which public notice is being given.  Laurus may be the purchaser at any sale, if
it is a public sale in a commercially reasonable manner and in accordance with
the UCC.   The proceeds of sale shall be
applied first to all reasonable costs and expenses of the sale, including
reasonable attorneys’ fees, and second to the payment (in whatever order Laurus
elects) of all undisputed Obligations. 
After the indefeasible payment and satisfaction in full in cash of all
of the undisputed Obligations, and after the payment by Laurus of any other
amount required by any provision of law, including Section 608(a)(1) of the
Code (but only after Laurus has received what Laurus considers reasonable proof
of a subordinate party’s security interest), the surplus, if any, shall be paid
to the Company or its representatives or to whosoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may direct.  The Company shall remain liable to Laurus
for any deficiency.  In addition, except
if Laurus is the purchaser, the Company shall pay Laurus a liquidation fee
(“Liquidation Fee”) in the amount of two percent (2%) of the face amount of
each Account outstanding at any time during a “liquidation period”.  For purposes hereof, “liquidation period”
means a period:  (i) beginning on the
earliest date of (x) an event referred to in Section 17(i) or 17(j), or (y) the
cessation of Company’s business; and (ii) ending on the date on which Laurus
has actually received all Obligations due and owing it under this Agreement and
the Ancillary Agreements.  The
Liquidation Fee shall be paid on the earlier to occur of:  (i) the date on which Laurus collects the
applicable Account; and (ii) the 90th day from the invoice of such Account by
deduction from any amount otherwise due from Laurus to the Company directly, at
the option of Laurus.  The Company and
Laurus acknowledge that the actual damages that would be incurred by Laurus
after the occurrence of an Event of Default would be difficult to quantity and
that the Company and Laurus have agreed that the fees and obligations set forth
in this Section 

 

21

 

and in this Agreement would constitute fair and appropriate
liquidated damages in the event of any such termination.

 

19.   Waivers.  To the full extent permitted by applicable
law, the Company waives (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all of this Agreement and the Ancillary Agreements or any other notes,
commercial paper, Accounts, contracts, Documents, Instruments, Chattel Paper
and guaranties at any time held by Laurus on which the Company may in any way
be liable  The Company acknowledges that
it has been advised by counsel of its choices and decisions with respect to
this Agreement, the Ancillary Agreements and the transactions evidenced hereby
and thereby.

 

20.   Expenses.  The Company shall
pay all of Laurus’ reasonable out-of-pocket costs and expenses,(including
reasonable fees and disbursements of in-house or outside counsel, such fees and
disbursements not to exceed $10,000) and appraisers, in connection with the
preparation, execution and delivery of this Agreement and the Ancillary
Agreements, and in connection with the prosecution or defense of any action,
contest, dispute, suit or proceeding concerning any matter in any way arising
out of, related to or connected with this Agreement or any Ancillary Agreement.
The Company shall also pay all of Laurus’ reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) the preparation, execution and delivery
of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the
Ancillary Agreements, (b) Laurus’ obtaining performance of the Obligations
under this Agreement and any Ancillary Agreements, including, but not limited
to the enforcement or defense of Laurus’ security interests, assignments of
rights and Liens hereunder as valid perfected security interests, (c) any
attempt to inspect, verify, protect, collect, sell, liquidate or otherwise
dispose of any Collateral, (d) any appraisals or re-appraisals of any property
(real or personal) pledged to Laurus by the Company as Collateral for, or any
other Person as security for, the Company’s Obligations hereunder and (e) any
consultations in connection with any of the foregoing.  The Company shall also pay Laurus’ customary
bank charges for all bank services (including wire transfers) performed or
caused to be performed by Laurus for the Company at the Company’s request or in
connection with the Company’s loan account with Laurus.  All such costs and expenses together with
all filing, recording and search fees, taxes and interest payable by the
Company to Laurus shall be payable on demand and shall be secured by the Collateral.  If any tax by any Governmental Authority is
or may be imposed on or as a result of any transaction between the Company and
Laurus which Laurus is or may be required to withhold or pay, the Company
agrees to indemnify and hold Laurus harmless in respect of such taxes, and the
Company will repay to Laurus the amount of any such taxes which shall be
charged to the Company’s account; and until the Company shall furnish Laurus
with indemnity therefor (or supply Laurus with evidence satisfactory to it that
due provision for the payment thereof has been made), Laurus may hold without
interest any balance standing to the Company’s credit and Laurus shall retain
its Liens in any and all Collateral.

 

21.   Assignment; Merger; Restructuring;
Reorganization; Change of Control.

 

(a)   By Laurus. 
If no Event of Default has occurred and is continuing beyond any
applicable grace period, Laurus may assign, with the Company’s prior consent,
which consent 

 

22

 

shall not be unreasonably withheld, any or all of the Obligations
together with any or all of the security therefor and any transferee shall
succeed to all of Laurus’ rights and obligations under this Agreement with
respect thereto. If an Event of Default shall have occurred and be continuing
beyond any applicable cure period then Laurus may assign any or all of the
Obligations together with any or all of the security therefor and any
transferee shall succeed to all of Laurus’ rights and obligations under this
Agreement with respect thereto without the Company’s prior written
consent.  Upon such transfer, Laurus
shall be released from all responsibility for the Collateral to the extent same
is assigned to any transferee, provided that assignee has assumed all
responsibilities and obligations under this Agreement and for the Collateral,
and further provided that assignee has demonstrated to the Company’s reasonable
satisfaction, its financial ability to perform the obligations and
responsibilities under this Agreement assumed by assignee.  Laurus may from time to time sell or
otherwise grant participations in any of the Obligations and the holder of any
such participation shall, subject to the terms of any agreement between Laurus
and such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. The Company
agrees that each such holder may exercise any and all rights of banker’s lien,
set-off and counterclaim with respect to its participation in the Obligations
as fully as though the Company were directly indebted to such holder in the
amount of such participation.

 

(b)  By the
Company.  Notwithstanding any
provisions in this Agreement or the Ancillary Agreements, the Company may enter
in any kind of business combination, including, but not limited to,
reorganization, merger, restructuring, issuance of stock, etc., with any other
related or unrelated entity or party, provided that such business combination
does not have a material adverse effect on (a) the condition, operations, assets,
business or prospects of the Company, (b) the Company’s ability to pay or
perform the Obligations in accordance with the terms hereof or any Ancillary
Agreement, or (c) the value of the Collateral, the Liens on the Collateral or
the priority of any such Lien. 
Notwithstanding this Section 21(b), upon occurrence of one of the events
described in this Section 21(b) that could reasonably be expected to have a
Material Adverse Effect, Laurus may, at its option terminate this Agreement,
and the Company shall pay Laurus the termination fees pursuant to Section 15 of
this Agreement.

 

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

 

23.   Application
of Payments.  Subject to
Section 9(c) hereof, the Company irrevocably waives the right to direct the
application of any and all payments at any time or times hereafter received by
Laurus from or on the Company’s behalf and the Company hereby irrevocably
agrees that Laurus shall have the continuing exclusive right to apply and
reapply any and all payments received at any time or times hereafter against
the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus’ books and records.

 

23

 

24.   No Shorting. 
Neither the Purchaser nor any of its Affiliates or investment partners
shall cause any person or entity directly or indirectly to engage in “short
sales” or other hedging strategies of the Company’s Common Stock.

 

25.     Indemnity.

 

(a)   The parties hereto agree to indemnify and
hold each other, and its respective affiliates, employees, attorneys and agents
and subsidiaries (each, an “Indemnified Person”), harmless from and against any
and all suits, actions, proceedings, claims, damages, losses, liabilities and
expenses of any kind or nature whatsoever (including reasonable attorneys’ fees
and disbursements and other costs of investigation or defense, including those incurred
upon any appeal) which may be instituted or asserted against or incurred by any
such Indemnified Person as the result of credit having been extended, suspended
or terminated under this Agreement or any of the Ancillary Agreements or with
respect to the execution, delivery, enforcement, performance and administration
of, or in any other way arising out of or relating to, this Agreement, the
Ancillary Agreements or any other documents or transactions contemplated by or
referred to herein or therein and any actions or failures to act with respect
to any of the foregoing, except to the extent that any such indemnified
liability is finally determined by a court of competent jurisdiction to have
resulted solely from such Indemnified Person’s gross negligence or willful
misconduct.

 

(b)   In
the event an Indemnified Person becomes involved in any suits, actions, proceedings, claims,
damages, losses, liabilities and expenses of any kind or nature whatsoever, which
may result in indemnification claims hereunder, such Indemnified Person shall
promptly notify the other party (“Indemnifying Party”) in writing and in full
detail of the filing, and of the nature of such proceeding.  The Indemnifying Party may, at its option
and expense, defend any such proceeding if the proceeding could give rise to an
indemnification obligation hereunder. 
If the Indemnifying Party elects to defend any proceeding, it shall have
full control over the conduct of such proceeding, although the Indemnified
Person shall have the right to retain legal counsel at its own expense and
shall have the right to approve any settlement of any dispute giving rise to
such proceeding, provided that such approval may not be withheld unreasonably
by the Indemnified Person. The Indemnified Person shall reasonably cooperate
with the Indemnifying Party in such proceeding.

 

(c) The
Indemnifying Party shall not be liable under this Section for any settlement of
any proceeding effected without its consent with respect to which indemnity may
be sought hereunder, or for any losses resulting from any proceeding of which
Indemnified Person fails to timely notify the Indemnifying Party.

 

(d)   The
indemnification provisions of this Section 25 shall not apply to any
controversies between Laurus and the Company and/or its respective affiliates,
subsidiaries or assigns.

 

26.           Revival.  The Company
further agrees that to the extent the Company makes a payment or payments to
Laurus, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law,

 

24

 

common law or equitable cause, then, to the extent of such payment
or repayment, the obligation or part thereof intended to be satisfied shall be,
subject to the provisions of the bankruptcy act, state or federal law, revived
and continued in full force and effect as if said payment had not been made.

 

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

 

Notices shall be provided as follows:

 

	
  If to Laurus:

  	
   

  	
  Laurus Master Fund, Ltd. 

  c/o Laurus Capital Management, LLC 

  152 West 57th Street New York, New York 10019

  Attention:  David Grin 

  Telephone:  (212)
  541-4434 

  Telecopier:  (212)
  541-5800

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Loeb & Loeb LLP 

  345 Park Avenue

  New York, New York  10154

  Attention:  Scott J. Giordano, Esq

  Telephone:  (212) 407-4000 

  Telecopier: (212) 407-4990

  
	
   

  	
   

  	
   

  
	
  If to the Company:

  	
   

  	
  Artemis International
  Solutions Corporation 

  4041 MacArthur
  Boulevard 

  Suite 260

  Newport Beach, California
  92660 

  Attention:

  Telephone: (800)
  477-6648 

  Telecopier: (949)
  660-7020

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Attention:

  Telephone:

  Telecopier:

  

 

25

 

28.   Governing Law, Dispute Resolution.

 

(a)   This agreement and the ancillary agreements
shall be governed by and construed and enforced in accordance with the laws of
the state of New York applicable to contracts made and performed in such state,
without regard to the conflicts of law provisions thereof.

 

(b)   Any
dispute, controversy or claim arising under, out of or relating to this
Agreement, including, without limitation, its formation, validity, binding
effect, interpretation, performance, breach or termination, as well as
non-contractual claims, shall be referred to and finally determined by
arbitration in accordance with the Commercial Arbitration Rules (“Rules”) of
the American Arbitration Association (“AAA”) and conducted by a single
arbitrator in accordance with the Rules in the City of New York, State of New York.  In the event of any conflict between this
Agreement and such rules, the provisions of this Agreement shall govern.

 

(c)
The arbitrator shall not have the authority, power, or right to alter, change,
amend, modify, add, or subtract from any provision of this Agreement or to
award punitive damages. The decision of the arbitrator shall be final and
incontestably binding upon the parties and not subject to appeal.  Judgment upon any award may be entered in
any court of competent jurisdiction. 
Each party shall share equally the fees and expenses of the
arbitrator.  Prevailing party shall be
entitled to recover from the opposing party all attorneys fees, costs,
expenses, and costs of arbitration. 
This arbitration provision shall be deemed to be self-executing, and in
the event that either party fails to appear at any properly noticed arbitration
proceeding, an award may be entered against such party notwithstanding said
failure to appear.  (d)  Limitation
of Liability. 
The Company acknowledges and understands that in order to assure
repayment of the Obligations hereunder Laurus may be required to exercise any
and all of Laurus’ rights and remedies hereunder and agrees that neither Laurus
nor any of Laurus’ agents shall be liable for acts taken or omissions made in
connection herewith or therewith except for action s taken with gross
negligence or willful misconduct, or otherwise affect its duties as a secured
creditor in connection with the disposition or control of the Collateral or the
Accounts.

 

29.   Entire Understanding. 
This Agreement and the Ancillary Agreements contain the entire
understanding between the Company and Laurus and any promises, representations,
warranties or guarantees not herein contained shall have no force and effect
unless in writing, signed by the Company’s and Laurus’ respective
officers.  Neither this Agreement, the
Ancillary Agreements, nor any portion or provisions thereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged.

 

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

 

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

 

26

 

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

 

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

 

34.   Publicity.  Once this Agreement has been executed by the
parties, each party may make appropriate announcements of the financial
arrangement entered into by and between the Company and Laurus, including,
without limitation, announcements which are commonly known as tombstones, in
such publications and to such selected parties as the parties shall in their
sole and absolute discretion deem appropriate, provided, however, that Laurus
shall not make any public announcements or public disclosure until the Company
has made an announcement and issued a press release nor shall the company make
any use of the Laurus name without the express prior consent of Laurus, which
consent shall not be unreasonably withheld.

 

35.   Public Resale.;.  Laurus may sell, assign or otherwise transfer the Securities
obtained by Laurus in connection with conversions made pursuant to the Note, in
a transaction or series of transactions carried out on the Over The Counter
Bulletin Board or any principal market where the Common Stock is publicly
traded. If Laurus desires to sell, transfer or assign Common Stock in a
non-public transaction, it may do so only with the prior written consent of the
Company.

 

36.   Affiliate or Third Party Sales.  Laurus hereby agrees not to sell, assign or
otherwise transfer the Securities to any of its Affiliates in any transaction
or series of transactions.  Laurus
further agrees that it will sell such Securities in a principal market in
arms-length transactions and will not enter into any “prearrangements” to
assign or sell the Securities with any of its Affiliates or any potential third
party purchasers or to advise such parties that Laurus intends to sell
Securities whether such sales are effectuated in a public or non-public
transaction.

 

37.     Representations and Warranties of Laurus.  Laurus hereby represents and warrants to the
Company as follows:

 

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

 

27

 

enforcement of creditors’ rights, and (b) as limited by general
principles of equity that restrict the availability of equitable and legal
remedies.

 

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

 

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

 

(d)   Acquisition
for Own Account.  Laurus is
acquiring the Securities for its own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.

 

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

 

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

 

28

 

IN WITNESS WHEREOF, this Agreement has been duly executed
as of the day and year first above written.

 

	
   

  	
  ARTEMIS INTERNATIONAL SOLUTIONS

  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ARTEMIS INTERNATIONAL SOLUTIONS LTD

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  LAURUS MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

29

 

Annex A - Definitions

 

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

 

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

 

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

 

“Accounts
Availability” means the amount of Revolving Credit Advances against
Eligible Accounts Laurus may from time to time make available to the Company up
to (i) eighty-five percent (85%) of the net face amount of Eligible Accounts
based on Accounts of the Company and (ii) eighty percent (80%) of the net face
amounts of Eligible Accounts based on Accounts of Guarantor Subsidiary; provided,
however, in the event the dilution rate with respect to the Company’s or
Guarantor Subsidiary’s Accounts exceeds 2%, the applicable percentage set forth
above shall be reduced 1% for each 1% increase in the applicable dilution rate.

 

“Affiliate”
of any Person means (a) any Person (other than a Subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director or officer (i) of such Person,
(ii) of any Subsidiary of such Person or (iii) of any Person described in
clause (a) above.  For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (i)
to vote five percent (5.00%) or more of the securities having ordinary voting
power for the election of directors of such Person, or (ii) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.

 

“Ancillary
Agreements” means, the Note, Warrant, Registration Rights Agreement, each
Guaranty, each Guaranty Security Agreement, the Parent Pledge Agreement and all
other agreements, instruments, documents, mortgages, pledges, powers of
attorney, consents, assignments, contracts, notices, security agreements, trust
agreements and guarantees whether heretofore, concurrently, or hereafter
executed by or on behalf of the Company or any 

 

30

 

other Person or delivered
to Laurus, relating to this Agreement or to the transactions contemplated by
this Agreement or otherwise relating to the relationship between the Company
and Laurus.

 

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

 

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

 

“Capital
Availability Amount” means $5,000,000.

 

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

 

“Closing
Date” means the date on which the Company shall first receive proceeds of
the initial Loans.

 

“Collateral”
means all of the Company’s property and assets, located in the U.S. and the
United Kingdom (specifically excluding any affiliates or subsidiaries of the
Company, expect for Artemis International Solutions, Ltd. And any affiliates or
subsidiaries of Artemis International Solutions, Ltd.), whether real or
personal, tangible, and whether now owned or hereafter acquired, or in which it
now has or at any time in the future may acquire any right, title or interests
including all of the following property in which it now has or at any time in
the future may acquire any right, title or interest, but excluding all
Intellectual Property, whether owned, directly or indirectly, by the Company or
a Subsidiary or Artemis International Solutions, Ltd:

 

(a)   all Inventory;

 

(b)   all Equipment;

 

all Fixtures;

 

(c)   all Accounts;

 

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

 

(e)   all Investment Property;

 

(f)    all Chattel Paper;

 

31

 

(g)   all Letter-of-Credit Rights;

 

(h)   all Instruments;

 

(i)    all commercial tort claims directly related
to the Collateral, as set forth on Exhibit 1(A);

 

(j)    all Books and Records;

 

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

 

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

 

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

 

“Contract Rate” means for the
period of six (6) months from the Closing Date, an interest rate per annum
equal to the greater of the Prime Rate plus three quarters percent
(0.75%), and five percent (5%) per annum. Beginning six months from the
Closing Date and the last business day of each month thereafter (each a
“Determination Date”), the Contract Rate shall be determined as follows: if (i)
the Company shall have registered the shares of the Company’s common stock
underlying the conversion of the Note and that certain warrant issued to Laurus
on a registration statement declared effective by the SEC, and (ii) the volume
weighted average price of the Common Stock as
reported by Bloomberg, L.P. on the principal market for any of the 5 trading
days immediately preceding a Determination Date exceeds the then applicable
Fixed Conversion Price in such percentages as outlined in the table below, the Contract
Rate for the succeeding calendar month shall automatically be adjusted:

 

 

	
   

  	
   

  	
  Contract Rate

  	
   

  
	
  130% of the
  Fixed Conversion Price

  	
   

  	
  Prime minus 0.25%

  	
   

  
	
  150% of the
  Fixed Conversion Price

  	
   

  	
  Prime minus 0.75%

  	
   

  
	
  175% of the
  Fixed Conversion Price

  	
   

  	
  Prime minus 1.25%

  	
   

  

 

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

 

“Default
Rate” has the meaning given to such term in Section 5(a)(iii).

 

“Deposit
Accounts” means all “deposit accounts” as such term is defined in the UCC,
now or hereafter held in the name of any Person.

 

32

 

“Disputed
Obligations” means any portion of the Obligations of the Borrower hereunder
that the Borrower shall in good faith contest with Laurus. Each of Laurus and
the Company hereby agree that time is of the essence in such disputes and shall
fully cooperate and reasonably resolve any such disputes in good faith within
five (5) business days.

 

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

 

“Eligible
Accounts” means and includes each Account which conforms to the following
criteria:  (a) shipment of the
merchandise or the rendition of services has been completed; (b) no return,
rejection or repossession of the merchandise has occurred; (c) merchandise or
services shall not have been rejected or disputed by the Account Debtor and
there shall not have been asserted any offset, defense or counterclaim; (d)
continues to be in full conformity with the representations and warranties made
by the Company or Guarantor Subsidiary to Laurus with respect thereto; (e)
Laurus is, and continues to be, reasonably satisfied with the credit standing
of the Account Debtor in relation to the amount of credit extended; is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date; (i) is not evidenced
by chattel paper or an instrument of any kind with respect to or in payment of
the Account unless such instrument is duly endorsed to and in possession of
Laurus or represents a check in payment of a Account; (j) the Account Debtor is
located in the United States or the United Kingdom (with respect to Account
Debtors of the Guarantor Subsidiary); (k) Laurus has a first priority perfected
Lien in such Account and such Account is not subject to any Lien other than
Permitted Liens; (l) does not arise out of transactions with any employee,
officer, agent, director, stockholder or Affiliate of the Company or Guarantor
Subsidiary; (m) is payable to the Company or the Guarantor Subsidiary; (n) does
not arise out of a bill and hold sale prior to shipment and does not arise out
of a sale to any Person to which the Company or the Guarantor Subsidiary is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between the Company or the Guarantor
Subsidiary and the United States, any state, or any department, agency or
instrumentality of any of them, the Company or the Guarantor Subsidiary has so
notified Laurus, in writing, prior to the creation of such Account, and there
has been compliance with any governmental notice or approval requirements,
including compliance with the Federal Assignment of Claims Act; (q) is a good
and valid account representing an undisputed bona fide indebtedness incurred by
the Account Debtor therein named, for a fixed sum as set forth in the invoice
relating thereto with respect to an unconditional sale and delivery upon the
stated terms of goods sold by the Company or the Guarantor Subsidiary or work,
labor and/or services rendered by the Company or the Guarantor Subsidiary; (r)
does not arise out of progress billings prior to completion of the order; (s)
the total unpaid Accounts from such Account Debtor does not exceed twenty-five
percent (25%) of all Eligible Accounts; except that Accounts from Lockheed
Martin, Exelon Nuclear, Household Finance, Nissan, SBC, Southern Company, and
Pfizer may each respectively comprise up to fifty percent (50%) of all Eligible
Accounts (t) the Company’s or the Guarantor Subsidiary’s right to payment is
absolute and not contingent upon the fulfillment of any condition whatsoever;
(u) the Company or the Guarantor Subsidiary is able 

 

33

 

to bring suit and enforce
its remedies against the Account Debtor through judicial process; and (v) does
not represent interest payments, late or finance charges or service charges
owing to the Company or the Guarantor Subsidiary.

 

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

 

“ERISA”
shall have the meaning given to such term in Section 12(g).

 

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

 

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

 

“Formula
Amount” has the meaning set forth in Section 2(a).

 

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

 

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

 

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

 

“Guarantor”
means individually, Guarantor Subsidiary and any other Person who may guarantee
payment of performance of the whole or any part of the Obligations.

 

“Guarantor
Security Agreements” means collectively, the Subsidiary Guaranty Security
Agreement and all other security agreements, mortgages, cash collateral deposit
letters, pledges and other agreements which are executed by any Guarantor in
favor of Laurus.

 

“Guarantor
Subsidiary” means Artemis International Solutions, Ltd., a United Kingdom
corporation, and excludes any other affiliates and all subsidiaries of Artemis
International Solutions, Ltd and/or other affiliates or subsidiaries of the
Company.

 

“Guaranty”
means collectively, the Subsidiary Guaranty and all other agreements to perform
all or any portion of the Obligations on behalf of the Company.

 

34

 

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

 

“Indemnified
Person” shall have the meaning given to such term in Section 25

 

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

 

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

 

“Intellectual
Property” means any and all Licenses, patents, patent registrations,
copyrights, copyright registrations, trademarks, trademark registrations, trade
secrets and customer lists, which shall not be included in the Collateral,
whether owned by the Company, the Subsidiary or any subsidiaries of the Company
or the Subsidiary.

 

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

 

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

 

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

 

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

 

“Loans”
means the Revolving Credit Advances and all extensions of credit hereunder and
under any Ancillary Agreement.

 

35

 

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

 

“Maximum
Legal Rate” shall have the meaning given to such term in Section 5(a)(iv).

 

“Note”
means the Convertible Note in the original principal amount of $5,000,000 made
by the Company in favor of Laurus dated as of the Closing Date, as the same may
be amended, modified and supplemented from time to time.

 

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

 

“Permitted
Liens” means (a) Liens of carriers, warehousemen, artisans, bailees,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (b) Liens incurred in the ordinary course of business in connection
with workmen’s compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
applicable Company in conformity with GAAP; (c) Liens in favor of Laurus; (d)
Liens for taxes (i) not yet due or (ii) being diligently contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the applicable Company in conformity
with GAAP provided, that, the Lien shall have no effect on 

 

36

 

the priority of Liens in
favor of Laurus or the value of the assets in which Laurus has a Lien; (e)
Purchase Money Liens securing Purchase Money Indebtedness,(f) Liens specified
on Exhibit 2 hereto, (g) secondary liens on any assets and/or the Collateral,
and (h) capital and operating leases (what does this mean?).

 

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

 

“Prime
Rate” means the “base rate” or “prime rate” published in the Wall Street
Journal from time to time.  The Prime
Rate shall be increased or decreased as the case may be for each increase or
decrease in the Prime Rate in an amount equal to such increase or decrease in
the Prime Rate; each change to be effective as of the day of the change in such
rate.

 

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

 

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

 

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

 

“Renewal
Term” has the meaning set forth in Section 16.

 

“Revolving
Credit Advances” shall have the meaning given to such term in Section
2(a)(i).

 

37

 

“Securities”  means the Note, and the shares of the
Company’s Common Stock underlying the Note.

 

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

 

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

 

“Subsidiary”
of any Person means a corporation or other entity whose shares of stock or
other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of
a contingency) to elect a majority of the directors of such corporation, or
other Persons performing similar functions for such entity, are owned, directly
or indirectly, by such Person. 
Subsidiary specifically excludes any affiliates or subsidiaries of
Artemis International Solutions, Ltd. and any affiliates or subsidiaries of the
Company, except for Artemis International Solutions, Ltd.

 

“Subsidiary
Guaranty” means the Guaranty dated as of the Closing Date executed by the
Guarantor Subsidiary in favor of Laurus guaranteeing all of the Obligations on
behalf of the Company.

 

“Subsidiary
Guaranty Security Agreement” means the [Security Agreement] dated as of the Closing Date
between Guarantor Subsidiary and Laurus.

 

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

 

“Term”
means, as applicable, the Initial Term and any Renewal Term.

 

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

 

38

 

EXHIBITS

 

Exhibit 1(A) – Commercial Tort Claims

Exhibit 2 - Permitted Liens

Exhibit 7(c) - Actions for Perfection

Exhibit 7(p) - Bank Accounts

Exhibit 12(d) - Corporate Information and
Locations of Collateral

Exhibit 12(i) - Licenses, Patents,
Trademarks and Copyrights

Exhibit 13(e)(i) - Permitted Indebtedness

Exhibit 13(e)(ii) - Existing Subsidiaries

Exhibit A - Form of Borrowing Base
Certificate

 

39

 

Exhibit 1(A)

 

Commercial
Tort Claims

 

None.

 

40

 

Exhibit 2

 

Permitted Liens

 

The Company’s assets are subject to the following security
interests:

 

None

 

41

 

Exhibit 7(c)

 

Actions for
Perfection

 

Execute and deliver such
documents as reasonably requested by Laurus relating to Artemis International
Corp., Ltd. [to be determined]

 

42

 

Exhibit 7(p)

Bank Accounts

 

	
  Bank Name

  	
   

  	
  Account

  Number

  	
   

  	
  Routing

  Number

  	
   

  	
  Signers

  	
   

  	
  Notes

  
	
  Bank of America

  	
   

  	
  0026 6121 2158

  	
   

  	
  111000025 (wire)

  	
   

  	
  Mike Rusert

  	
   

  	
  2 signatures required

  
	
  PO Box 831547

  	
   

  	
  0026 6121 2158

  	
   

  	
  113000023 (checks)

  	
   

  	
  Peter Schwartz

  	
   

  	
  for checks over $5000

  
	
  Dallas, TX 
  75283-1547

  	
   

  	
  0026 6522 0447

  	
   

  	
  111000025 (lockbox)

  	
   

  	
  Cynthia Price

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Bob McCowan

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert S. Stefanovich

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  800-462-6289

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mailing address:

  	
   

  	
  Lockbox address:

  	
   

  	
   

  	
   

  	
  Overnight Lockbox address:

  	
   

  	
   

  
	
  Bank of America

  	
   

  	
  Artemis

  	
   

  	
   

  	
   

  	
  Bank of America

  	
   

  	
   

  
	
  12400 I45 North, Suite 100

  	
   

  	
  PO Box 844518

  	
   

  	
   

  	
   

  	
  c/o Lockbox Dept, 5th Floor

  	
   

  	
   

  
	
  Houston, TX  77060

  	
   

  	
  Dallas, TX 
  75284-4518

  	
   

  	
   

  	
   

  	
  1401 Elm Street

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Dallas, TX  75202

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Contacts: Yolanda Lopez
                Chere Smith (Acct Rep)

  	
   

  	
   

  	
   

  	
  281-874-6225

  281-874-6131

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  AISC Operating Account

  
	
  Fax:  281-874-6168

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  AISC Lockbox account

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank One, Colorado

  	
   

  	
  1193243795

  	
   

  	
  102001017

  	
   

  	
  Mike Rusert

  	
   

  	
   

  
	
  PO Box 215002

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert S. Stefanovich

  	
   

  	
   

  
	
  Denver, CO  80202

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Cynthia Price

  	
   

  	
  (fund this account once

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert McCowan

  	
   

  	
  per month to cover health claims)

  
	
  800-404-4111

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Health Insurance Account

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank One, Colorado

  	
   

  	
  1193243803

  	
   

  	
  102001017

  	
   

  	
  Mike Rusert

  	
   

  	
   

  
	
  PO Box 215002

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert S. Stefanovich

  	
   

  	
   

  
	
  Denver, CO  80202

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Cynthia Price

  	
   

  	
  (fund this acct periodically

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert McCowan

  	
   

  	
  in $5K increments to cover flex claims)

  
	
  800-404-4111

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Flexible Spending Account

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank One, Canada

  	
   

  	
  000004654364

  	
   

  	
  0012 270

  	
   

  	
  Mike Rusert

  	
   

  	
   

  
	
  BCE Place

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert S. Stefanovich

  	
   

  	
   

  
	
  PO Box 613

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Cynthia Price

  	
   

  	
   

  
	
  161 Bay Street, Ste 4240

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Robert McCowan

  	
   

  	
  (fund this acct once per

  
	
  Toronto, Ontario M5J 2S1

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  month to cover 1 canadian empee)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  416-865-0466

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Canadian Payroll Account

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  UK:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  National Westminster Bank plc

  	
   

  	
  000058573976

  	
   

  	
  50-41-01

  	
   

  	
   

  	
   

  	
   

  
	
  PO Box 2AG

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  63 Picadilly

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  London W1A 2AG

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  UK Operating Account

  

 

43

 

Exhibit 12 (d)

Chief Executive Office
and Corporate Offices

 

	
  Artemis International
  Solutions Corporation, a Delaware corporation

  
	
  Identification No.:
  29334371

  
	
  Chief Executive Office

  
	
  4041 MacArthur
  Boulevard, Suite 260

  
	
  Newport Beach, CA 92660

  
	
  County: Orange

  
	
   

  
	
  Artemis International
  Solutions Corporation, a Delaware corporation

  
	
  Identification No.:
  29334371

  
	
  Corporate Office

  
	
  6260 Lookout Road

  
	
  Boulder, CO 80301

  
	
  County: Boulder

  
	
   

  
	
  Artemis International
  Ltd.

  
	
  Identification
  No.:  No such number has been issued.

  
	
  Corporate Office

  
	
  268 Bath Road

  
	
  Slough, Berks SL1 4DX,
  UK

  
	
  County: Not Applicable

  

 

44

 

Exhibit 12(i)

Licenses,
Patents, Trademarks and Copyrights

 

Not
Applicable

 

45

 

Schedule
13(a)

 

“RESOLVED, that pursuant
to Article IV(i) of the Amended and Restated Certificate of Incorporation of
Artemis International Solutions Corporation (the “Corporation”) and Section 3.2
of the Amended and Restated By-laws of the Corporation, effective immediately
prior to the annual meeting of stockholders of the Corporation to be held in
2003 (the “Annual Meeting”) the number of directors which shall constitute the
whole Board shall be reduced from nine to seven.  Only such number of
directors as may be necessary to constitute a board of seven members shall be
elected at the Annual Meeting.

 

FURTHER RESOLVED, that
pursuant to Article IV(ii) of the Amended and Restated Certificate of
Incorporation of the Corporation, immediately following the Annual Meeting the
board of directors shall reapportion the number of directorships among the
classes of directorship in such manner as shall equalize, as nearly as
possible, the number of directors in each class.”

 

Mr. Pere proposed, and Mr.
Yager seconded, the following resolution:

 

“RESOLVED, that the Board
of Directors of Artemis International Solutions Corporation (the “Corporation”)
proposes that the Restated and Amended Certificate of Incorporation of the
Corporation (the “Certificate”) be further amended as set forth below, declares
the advisability of such proposed amendments and directs that such amendments
be presented to the shareholders of the Corporation at the next annual meeting
of shareholders of the Corporation:

 

FIRST:   That the
third paragraph of Article III of the Certificate be replaced in its entirety
by the following:

 

The Board of Directors is
hereby empowered by resolution or resolutions from time to time to fix the
designations, powers, preferences and relative, participating, optional and
other rights, if any, and the qualifications, limitations and restrictions, if
any, of one or more classes or series of Preferred Stock, including, without
limitation, the number of shares constituting each such class or series,
dividend rights, conversion rights, redemption privileges, voting powers, full
or limited or no voting powers, and liquidation preferences, and to increase or
decrease the size of any such class or series (but not below the number of
shares of any class or series of Preferred Stock then outstanding) to the
extent permitted by Delaware Law.  Without limiting the generality of the
foregoing, the resolution or resolutions providing for the establishment of any
class or series of Preferred Stock may, to the extent permitted by law, provide
that such class or series shall be superior to, rank equally with or be junior to
the Preferred Stock of any other class or series.

 

No issuance of shares of
Common Stock or Preferred Stock, and no authorization, sale or issuance of any
rights, options, warrants or similar instruments which would require the
issuance or sale of shares of stock by the Corporation, and no authorization,
sale or issuance of any instrument, debt or security exchangeable for or
convertible into shares of stock of the Corporation, may be made by the
Corporation except upon adoption by the holders of at least 66 2/3% of the
total voting power of all outstanding voting securities of the Corporation then
entitled to vote generally in the election of directors, voting as a single
class, of a resolution either:

 

(i)            approving a specific issuance of shares or obligation to
issue shares, or

 

46

 

(ii)            authorizing the
Board of Directors of the Corporation (the “Board of Directors”), for a period
not in excess of two years from the date of adoption of such resolution, to issue
up to a specified number of additional shares or to cause the Corporation to
enter into any obligation to issue of up to a specified number of additional
shares to such persons, in such manner, for such purpose and for such
consideration as the Board of Directors may in good faith thereafter determine.

 

SECOND:  That
paragraph (i) of Article IV of the Certificate be replaced in its entirety by
the following:

 

The business and affairs
of the Corporation shall be managed by or under the direction of a Board of
Directors consisting of not less than three or nor more than eight directors,
the exact number of directors to be determined from time to time solely by
resolution adopted by the affirmative vote of a majority of the entire Board of
Directors.

 

THIRD:  That Article
VI of the Certificate be deleted in its entirety.

 

FOURTH:  That the
first sentence of Article VII of the Certificate be replaced in its entirety by
the following:

 

Special meetings of the
stockholders may be called by the Board of Directors or the Chairman of the
Board of Directors, the Chief Executive Officer or the President of the
Corporation or by any stockholder or group of stockholders working in concert
holding at least 50% of the total voting power of all outstanding securities of
the Corporation then entitled to vote generally in the election of directors,
and may not be called by any other person.”

 

47

 

Exhibit 13(e)(i)

Permitted
Indebtedness

 

48

 

Exhibit 13(e)(ii)

Existing
Subsidiaries

 

 

49

 

Exhibit A

Form
Borrowing Base Certificate

 

50Exhibit
10.3

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ARTEMIS INTERNATIONAL
SOLUTIONS CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Right to Purchase 125,000 Shares of Common Stock of
Artemis International Solutions Corp. (subject to adjustment as provided
herein)

 

COMMON
STOCK PURCHASE WARRANT

 

	
  No. 2003-1

  	
  Issue Date:  August 14, 2003

  

 

ARTEMIS INTERNATIONAL SOLUTIONS CORP., a corporation
organized under the laws of the State of Delaware (the “Company”), hereby
certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the
“Holder”), is entitled, subject to the terms set forth below, to purchase from
the Company from and after the Issue Date of this Warrant and at any time or
from time to time before 5:00 p.m., New York time, through ten (10) years after
such date (the “Expiration Date”), up to 125,000 fully paid and nonassessable
shares of Common Stock (as hereinafter defined), $.01 par value, of the
Company, at the Exercise Price (as defined below). The number and character of
such shares of Common Stock and the Exercise Price are subject to adjustment as
provided herein.

 

As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:

 

(a)                                  The
term “Company” shall include Artemis International Solutions Corp. and any
corporation which shall succeed or assume the obligations of Artemis
International Solutions Corp. hereunder.

 

(b)                                 The
term “Common Stock” includes (a) the Company’s Common Stock, par value $.01 per
share, and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.

 

(c)                                  The
term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which
the holder of the Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of the Warrant, in lieu of or in addition to
Common Stock, or which at any time shall be issuable or shall have been issued
in exchange for or in replacement of Common Stock or Other Securities pursuant
to Section 4 or otherwise.

 

 

(d)                                 The
term “Exercise Price” shall be as follows:

 

a.                                       50,000
shares at $3.13   per share;

 

b.                                      50,000
shares at $3.75   per share; and

 

c.                                       25,000
shares at $4.38    per share.

 

1.                                       Exercise of Warrant.

 

1.1                                 Number
of Shares Issuable upon Exercise. 
From and after the date hereof through and including the Expiration
Date, the Holder shall be entitled to receive, upon exercise of this Warrant in
whole or in part, by delivery of an original or fax copy of the exercise notice
attached hereto as Exhibit A (the “Exercise Notice”), shares of Common Stock of
the Company, subject to adjustment pursuant to Section 4.

 

1.2                                 Fair
Market Value.  Fair Market Value of
a share of Common Stock as of a particular date (the “Determination Date”)
shall mean:

 

(a)                                  If
the Company’s Common Stock is traded on an exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market, Inc.(“Nasdaq”), then
the closing or last sale price, respectively, reported for the last business
day immediately preceding the Determination Date.

 

(b)                                 If
the Company’s Common Stock is not traded on an exchange or on the Nasdaq but is
traded on the NASD OTC Bulletin Board or BBX Exchange, then the mean of the
average of the closing bid and asked prices reported for the last business day
immediately preceding the Determination Date.

 

(c)                                  Except
as provided in clause (d) below, if the Company’s Common Stock is not publicly
traded, then as the Holder and the Company agree or in the absence of agreement
by arbitration in accordance with the rules then in effect of the American
Arbitration Association, before a single arbitrator to be chosen from a panel
of persons qualified by education and training to pass on the matter to be
decided.

 

(d)                                 If
the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to
the Company’s charter, then all amounts to be payable per share to holders of
the Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of the Warrant are outstanding at the Determination
Date.

 

2.                                       Procedure for Exercise.

 

2.1                                 Delivery
of Stock Certificates, etc. on Exercise. The Company agrees that the shares
of Common Stock purchased upon exercise of this Warrant shall be deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on

 

2

 

which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. As soon as practicable after the exercise of this
Warrant in full or in part, and in any event within 3 business days thereafter,
the Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the Holder, or
as such Holder (upon payment by such holder of any applicable transfer taxes)
may direct in compliance with applicable securities laws, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such Holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such Holder is entitled upon such exercise pursuant to Section 1 or
otherwise.

 

2.2         Exercise.

 

(a)                                  Payment
may be made either (i) in cash or by certified or official bank check payable
to the order of the Company equal to the applicable aggregate Exercise Price,
(ii) by delivery of the Warrant, Common Stock and/or Common Stock receivable
upon exercise of the Warrant in accordance with Section (b) below, or (iii) by
a combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the Holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.

 

(b)                                 Notwithstanding
any provisions herein to the contrary, if the Fair Market Value of one share of
Common Stock is greater than the Exercise Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being exercised) by surrender of this Warrant
at the principal office of the Company together with the properly endorsed
Exercise Notice in which event the Company shall issue to the Holder a number
of shares of Common Stock computed using the following formula:

 

	
  X=Y (A-B)

  	
   

  
	
   

  	
  A 

  	
   

  
				

 

Where X =              the number of shares of Common Stock to
be issued to the Holder

 

Y=                            the
number of shares of Common Stock purchasable under the Warrant or, if only a
portion of the Warrant is being exercised, the portion of the Warrant being
exercised (at the date of such calculation)

 

A=                          the Fair
Market Value of one share of the Company’s Common Stock (at the date of such
calculation)

 

B=                            Exercise
Price (as adjusted to the date of such calculation)

 

3

 

3.                                       Effect of Reorganization, etc.; Adjustment of Exercise
Price.

 

3.1                                 Reorganization,
Consolidation, Merger, etc.  In case
at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition to the consummation of such a
transaction, proper and adequate provision shall be made by the Company whereby
the Holder of this Warrant, on the exercise hereof as provided in Section 1 at
any time after the consummation of such reorganization, consolidation or merger
or the effective date of such dissolution, as the case may be, shall receive,
in lieu of the Common Stock (or Other Securities) issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which such Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such Holder had so exercised this Warrant, immediately prior
thereto, all subject to further adjustment thereafter as provided in Section 4.

 

3.2                                 Dissolution.  In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holder of the Warrant after the
effective date of such dissolution pursuant to Section 3.1 to a bank or trust
company having its principal office in New York, NY, as trustee for the Holder
of the Warrant.

 

3.3                                 Continuation
of Terms.  Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and
other securities and property receivable on the exercise of this Warrant after
the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may be,
and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant as provided
in Section 4.  In the event this Warrant
does not continue in full force and effect after the consummation of the
transactions described in this Section 3, then only in such event will the
Company’s securities and property (including cash, where applicable) receivable
by the holders of the Warrant be delivered to the Trustee as contemplated by
Section 3.2.

 

4.                                       Extraordinary Events Regarding Common Stock.  In the event that the Company shall (a)
issue additional shares of the Common Stock as a dividend or other distribution
on outstanding Common Stock, (b) subdivide its outstanding shares of Common
Stock, or (c) combine its outstanding shares of the Common Stock into a smaller
number of shares of the Common Stock, then, in each such event, the Exercise Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event, and the product so obtained
shall thereafter be the Exercise Price then in effect. The Exercise Price, as
so adjusted, shall be

 

4

 

readjusted in the same manner upon the happening of any successive
event or events described herein in this Section 4. The number of shares of
Common Stock that the holder of this Warrant shall thereafter, on the exercise
hereof as provided in Section 1, be entitled to receive shall be increased to a
number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise Price that
would otherwise (but for the provisions of this Section 4) be in effect, and
(b) the denominator is the Exercise Price in effect on the date of such
exercise.

 

5.                                       Certificate as to Adjustments.  In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on
the exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for
any additional shares of Common Stock (or Other Securities) issued or sold or
deemed to have been issued or sold, (b) the number of shares of Common Stock
(or Other Securities) outstanding or deemed to be outstanding, and (c) the
Exercise Price and the number of shares of Common Stock to be received upon
exercise of this Warrant, in effect immediately prior to such adjustment or
readjustment and as adjusted or readjusted as provided in this Warrant. The Company
will forthwith mail a copy of each such certificate to the holder of the
Warrant and any Warrant agent of the Company (appointed pursuant to Section 11
hereof).

 

6.                                       Reservation of Stock, etc. Issuable on Exercise of
Warrant.  The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrant, shares of Common Stock (or Other Securities) from time
to time issuable on the exercise of the Warrant.

 

7.                                       Assignment; Exchange of Warrant.  Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a “Transferor”) with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor’s endorsement in the form of Exhibit B attached hereto (the
“Transferor Endorsement Form”) and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, a legal opinion from the
Transferor’s counsel that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense but with
payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a “Transferee”), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant so surrendered by the Transferor.

 

8.                                       Replacement of Warrant.  On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such

 

5

 

mutilation, on surrender and cancellation of this Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.

 

9.                                       Registration Rights.  The Holder of this Warrant has been granted
certain registration rights by the Company. 
These registration rights are set forth in a Registration Rights
Agreement entered into by the Company and Purchaser of the Company’s Secured
Convertible Note (the “Note”) at or prior to the issue date of this Warrant.

 

10.                                 Maximum Exercise.  The Holder shall not be entitled to exercise this Warrant on an
exercise date, in connection with that number of shares of Common Stock which
would be in excess of the sum of (i) the number of shares of Common Stock beneficially
owned by the Holder and its affiliates on an exercise date, and (ii) the number
of shares of Common Stock issuable upon the exercise of this Warrant with
respect to which the determination of this proviso is being made on an exercise
date, which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock of the
Company on such date.  For the purposes
of the proviso to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13d-3 thereunder.  Subject to the foregoing, the Holder shall
not be limited to aggregate exercises which would result in the issuance of more
than 4.99%.  The restriction described
in this paragraph may be revoked upon 75 days prior notice from the Holder to
the Company and is automatically null and void upon an Event of Default under
the Note.

 

11.                                 Warrant Agent.  The Company may, by written notice to the each holder of the
Warrant, appoint an agent for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, exchanging
this Warrant pursuant to Section 7, and replacing this Warrant pursuant to
Section 8, or any of the foregoing, and thereafter any such issuance, exchange
or replacement, as the case may be, shall be made at such office by such agent.

 

12.                                 Transfer on the Company’s Books.  Until this Warrant is transferred on the
books of the Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

 

13.                                 Notices, etc.  All notices and other communications from the Company to the
Holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, at such address as may have been furnished to the
Company in writing by such holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.

 

14.                                 Voluntary Adjustment by the Company.  The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for
any period of time deemed appropriate by the Board of Directors of the Company.

 

15.                                 Miscellaneous.  This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be

 

6

 

governed by and construed in accordance with the laws of State of New
York without regard to principles of conflicts of laws.  Any action brought concerning the
transactions contemplated by this Warrant shall be brought only in the state
courts of New York or in the federal courts located in the state of New York;
provided, however, that the Holder may choose to waive this provision and bring
an action outside the state of New York. 
The individuals executing this Warrant on behalf of the Company agree to
submit to the jurisdiction of such courts and waive trial by jury.  The prevailing party shall be entitled to
recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law.  Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of this Warrant. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof.  The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.  The Company acknowledges that legal counsel
participated in the preparation of this Warrant and, therefore, stipulates that
the rule of construction that ambiguities are to be resolved against the
drafting party shall not be applied in the interpretation of this Warrant to
favor any party against the other party.

 

IN WITNESS WHEREOF, the Company has executed this
Warrant under seal as of the date first written above.

 

	
   

  	
  ARTEMIS INTERNATIONAL SOLTIONS

  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Witness:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

7

 

Exhibit A

FORM OF SUBSCRIPTION

 

(To be signed only on
exercise of Warrant)

 

TO:                            Artemis
International Solutions Corp.

 

The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.      ), hereby irrevocably elects to
purchase (check applicable box):

 

                                            
shares of the Common Stock covered by such Warrant; or

 

                                    the maximum number of
shares of Common Stock covered by such Warrant pursuant to the cashless
exercise procedure set forth in Section 2.

 

The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which is
$                  .  Such payment takes the form of (check
applicable box or boxes):

 

                                    $                  
in lawful money of the United States; and/or

 

                                    the cancellation of such
portion of the attached Warrant as is exercisable for a total of
             shares
of Common Stock (using a Fair Market Value of
$             per share
for purposes of this calculation); and/or

 

                                    the cancellation of such
number of shares of Common Stock as is necessary, in accordance with the
formula set forth in Section 2, to exercise this Warrant with respect to the
maximum number of shares of Common Stock purchaseable pursuant to the cashless
exercise procedure set forth in Section 2.

 

The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to 
                                          
whose address is
                                                            

 

                                                                                    .

 

The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the within Warrant
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from
registration under the Securities Act.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder as
  specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Address)

  

 

 

Exhibit B

 

FORM OF TRANSFEROR
ENDORSEMENT

(To be signed only on
transfer of Warrant)

 

For value received, the undersigned hereby sells,
assigns, and transfers unto the person(s) named below under the heading
“Transferees” the right represented by the within Warrant to purchase the
percentage and number of shares of Common Stock of Artemis International
Solutions Corp. to which the within Warrant relates specified under the
headings “Percentage Transferred” and “Number Transferred,” respectively,
opposite the name(s) of such person(s) and appoints each such person Attorney
to transfer its respective right on the books of Artemis International Solutions
Corp. with full power of substitution in the premises.

 

	
  Transferees

  	
   

  	
  Percentage Transferred

  	
   

  	
  Number Transferrred

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform to name of holder as

  specified on the face of the Warrant)

  
	
  Signed in the presence of:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Name)

  	
   

  	
  (address)

  
	
   

  	
   

  
	
  ACCEPTED AND AGREED:

  	
   

  
	
  [TRANSFEREE]

  	
  (address)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Name)

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