Document:

Exhibit
4.8

SECURITIES
PURCHASE AGREEMENT

This
Securities Purchase Agreement  (the “Agreement”),
dated as of March 30 2007, by and among Power Medical Interventions,
Inc. a Delaware corporation, with headquarters located at 2021 Cabot Boulevard
West, Langhorne, PA 19047 (the “Company”),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer”  and collectively, the “Buyers”).

WHEREAS, the Company and
each Buyer are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation
D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities
Act.

WHEREAS, the Company has
authorized the issuance of 7% convertible senior secured notes due 2010 in an
aggregate amount of up to $25 million, in the form attached hereto as Exhibit
A (the “Notes”)
which, among other things, will be convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) (as issued upon
conversion of the Notes, the “Underlying Shares”) in accordance with the terms of the
Notes.

WHEREAS, each Buyer wishes
to purchase, and the Company wishes to sell, upon the terms and conditions
stated in this Agreement, Notes in the principal amount set forth opposite such
Buyer’s name on the Schedule of Buyers (such amount with respect to each Buyer,
the “Investment Amount”).

WHEREAS, contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B (the “Registration Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement), an Escrow Agreement, substantially in the form attached
hereto as Exhibit C (the “Escrow Agreement”), and a Security Agreement,
substantially in the form attached hereto as Exhibit D (the “Security Agreement”),
pursuant to which the Company has agreed to grant a security interest in and
lien on all of the Company’s assets in favor of the Collateral Agent (as
defined in Section 8) for the ratable benefit of the Buyers to secure the
Company’s Obligations (as defined in Section 8) under the Collateral Documents
(as defined in Section 8).

Whereas, the Notes and the Underlying
Shares are collectively referred to herein as the “Securities.”

NOW,
THEREFORE, the Company and each Buyer hereby agree as follows:

1.                                       PURCHASE AND SALE OF NOTES.

(a)           Notes.  Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 5 and 6
below, the Company agrees to issue and sell to each Buyer, and each Buyer
severally, but not jointly, agrees to purchase from the Company on the Closing
Date (as defined in Section 1(b)), a Note representing such Buyer’s Investment
Amount.

(b)           Closing.  The
closing (the “Closing”) of
the purchase of the Notes by the Buyers shall occur at the offices of Jones
Day, 222 E. 41st Street, New York, NY 10017. 
The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., eastern standard
time, on the first Business Day (as defined in Section 8) on which the
conditions to the Closing set forth in Sections 5 and 6 below have been
satisfied or waived (or such other date and time as is mutually agreed to by
the Company and each Buyer).

(c)           Form of Payment. 
On the Closing Date, (A) each Buyer shall pay its Investment Amount to
the Company for the Note to be issued and sold to such Buyer at the Closing, by
wire transfer of immediately available funds in accordance with the Company’s
written wire instructions and (B) the Company shall deliver to each Buyer a Note
(in such Buyer’s Investment Amount) duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.

2.                                       BUYER’S REPRESENTATIONS AND WARRANTIES.

                Each
Buyer represents and warrants, severally and with respect only to itself, that:

(a)           Organization; Authority.  Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as defined
in Section 3(b)) to which it is a party and otherwise to carry out its
obligations hereunder and thereunder.

(b)           No Public Sale or Distribution.  Such Buyer is (i) acquiring the Note to be
issued to it and (ii) upon conversion of the Note will acquire the Underlying
Shares, in each case, for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered or exempted under the Securities Act.  Such Buyer is acquiring the Securities
hereunder in the ordinary course of its business and does not presently have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

(c)           Qualified Institutional Buyer/Accredited Investor Status.
 Except with respect to the Gerald and
Myra S. Dorros Revocable Trust, each Buyer is on the date hereof, and on each
date on which it converts the Note will be, a “qualified institutional buyer”
as that term is defined in Rule 144A of the Securities Act and an “accredited
investor” as such term is defined in Rule 501 of the Securities Act.  The Gerald and Myra S. Dorros Revocable Trust
represents that on the date hereof, and on each date on which it converts the
Note will be, an “accredited investor” as such term is defined in Rule 501 of
the Securities Act.

(d)           Reliance on Exemptions.  Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
such Buyer’s compliance with, the representations, warranties, 

 

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agreements, acknowledgments
and understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
the Securities.

(e)           Information.  Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify, amend or
affect such Buyer’s right to rely on the Company’s representations and
warranties contained herein. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities
and has such business and financial experience as is required to give it the
capacity to utilize the information received, to evaluate the risks involved in
purchasing the Securities, and to protect its own interests in connection with
the purchase of the Securities and is able to bear the risks of an investment
in the Securities.

(f)            No Governmental Review.  Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

(g)           Transfer or Resale.  Such Buyer understands that except as provided
in the Note and the Registration Rights Agreement with respect to resale of the
Underlying Shares: (i) the Securities have not been and will not be registered
under the Securities Act or any state securities laws, and may not be offered
for sale, sold, assigned or transferred unless (A) subsequently registered
thereunder, or (B) such Buyer shall have delivered to the Company an opinion of
counsel, in a generally acceptable form, to the effect that such Securities to
be sold, assigned or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, and (ii) neither the Company nor any
other Person is under any obligation to register the Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder.

(h)           Legends.  Such
Buyer understands that the certificates or other instruments representing the Notes
and, until such time as the resale of the Underlying Shares have been
registered under the Securities Act as contemplated by the Notes and the
Registration Rights Agreement, any stock certificates representing Underlying
Shares, shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):

NEITHER THESE SECURITIES NOR
THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS 

 

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AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

THE INITIAL REGISTERED
HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION RIGHTS
AGREEMENT, AN ESCROW AGREEMENT AND A SECURITY AGREEMENT (COPIES OF WHICH ARE
AVAILABLE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE ISSUER). A TRANSFEREE OF
THIS SECURITY MAY BECOME ENTITLED TO THE BENEFITS OF SUCH AGREEMENTS SUBJECT TO
COMPLIANCE WITH THE CONDITIONS TO TRANSFER SET FORTH THEREIN.

THIS NOTE IS ISSUED WITH
ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTIONS 1271, 1272 AND 1273 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED. BEGINNING NO LATER THAN 10 DAYS
AFTER THE CLOSING DATE (AS DEFINED IN THIS NOTE), THE COMPANY’S CHIEF FINANCIAL
OFFICER AT 2021 CABOT BOULEVARD WEST, LANGHORNE, PA 19047 WILL MAKE AVAILABLE,
UPON REQUEST TO ANY HOLDER OF THIS NOTE, THE ISSUE PRICE OF THIS NOTE PER
PRINCIPAL AMOUNT DUE AT MATURITY, THE YIELD TO MATURITY OF THIS NOTE PER ANNUM
AS OF ANY DATE OF DETERMINATION, AND THE TOTAL AMOUNT OF ORIGINAL ISSUE
DISCOUNT ON THIS NOTE AS OF THE ISSUE DATE PER PRINCIPAL AMOUNT OF $1,000 AT
MATURITY.

The legend set forth above
shall be removed and the Company shall issue a certificate or other instrument,
as applicable, without such legend to the holder of the Securities upon which
it is stamped, if, unless otherwise required by state securities laws, (i) the
resale of such Securities is registered under the Securities Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the Securities Act,
or (iii) such Securities are eligible for sale under Rule 144(k).

(i)            Validity; Enforcement.  This Agreement and the Registration Rights
Agreement have been authorized by all necessary corporate action of, and duly
and validly executed and delivered on behalf of, such Buyer and constitute the
legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their respective 

 

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terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

(j)            No Conflicts.  The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such
Buyer or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument to which such Buyer is a party,
or (iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such Buyer,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

(k)           Piggyback Registrations.  Each Buyer acknowledges that, in addition to
rights granted to holders of Notes sold under this Agreement, the Company has
granted registration rights under the Company Investor Rights Agreement to holders
of approximately 45,200,000 shares of its common stock and approximately
155,400,000 shares of common stock issuable on conversion of preferred stock
and exercise of warrants issued in prior financing transactions.  Upon the request of the holders of these
registration rights, and subject to certain terms and conditions, the Company
is obligated to include the foregoing shares on any registration statement
filed for the account of other security holders, and therefore, these shares
may be included in the registration statement to be filed by the Company
pursuant to this Agreement and the Registration Rights Agreement.

3.                                       REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

The Company represents and
warrants to each of the Buyers that:

(a)           Organization and Qualification.  Each of the Company and its Subsidiaries (as
defined in Section 8) are entities duly organized and validly existing and in
good standing under the laws of the jurisdictions in which they are formed, and
have the requisite power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign entity to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not reasonably be expected to have a Material Adverse Effect (as defined
in Section 8). The Company has no Subsidiaries except as set forth on Schedule
3(a).

(b)           Authorization; Enforcement; Validity.  The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement, the Notes,
the Registration Rights Agreement, the Escrow Agreement and the Security
Agreement (collectively, the “Transaction
Documents”)  and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and 

 

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thereby, including, without
limitation, the issuance of the Notes and the reservation for issuance and the
issuance of the Underlying Shares issuable upon conversion of the Notes, have
been duly authorized by the Company’s board of directors and the requisite
percentage of the Company’s stockholders in accordance with the Company’s
Certificate of Incorporation (as defined in Section 3(k)). This Agreement and
the other Transaction Documents of even date herewith have been duly executed
and delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of applicable creditors’ rights and remedies.

(c)           Issuance of Securities.  The issuance of the Notes is duly authorized
and upon issuance in accordance with the terms of the Transaction Documents
shall be free from all taxes, liens and charges with respect to the issue
thereof.  As of the Closing, 56,000,000 shares
of Common Stock shall have been duly authorized and reserved for issuance
pursuant to the conversion of the Notes. Upon issuance following the conversion
of the Notes, the Underlying Shares will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights (except such as
have been duly waived), or any taxes, liens and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock. Subject to the accuracy of the representations and
warranties of the Buyers in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the Securities Act.

(d)           No Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby (including, without limitation, the issuance
of the Notes and issuance of the Underlying Shares) will not (i) result in a
violation of the Certificate of Incorporation or any certificate of
incorporation, certificate of formation, any certificate of designations or
other constituent document of any of its Subsidiaries, any capital stock of the
Company, the Company’s Bylaws (as defined in Section 3(k)) or any of its
Subsidiaries’ bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, instrument or other document to
which the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not, individually or in aggregate, have or reasonably
be expected to result in a Material Adverse Effect.

(e)           Filings; Consents.  The Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court, governmental agency or any regulatory or self-regulatory agency or
any other Person (as defined in Section 8) in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, other than (i) the filing with the Securities and Exchange
Commission (the “Commission”)
of one or more registration statements in accordance with the requirements of
the Registration Rights Agreement, (ii) filings required by state securities
laws, (iii) the filing of a Notice of Sale of Securities on Form D with the
Commission under Regulation D of the 

 

 

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Securities Act, (iv) the
filing required in accordance with Section 6(j), (v) the filing of UCC
financing statements as contemplated by the Security Agreement, and (vi) those
that have been made or obtained prior to the date of this Agreement.

(f)            No General Solicitation, Placement Agent.  Neither the Company, nor any of its
Subsidiaries or 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) in connection with the offer or sale of the
Securities. The Company acknowledges that it has engaged Jefferies &
Company, Inc. as its exclusive placement agent (the “Agent”) in connection with the sale of the Securities.
Other than the Agent, neither the Company nor any of its Subsidiaries has
engaged any placement agent or other agent in connection with the sale of the
Securities.

(g)           Financial Statements.  The Company has delivered to Buyers the
Company’s audited financial statements for the fiscal years ending December 31,
2005 and 2006 (the “Financial
Statements”).  The
Financial Statements have been prepared in accordance with United States generally
accepted accounting principles (“GAAP”),
consistently applied (except as may be otherwise indicated in such financial
statements or the notes thereto) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended.

(h)           Absence of Certain Changes.  Except as disclosed in Schedule 3(h),
since December 31, 2006, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in Schedule 3(h), since December
31, 2006, neither the Company nor any of its Subsidiaries has (i) declared or
paid any dividends, (ii) sold or otherwise disposed of any material asset
outside of the ordinary course of business or (iii) made or committed to make
capital expenditures, individually or in the aggregate, in excess of $1,000,000.
Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing will not, be Insolvent (as defined in Section 8).

(i)            Conduct of Business, Regulatory Permits.  Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation or Bylaws or their organizational charter or certificate of
incorporation or bylaws or any Material Contracts, respectively. Neither the
Company nor any of its Subsidiaries is in violation in any material respect of
any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or its Subsidiaries, and neither the Company nor any
of its Subsidiaries will conduct its business in violation in any material
respect of any of the foregoing. The Company and its Subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.  The Company is in compliance in
all material respects with the laws or regulations and orders with 

 

 

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respect to approval and
clearance where required by the U.S. Food and Drug Administration to
manufacture and continue to sell medical devices.

(j)            Transactions With Affiliates.  Except as set forth on Schedule 3(j),
none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees,
officers or directors, including restricted stock and stock option agreements),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any of its
Subsidiaries, any corporation, partnership, trust or other entity in which any
such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner, which transaction is of a character such
that it would be required to be disclosed pursuant to Item 404 of Regulation
S-K under the Securities Act.

(k)           Equity Capitalization.   As of
the date hereof, after giving effect to the Charter Amendment (as defined in
Section 6(k)), the authorized capital stock of the Company consists of (i) 316,000,000
shares of Common Stock, of which as of the date hereof, 60,124,414 are issued
and outstanding, 37,506,136 shares are reserved for issuance pursuant to outstanding
options and warrants to purchase Common Stock, and (ii) 144,049,147 shares of
Preferred Stock, of which (i) 22,668,764 are designated Series A Convertible
Preferred Stock and 22,668,764 are issued and outstanding, (ii) 47,489,824 are
designated Series B Convertible Preferred Stock and 47,489,822 are issued and
outstanding, (iii) 22,935,780 are designated Series C Convertible Preferred
Stock and 21,223,750 are issued and outstanding, (iv) 50,954,779 are designated
Series D Convertible Preferred Stock and 50,596,158 are issued and outstanding,
and (v) collectively, an aggregate of 141,978,494 shares of Preferred Stock are
issued and outstanding.  All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable.  Except as
set forth on Schedule 3(k), (i) none of the Company’s capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings
or arrangements by which the Company or any of its Subsidiaries is or may
become bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible
into, or exercisable or exchangeable for, any capital stock of the Company or
any of its Subsidiaries; (iii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the Securities Act (except pursuant to the
Registration Rights Agreement and the Company Investor Rights Agreement (as
defined in Section 8)); (iv) there are no outstanding securities or instruments
of the Company or any of its Subsidiaries which contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (v) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities; and (vi) the Company
does not have any stock appreciation rights or “phantom stock” plans or agreements
or any similar plan or agreement.  The
Company has furnished to the Buyers true, correct and complete copies of the
Company’s 

 

 

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Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”),
and the Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and all agreements
or documents evidencing the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights
of the holders thereof in respect thereto.

(l)            Indebtedness and Other Contracts.  Except as set forth on Schedule 3(l),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined in Section 8), or (ii) is in violation of any term of
or in default under any contract, agreement or instrument relating to any
Indebtedness, except such violations or defaults as would not reasonably be
expected to have a Material Adverse Effect.

(m)          Litigation.  Except
as set forth on Schedule 3(m), there is no action, suit or proceeding or
governmental inquiry or investigation pending or, to the Company’s knowledge,
basis therefor or threat thereof, against the Company or any Subsidiary that
questions the validity of the Transaction Documents or the right of the Company
to enter into or perform the Transaction Documents, nor is there any litigation
pending or, to the Company’s knowledge, threat thereof, against the Company or
any Subsidiary by reason of the activities presently conducted or proposed to
be conducted by the Company or any Subsidiary, nor, to the Company’s knowledge,
is there any basis therefor.

(n)           Insurance.  The
Company and each of its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.

(o)           Employee Relations.  (i) Except as set forth on Schedule 3(o),
neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement or employs any member of a union. The Company and its
Subsidiaries believe that their relations with their employees are good. No
executive officer of the Company or any of its Subsidiaries (as defined in Rule
501(f) of the Securities Act) has notified the Company or any such Subsidiary
that such officer intends to leave the Company or any such Subsidiary or
otherwise terminate such officer’s employment with the Company or any such
Subsidiary. To the Company’s knowledge, no executive officer of the Company or
any of its Subsidiaries is in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, with any Person other than the Company or such
Subsidiary, and  the continued
employment of each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the foregoing
matters.

                (ii)           The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,

 

 

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except where failure to be in compliance would not,
either individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.

(p)           Title.  The
Company and its Subsidiaries have good and marketable title in fee simple to
all real property and good and marketable title to all personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all liens, encumbrances and defects, except for
Permitted Liens (as defined in Section 8) and the Lien in favor of the
Collateral Agent under the Security Agreement, and except such liens,
encumbrances and defects as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and any of its Subsidiaries. Any real property and facilities
held under lease by the Company or any of its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as do not materially
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

(q)           Intellectual Property Rights.  Except as set forth on Schedule 3(q), the
Company and each Subsidiary is the sole owner of the entire right, title and
interest in and to, or possesses a valid license or other legal right to, all
intellectual property and proprietary rights, including rights in trademarks,
service marks, trade names, copyrights, works of authorship, trade secrets,
trade dress, domain names, designs, processes, data, software, know-how,
inventions and discoveries (whether or not patented, patentable, or reduced to
practice), patents, goodwill related to any of the foregoing, and all related
foreign and domestic registrations and applications for registration therefor,
presently used by the Company or such Subsidiary or, to the knowledge of the
Company, necessary for the conduct of the Company’s or such Subsidiary’s
business as conducted and, except for Commercially Available Licenses (as
defined in Section 8), as currently proposed to be conducted (collectively, “Intellectual Property Rights”).  Except as set forth on Schedule 3(q),
all of the Intellectual Property Rights with respect to which the Company holds
title are free from any known challenge or, to the Company’s knowledge, threat
thereof, and the Company is not aware of any basis therefor.  The Company and its Subsidiaries have taken
all commercially reasonable actions necessary to protect and maintain their
intellectual property rights, and to maintain the confidentiality of their
trade secrets.  To the knowledge of the
Company, the Company’s business and the business of its Subsidiaries as
currently conducted (and, upon securing Commercially Available Licenses, as
proposed to be conducted) does not and will not cause the Company or its
Subsidiaries to infringe, misappropriate or violate any of the trademarks,
service marks, trade names, copyrights, trade secrets, patents, patent
applications or other intellectual property rights of any other Person and does
not and will not require the Company or its Subsidiaries to obtain any license
or other agreement to use any patents, trademarks, service marks, trade names,
copyrights, trade secrets, processes, data, know-how or other intellectual
property rights of any other Person (exclusive, for the avoidance of doubt, of
those already held by the Company). 
Except as set forth on Schedule 3(q), no claims or actions have
been asserted, are pending or have been threatened against the Company or its
Subsidiaries, and the Company and its Subsidiaries have not received any
written communications, or to the actual knowledge of any current senior
executive officer of the Company, oral communications, (i) challenging or
seeking to deny or restrict the sole ownership by, or license rights of, the
Company or its Subsidiaries of the Intellectual Property Rights, as the case
may be, or (ii) alleging that the Company or its Subsidiaries have violated or,
by conducting its business as proposed to be conducted, would violate any of
the patents, 

 

 

10

 

trademarks, service marks,
trade names, copyrights, trade secrets or other intellectual property rights or
proprietary information of any other Person. 
Except for Incidental Licenses (as defined in Section 8) and agreements listed
on Schedule 3(p), there are no outstanding options, licenses or
agreements of any kind relating to the Intellectual Property Rights with
respect to which the Company holds title, nor is the Company or its
Subsidiaries bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, processes, data or know-how or other intellectual
property rights or proprietary information of any other Person, other than
Commercially Available License.  Except
for Incidental Licenses and agreements listed on Schedule 3(p), neither
the Company nor its Subsidiaries has granted any options or licenses of any
kind to the Intellectual Property Rights, and neither the Company nor any
Subsidiary has entered into any agreements limiting any of its rights in its
Intellectual Property Rights. To the Company’s knowledge, none of the holders
of Common Stock, whether vested or unvested, owns any rights in patents,
trademarks, service marks, trade names, copyrights, trade secrets, processes,
data or know-how directly or indirectly competitive with those owned or to be
used by the Company or derived from or connected to the conduct of the Company’s
business.  Neither the Company nor its
Subsidiaries has granted rights to manufacture, produce, assemble, license,
market or sell its products to any other Person (other than in connection with
the other Persons’ manufacture of goods for the benefit of the Company) and is
not bound by any agreement that affects the Company’s exclusive rights to
develop, manufacture, assemble, distribute, market or sell its products.  To the Company’s knowledge, no Person is
engaging in any activity that infringes or misappropriates any Intellectual
Property Rights solely owned by, or exclusively licensed to, the Company.

(r)            Environmental Laws.  The Company and its Subsidiaries (i) are in material
compliance with any and all Environmental Laws (as defined in Section 8), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in material compliance with all terms and conditions of any such permit,
license or approval.

(s)           Tax Status.  The
Company and each of its Subsidiaries (i) has made or filed all foreign, federal,
local and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and such returns are
materially complete and correct, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount that are due ((whether or
not shown or determined to be due on such returns, reports and declarations),
except those being contested in good faith by appropriate proceedings for which
the Company maintains adequate reserves and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, except as set forth on Schedule 3(s).

(t)            Investment Company Status.  The Company is not, and upon consummation of
the sale of the Securities will not be, an “investment company,” a company controlled
by an “investment company” or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company” as such terms are defined in the
Investment Company Act of 1940, as amended.

(u)           Transfer Taxes. 
On the Closing Date, all stock transfer or other taxes (other than
income or similar taxes) which are required to be paid in connection with the
sale and 

 

 

11

 

transfer of the Securities
to be sold to each Buyer hereunder will be, or will have been, fully paid or
provided for by the Company, and all laws imposing such taxes will be or will
have been complied with.

(v)           Collateral.  (i)  As of the Closing Date, (A) the Company will
own the Collateral free and clear of all liens except Permitted Liens and
except the Lien in favor of the Collateral Agent under the Security Agreement,
and no financing statements in respect of the Collateral except with respect to
Permitted Liens will be on file in favor of any Person other than the
Collateral Agent; (B) when executed and delivered, the Security Agreement will
create a valid lien on, and enforceable security interests in favor of the
Collateral Agent for the ratable benefit of the Holders, in the Collateral,
which security interests will secure the repayment of the Notes and the other Obligations
purported to be secured thereby; (C) the representations and warranties of the
Company in the Security Agreement will be true and correct (if such
representations and warranties are not qualified with respect to materiality,
in which case such representations will be true and correct in all respects) in
all material respects; (D) upon the filing and recording of financing
statements in the appropriate jurisdictions, the Lien securing the Notes will
have been duly perfected as to the Collateral as to which perfection may be
accomplished through the filing of financing statements pursuant to the Uniform
Commercial Code (the “UCC”)
or other applicable law in such jurisdictions; and (E) the liens of the
Security Agreement shall be prior to any other lien on any of the Collateral,
other than liens expressly permitted to be prior pursuant to the Security
Agreement.

(ii)  When confirmations of the grant
of the security interest in Intellectual Property pursuant to the Security
Agreement are filed in the United States Patent and Trademark Office (the “USPTO”), the Security Agreement
shall create a fully perfected lien on, and security interest in, all right,
title and interest of the Company thereunder in the Intellectual Property (as
defined in the Security Agreement), in each case prior and superior in right to
any other person (it being understood that subsequent recordings in the USPTO
may be necessary to perfect a lien in registered trademarks, trademark
applications and patents and patent applications acquired by the Company after
the date hereof).

(w)          Accuracy and Completeness of Disclosure.  Neither this Agreement nor any other
document, certificate or instrument delivered to the Buyer by or on behalf of
the Company or any of its Subsidiaries in connection with this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in this Agreement and
in such other documents, certificates or instruments not misleading in light of
the circumstances under which such statements were made.

(x)            OFAC Requirements. 
Neither the Company nor, to the Company’s knowledge, any of its
Affiliates, or any Person acting on their behalf in connection with this
Agreement, has engaged directly or indirectly in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or violates the requirements
or prohibitions set forth in any Anti-Terrorism Law.  Neither the Company nor, to the Company’s
knowledge, any of its Affiliates (i) is a Sanctioned Person, (ii) has assets in
Sanctioned Countries, or (iii) derives any of its operating income from
investments in, or transactions with Sanctioned Persons or Sanctioned Countries.  No part of the proceeds of any Note will be
used or have been used to fund any operations in, finance any investments or
activities in or make any payments to, a Sanctioned Person or a Sanctioned
Country.

 

12

 

4.                                       COVENANTS.

(a)           Best Efforts.  Each party shall use its best efforts timely
to satisfy each of the covenants and conditions to be satisfied by it as
provided in Sections 4, 5 and 6 of this Agreement.

(b)           Form D and Blue Sky.  The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably determine
is necessary in order to obtain an exemption for or to qualify the Securities
for sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or “Blue Sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Buyers on or prior to the Closing Date. The
Company shall make all filings and reports relating to the offer and sale of
the Securities required under applicable securities or “Blue Sky” laws of the
states of the United States following the Closing Date.

(c)           Use of Proceeds.  The Company shall use the net proceeds from
the sale of the Securities hereunder for working capital purposes, including to
fund further development of the Company as consistent with the Company’s stated
business plan, for general and reasonable corporate expenses, and to provide
the Escrow Deposit.

(d)           Fees.  The
Company shall be responsible for the payment of any placement agent’s fees or
commissions, financial advisory fees, or broker’s commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby, including, without limitation, any fees or commissions
payable to the Agent. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.

(e)           Lockup Agreement.  Each Holder which would, as of the closing
date of the Qualified IPO, own, on a fully diluted basis and assuming full
conversion of such Holder’s Notes on such date, 5% or more of the outstanding
shares of Common Stock, will deliver to the Company a lock-up agreement, in the
form of Exhibit E, pursuant to which such Holder agrees  not to sell any shares of Common Stock,
including Underlying Shares, held by such Holder on the closing date of the
Qualified IPO  for 180 days (subject to
extension upon the occurrence of certain events, as described in Exhibit E)
following the Qualified IPO (the “Lockup
Agreement”).

(f)            Company Lockup.  (i) For 90 days after the effectiveness of
the Registration Statement (the “Lock-Up Period”), the Company will not,
directly or indirectly, (i) file a registration statement with the SEC relating
to, equity securities of the Company (other than a registration statement on
Form S-8 or Form S-4 or the offering and registration contemplated by the
Registration Rights Agreement, including amendments and supplements, or a
demand registration statement contractually required pursuant to the terms of
the Company’s Third Amended and Investors’ Rights Agreement, dated June 26,
2006) or, without the prior written consent of the Holders, sell, assign,
transfer, pledge, contract to sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition or purchase by any person at any time in the future of) any
shares of Common 

 

 

13

 

Stock
or securities convertible into or exercisable or exchangeable for shares of
Common Stock, or sell or grant options, warrants or rights with respect to any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock, or substantially similar securities (other than
the grant of options, warrants, convertible debenture or rights that are
currently authorized pursuant to equity incentive plans existing on the date
hereof), or (ii) enter into any swap or other derivatives transaction that
transfers to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any such transaction
described in the foregoing clauses (i) or (ii) is to be settled by delivery of
Common Stock or other securities.

(ii) Notwithstanding anything to the contrary contained herein, the
Company may, during the Lock-Up Period, issue (A) the Notes and the Underlying
Shares as contemplated by this Agreement, (B) shares of Common Stock issued or
issuable upon conversion of convertible securities outstanding on the date
hereof, (C) shares of Common Stock issued or issuable pursuant to an
acquisition by the Company approved by the Board of Directors, of another
corporation by merger, purchase of substantially all of the assets, or other
reorganization, (D) shares of Common Stock (and rights to purchase such shares)
under the Company’s employee benefit plans, equity incentive plans or other
employee compensation plans, (E) shares of Common Stock, options, warrants or
other rights to purchase or acquire Common Stock to third-parties in connection
with lending, credit facilities or commercial licensing arrangements, or for
bona fide services, (F) one or more private placements of equity securities by
the Company so long as the Company does not file a registration statement with
the SEC on behalf of the private placement investors, (G) shares of Common
Stock issued or issuable as a dividend or other distribution on shares of
equity securities outstanding on the date hereof, and (H) shares of Common
Stock issued or issuable pursuant to stock splits, reorganizations and similar
types of organic transactions.

5.                                       CONDITIONS TO THE COMPANY’S OBLIGATION TO
SELL.

                The obligation of the Company hereunder to issue and
sell the Notes to each Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:

(a)           Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.

(b)           Such Buyer and each other Buyer shall have delivered to
the Company the Investment Amount for the Notes being purchased by such Buyer
at the Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.

(c)           The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

 

14

 

6.                                       CONDITIONS TO EACH BUYER’S OBLIGATION TO
PURCHASE.

                The obligation of each Buyer to purchase the Notes at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

(a)           The Company shall have duly executed and delivered to such
Buyer (A) each of the Transaction Documents and (B)
the Notes (in the Investor Amount set forth across from such Buyer’s name on the
Schedule of Buyers) being purchased by such Buyer at the Closing pursuant to
this Agreement.

(b)           Such Buyer shall have received the opinion of Foley Hoag
LLP the Company’s legal counsel, dated as of the Closing Date, in substantially
the form of Exhibit F attached hereto.

(c)           The Company and the Escrow Agent (as defined in the Escrow
Agreement) shall have executed and delivered to such Buyer a copy of the Escrow
Agreement and the Company shall have funded the Escrow Deposit.

(d)           The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its United
States Subsidiaries in each such entity’s jurisdiction of formation issued by
the Secretary of State (or equivalent) of such jurisdiction of formation as of
a date within five (5) Business Days before the Closing Date.

(e)           The Company shall have delivered to such Buyer a
certificate evidencing the Company’s qualification as a foreign corporation and
good standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business and is required to so
qualify, as of a date within five (5) Business Days before the Closing Date.

(f)            The Company shall have delivered to such Buyer a
certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within five (5) Business Days
before the Closing Date.

(g)           The Company shall have delivered to such Buyer a
certificate, executed by the Secretary of the Company and dated as of the Closing
Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the
Company’s board of directors in a form reasonably acceptable to such Buyer,
(ii) the Certificate of Incorporation and (iii) the Bylaws, each as in effect
at the Closing, in the form attached hereto as Exhibit G.

(h)           The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date) and the Company, shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached
hereto as Exhibit H.

 

15

 

(i)            The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the
sale of the Securities.

(j)            All necessary corporate action on the part of the
Company, its directors and stockholders for the authorization, execution,
delivery and performance of the Transaction Documents by the Company and for
the waiver of the stockholder preemptive rights and other protective provisions
referred to in Schedule 3(k) has been taken.

(k)           The Certificate of Amendment to Certificate of
Incorporation in the form attached hereto as Exhibit I (the “Charter Amendment”) shall
have been filed with the Secretary of State of the State of Delaware and shall
be in full force and effect, enforceable against the Company in accordance with
its terms and shall not have been amended.

(l)            The Company shall have delivered to the Collateral Agent
any documents or filings reasonably requested by the Collateral Agent to
perfect the security interest in the Collateral created pursuant to the
Security Agreement.

(m)          The Company shall have delivered to the Collateral Agent
the certificates representing the securities and investment property set forth
in Section 4 of the Perfection Certificate (as defined in the Security
Agreement.

(n)           The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.

(o)           Notes totaling a minimum aggregate amount of $22,500,000 shall
be issued on the Closing Date.

7.                                       TERMINATION.

In
the event that the Closing shall not have occurred with respect to a Buyer on
or before five (5) Business Days from the date hereof due to the Company’s or
such Buyer’s failure to satisfy the conditions set forth in Sections 5 and 6
above (and the nonbreaching party’s failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of business on such
date without liability of any party to any other party.

8.                                       DEFINITIONS.

As used in this Agreement,
the following terms shall have the respective meanings set forth in this
Section 8:

(a)           “Affiliate”
of any specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person, where “control” (including, with correlative meanings,
the terms “controlling”, “controlled by” and “under common control with”), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided, that, solely for the purposes of this definition of “Affiliate,”
beneficial ownership of 10% or more of the voting stock of a Person shall be
deemed to be control.

 

16

 

(b)           “Anti-Terrorism
Laws” means any Law of the United States or any state thereof or
political subdivision of the foregoing relating to terrorism or money
laundering, including the Executive Order and the Patriot Act.

(c)           “Business
Day” means any day except Saturday, Sunday and any day that is a
federal legal holiday or a day on which banking institutions in the State of
New York are authorized or required by law or other governmental action to
close.

(d)           “Capital
Stock” means (A) in the case of a corporation, corporate stock,
(B) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (C) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests, and
(D) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person, but excluding from all of the foregoing any debt securities
convertible into Capital Stock, whether or not such debt securities include any
right of participation with Capital Stock.

(e)           “Collateral”
means any assets of the Company or any other Person defined as “Collateral” in
any Collateral Document.

(f)            “Collateral
Agent” shall have the meaning set forth in the Security
Agreement.

(g)           “Collateral
Documents” means the Security Agreement and the other
agreements, documents, or instruments, including any financing statements, and
any amendments or supplements thereto, creating, perfecting, or evidencing any
Liens securing the Notes and any other Obligation under the Collateral
Documents.

(h)           “Commercially
Available Licenses” shall mean licenses that are generally
commercially available at a cost of less than $100,000.

(i)            “Company
Investor Rights Agreement” shall mean the Third Amended and
Restated Investors’ Rights Agreement dated as of June 26, 2006, among the
Company and the stockholders of the Company that are parties thereto.

(j)            “Contingent
Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such liability
that such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto, other than
obligations resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business.

(k)           “Disqualified
Stock” means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, in each case, at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder thereof, in whole or in part, on or prior to the date that is 91
days after the date on which the Notes mature. 
Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders of the Capital Stock
have the right to require the Company to repurchase such Capital Stock upon the
occurrence of a change

 

 

17

 

 of control or an asset sale will not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with the terms of
Section 4 of the Notes which addresses Restricted Payments.  The amount of Disqualified Stock deemed to be
outstanding at any time for purposes hereof shall be the maximum amount that
the Company and its Subsidiaries may become obligated to pay upon the maturity
of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock,
exclusive of accrued dividends.

(l)            “Environmental
Laws” means all federal, state, local or foreign laws relating
to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata), including, without limitation, laws relating to Hazardous
Materials, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials, as well as all authorizations, codes, decrees, demands or demand
letters, injunctions, judgments, licenses, notices or notice letters, orders,
permits, plans or regulations issued, entered, promulgated or approved
thereunder.

(m)          “Escrow
Deposit” means cash equal to the amount sufficient for the
Company to pay the initial four interest payments on the Notes, with the first
such interest payment date being September 30, 2007, which the Company shall
have deposited into the escrow account under the Escrow Agreement on or before
the date of this Agreement.

(n)           “Event of
Default” shall have the meaning set forth in the Notes.

(o)           “Executive
Order” means the Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001, and relating to Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support Terrorism.

(p)           “Governmental
Authority” means the government of the United States of America
or any other nation, or of any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or
the European Central Bank).

(q)           “Hazardous
Materials” means emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes into the environment.

(r)            “Incidental
Licenses” shall mean limited licenses, either implicit or
explicit, that (i) are incidental to sales of the Company’s products in the
ordinary course of business, or (ii) arise in connection with a Person’s
manufacture of goods for the benefit of the Company.

(s)           “Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (including, without limitation, “capital
leases” in accordance with GAAP) (other than trade payables and accrued
liabilities incurred in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in 

 

 

18

 

connection with the
acquisition of property, assets or businesses, (E) all indebtedness created or
arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (F) all monetary obligations
under any leasing or similar arrangement which, in connection with generally
accepted accounting principles, consistently applied for the periods covered
thereby, is classified as a capital lease, (G) all indebtedness referred to in
clauses (A) through (F) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, (H) all
Disqualified Stock, (I) the Escrow Deposit, and (J) all Contingent Obligations
in respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (I) above.

(t)            “Insolvent”
means, with respect to any Person (i) the present fair saleable value of such
Person’s assets is less than the amount required to pay such Person’s total
Indebtedness, (ii) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) such Person intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature
or (iv) such Person has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted.

(u)           “Law”
means all common law and all applicable provisions of constitutions, laws,
statutes, ordinances, rules, treaties, regulations, permits, licenses,
approvals, interpretations and orders of courts or Governmental Authorities and
all orders and decrees of all courts and arbitrators.

(v)           “Lien”
means any lien, charge, encumbrance, security interest, right of first refusal
or other restrictions of any kind.

(w)          “Material
Adverse Effect” means any material adverse effect on the
business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company, its Subsidiaries, taken
as a whole, or on the transactions contemplated hereby or in the other
Transaction Documents (as defined in Section 3(b)), or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents.

(x)            “Material
Contracts” means each of the Company’s agreements, indentures,
instruments or other documents by which the Company or its assets or properties
are bound (1) that are material to the business and operation of the Company or
(2) relating to: (a) employment and consulting agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements to which the Company or any Subsidiary is a party or by which
it or its assets or properties are bound, (b) any design, manufacturing,
distribution and sales representative agreements to which the Company or any
Subsidiary is a party or by which it or its assets or properties are bound; (c)
each agreement to which the Company or any Subsidiary is a party or by which it
or its assets or properties are bound with any stockholder, officer or director
of the Company, or any affiliate of such Persons, including without limitation
any agreement or other arrangement providing for the furnishing of 

 

 

19

 

services by, rental of real
or personal property from, or otherwise requiring payments to, any such Person;
(d) each agreement relating to the Intellectual Property Rights other than
Incidental Licenses; and (e) Indebtedness, and that, in each of foregoing
clauses (1) and (2), requires future expenditures by the Company or any
Subsidiary in excess of $100,000 or that might result in payments to the
Company or any Subsidiary in excess of $100,000.

(y)           “Obligations”
shall have the meaning set forth in the Security Agreement.

(z)            “OFAC”
means the Office of Foreign Assets Control of the U.S. Department of the
Treasury.

(aa)         “Patriot
Act” means the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law
107-56) (The USA PATRIOT Act), as amended.

(bb)         “Permitted
Liens” means (i) Any Liens existing on the date hereof and
specifically disclosed in Schedule 3(p) to this Agreement; (ii) Liens
securing the Permitted Indebtedness (as defined in the Notes) (A) prior to a
Conversion Event (as defined in the Notes), solely of the type described in
Section 4(g)(i)(c) or (d) of the Notes, or (B) after a Conversion Event, of the
type described in any of clauses (a)-(d) of Section 4(g)(i) of the Notes,
subject to compliance with Section 4(i) of the Notes; (iii) liens for taxes,
fees, assessments or other governmental charges or levies, either not
delinquent or being contested in good faith by appropriate proceedings and for
which the Company maintains adequate reserves; (iv) Liens to secure payment of
workers’ compensation, employment insurance, old age pensions, social security
or other like obligations incurred in the ordinary course of business; (v)
Liens incurred in connection with the extension, renewal or refinancing of
indebtedness secured by Liens of the type described in clause (i) above, provided that any extension, renewal or
replacement Lien shall be limited to the property (together with any accessions
thereto and proceeds thereof) encumbered by any such Lien and the amount of
such Permitted lien does not exceed the amount of the lien extended, renewed or
refinanced; (vi) carriers’, warehousemen’s, mechanic’s, materialmen’s, repairmen’s
or other like liens arising in the ordinary course of business and securing
obligations that are not due and payable or which are being contested in good
faith for which adequate reserves have been established; (vii) pledges and
deposits made in the ordinary course of business in compliance with workmen’s
compensation, unemployment insurance and other social security laws or
regulations; (viii) easements, rights-of-way, restrictions and other similar
encumbrances on the use of real property imposed by law or arising in the
ordinary course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Company and the Subsidiaries and
(ix) Liens granted in favor of the Collateral Agent for the ratable benefit of
the Holders under the Security Agreement, provided
however that, upon and after the consummation of a Conversion Event, such
Liens under the Security Agreement shall terminate and be released and thus
shall no longer be “Permitted Liens”.

(cc)         “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

(dd)         “PIK Notes”
shall have the meaning set forth in the Notes.

 

20

 

(ee)         “Sanctioned
Country” means a country subject to a sanctions program
identified on the list maintained by OFAC and available at http://www.treas.gov/offices/enforcement/ofac/programs/
or as otherwise published from time to time.

(ff)           “Sanctioned
Person” means (i) a person named on the list of Specially
Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/eotffc/ofac/sdn/index.html,
or as otherwise published from time to time, or (ii) (A) an agency of the
government of a Sanctioned Country, (B) an organization controlled by a
Sanctioned Country, or (C) a person resident in a Sanctioned Country, to the
extent subject to a sanctions program administered by OFAC.

(gg)         “Subsidiary”
means any joint venture or any entity in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.

9.                                       MISCELLANEOUS.

(a)           Governing Law; Jurisdiction; Jury.  This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York.  Each party agrees that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective Affiliates, employees or agents) may be commenced in
the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York
Courts”).  Each party
hereto hereby irrevocably submits to the non-exclusive jurisdiction of the New
York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any proceeding, any
claim that it is not personally subject to the jurisdiction of any New York
Court, or that such proceeding has been commenced in an improper or
inconvenient forum.  The Company hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to the Company
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any proceeding arising out of or relating
to this Agreement or the transactions contemplated hereby.  If either party shall commence a proceeding
to enforce any provisions of this Agreement, then the prevailing party in such
proceeding shall be reimbursed by the other party for its attorney’s fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such proceeding.

(b)           Counterparts. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile
signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.

(c)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

 

21

 

(d)           Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.

(e)           Entire Agreement.  This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the
Company, their Affiliates (as defined in Section 8) and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting
the foregoing, the Company confirms that, except as set forth in this
Agreement, no Buyer has any obligation to provide any financing to the Company.

(f)            Amendments. 
Any term or provision of this Agreement may be amended or waived only
with the written consent of the Company and the Buyers holding a majority in
principal amount of the Notes.  Any
amendment or waiver to this Agreement made in conformity with this Section 9(f)
shall be binding on all Buyers.

(g)           Notices.  Any
notices, consents, waivers or other communications required or permitted to be given
under the terms of this Agreement must be in writing and will be deemed to have
been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
when sent by facsimile (provided confirmation of transmission is mechanically
or electronically generated and kept on file by the sending party); or (iii)
one Business Day after deposit with an overnight courier service, in each case
properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

If
to the Company:

Power Medical Interventions,
Inc.

2021 Cabot Boulevard West

Langhorne, PA 19047

Facsimile:  (267) 775-8122

Attn:
President and Chief Executive Officer

With a
copy (for informational purposes only) to:

Foley Hoag
LLP

155 Seaport
Boulevard

Boston,
Massachusetts 02210

Facsimile:  (617) 832-7000

Attn:
Jeffrey L. Quillen, Esq.

If to a Buyer, to its
address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set 

 

22

 

forth on the Schedule of
Buyers,

or to such other address and/or
facsimile number and/or to the attention of such other Person as the recipient
party has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt
from an overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.

(h)           Successors and Assigns.  This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted assigns.  Any Buyer’s rights (subject to its
obligations) hereunder may be assigned in connection with a transfer of
Securities, subject to compliance with the terms and conditions of this
Agreement, including, but not limited to, Sections 2(g) and 2(h), and the terms
and conditions of the Notes and the other Transaction Documents.

(i)            No Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.

(j)            Survival.  Unless
this Agreement is terminated under Section 7, the representations and
warranties of the Company and the Buyers contained in Sections 2 and 3 and the
agreements and covenants set forth in Sections 4 and 8 shall survive the
Closing and the delivery and conversion of Securities, as applicable. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.

(k)           Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

(l)            Indemnification.  In consideration of each Buyer’s execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and all of their stockholders, partners, members, officers, directors,
trustees, employees and direct or indirect investors and any of the foregoing
Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”), as incurred, from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified
Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents,
(b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or (c) any cause of action, 

 

 

23

 

suit or claim brought or
made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or
resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, or (iii) the status of such Buyer as an investor in the
Company pursuant to the transactions contemplated by the Transaction Documents.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the mechanics
and procedures with respect to the rights and obligations under this Section 9(l)
shall be the same as those set forth in Section 5 of the Registration Rights
Agreement.

(m)          No Strict Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

(n)           Remedies.  Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the
Buyers shall be entitled to seek temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages and without
posting a bond or other security.

(o)           Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

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

 

24

 

(q)           Independent Nature of Buyers’ Obligations and Rights.  The obligations of each Buyer under any
Transaction Document are several and not joint with the obligations of any
other Buyer, and no Buyer shall be responsible in any way for the performance
of the obligations of any other Buyer under any Transaction Document. Nothing
contained herein or in any other Transaction Document, and no action taken by
any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Buyers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group, and the Company will not assert any such
claim, with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. Each Buyer shall be entitled to
independently protect and enforce its rights, including, without limitation,
the rights arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Buyer to be joined as an
additional party in any proceeding for such purpose.

(r)            Reliance by the Placement Agent.  The parties agree and acknowledge that the
Agent may rely on the representations, warranties, agreements and covenants of
the Company contained in this Agreement and may rely on the representations and
warranties of the respective Buyers contained in this Agreement as if such
representations, warranties, agreements and covenants, as applicable, were made
directly to the Agent.  The parties
further agreement that the Agent may rely on or, if the Agent so requests, be
specifically named as an addressee of, the legal opinions to be delivered
pursuant to Section 6(b) of this Agreement.

(s)           Closing Agent.

(i) The Agent, in its
capacity as closing agent (the “Closing
Agent”) shall have no duties or obligations other than those
specifically set forth in this Agreement.

(ii)
the Closing Agent shall not be required to make any representations or have any
responsibilities as to the validity, accuracy, value of genuineness of any
certificates or documentation delivered pursuant to this Agreement.

(iii)
The Closing Agent shall be able to rely on, and shall be protected in acting
upon, any certificate, instrument, opinion, notice, letter or any other
document or security delivered to it by the Company or any Buyer.

(iv)
The Closing Agent shall not be liable for any action taken, suffered or omitted
by it in good faith and reasonably believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Agreement and
shall not be liable for anything that it may do or refrain from doing in
connection with this Agreement except for its own gross negligence, willful
misconduct or bad faith.

(v) The Company agrees to indemnify and hold harmless Jefferies &
Company, Inc. for acting as Closing Agent hereunder from any and all reasonable
costs and expenses (including reasonable fees and expenses of counsel and other
professionals) that may be paid or incurred or suffered by it or to which it may
become subject without gross negligence, willful misconduct or bad faith on its
party by reason of or as a result of its compliance with the instructions set
forth herein or which may arise out of or in connection with the administration

 

25

 

and
performance of its duties under this Agreement.

[Remainder of Page Intentionally Left Blank; Signature
Pages Follow]

 

26

 

IN
WITNESS WHEREOF, each Buyer and the Company have caused their respective signature
pages to this Securities Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first written above.

 

	
   

  	
  POWER MEDICAL INTERVENTIONS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   John Gandolfo

  
	
   

  	
   

  	
  Name: John Gandolfo

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  

 

 

27Exhibit
4.9

SECURITY
AGREEMENT

 

This Security Agreement,
dated as of March 30, 2007, by and among Power Medical Interventions, Inc., a
Delaware corporation (the “Company” or
the “Grantor”), in favor of The Bank of
New York, a New York banking corporation (“BONY” or the “Collateral Agent”), as
collateral agent for the ratable benefit of the holders (the “Holders”) of the
Company’s 7% Convertible Senior Secured Notes due 2010 (including the PIK Notes
(as defined in the Purchase Agreement), and in all cases, as amended, restated,
supplemented, substituted, replaced or exchanged from time to time, the “Notes”)
under the Securities Purchase Agreement, dated as of March 30, 2007 (as
amended, modified, supplemented and/or restated from time to time, the “Purchase
Agreement”), by and among the Company and the Holders.

WHEREAS, pursuant to the
Purchase Agreement, the Holders are purchasing the Notes in the aggregate
principal amount of up to $25,000,000, upon the terms and subject to the
conditions set forth therein.

WHEREAS, it is a
condition precedent to the obligation of the Holders to purchase the Notes from
the Company under the Purchase Agreement that the Grantor shall have executed
and delivered this Agreement to the Collateral Agent.  The Holders are relying on this Agreement in
their decision to purchase Notes under the Purchase Agreement and would not
enter into the Purchase Agreement without the execution and delivery of this
Agreement by the Company.

NOW, THEREFORE, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, and to induce the Holders to enter into the
Purchase Agreement and to induce the Holders to purchase the Notes from the
Company thereunder, the Grantor hereby agrees with the Collateral Agent, as
follows:

1.             Terms Defined in
the Uniform Commercial Code.

 

(a) The following terms when
used in this Agreement shall have the meanings assigned to them in the UCC (as
defined in Section 2(kk) below) as in effect from time to time: “Account,” “Certificated Security,”
“Chattel Paper,”
“Commercial Tort Claim,”
“Deposit Account,”
“Documents,”
“Electronic Chattel
Paper,” “Equipment,”
“Fixture,”
“General Intangible,”
“Goods,” “Instrument,” “Inventory,” “Investment Property,”
“Issuer,”
“Letter of Credit Rights,”
“Proceeds,”
“Record,”
“Securities Intermediary,”
“Securities Account,”
“Supporting Obligation,”
“Tangible Chattel Paper,”
and “Uncertificated
Security.”

(b) Terms defined in the UCC
and not otherwise defined herein or in the Purchase Agreement shall have the
meaning assigned in the UCC as in effect from time to time.

2.             Definitions. The following
terms when used in this Agreement shall have the meanings assigned to them
below: 

 

(a) “Agreement” means this
Security Agreement, as amended, restated, supplemented or otherwise modified
from time to time.

 

 

(b) “Applicable Law” means
any statute, law, ordinance, regulation, rule, code, executive order,
injunction, judgment, decree or other order issued or promulgated by any
national, supranational, state, federal, provincial, local or municipal
government or any administrative or regulatory body with authority therefrom
with jurisdiction over the Grantor, as the case may be.

(c) “Assignment of Claims Act”
means the Assignment of Claims Act of 1940 (41 U.S.C. Section 15, 31 U.S.C.
Section 3737, and 31 U.S.C. Section 3727), including all amendments thereto and
regulations promulgated thereunder.

(d) “Collateral” has the
meaning assigned thereto in Section 3(a).

(e) “Collateral Account”
means any collateral account established by the Collateral Agent as provided in
Section 8(b).

(f) “Collateral Agent” has
the meaning assigned thereto in the preamble of this Agreement.

(g) “Collateral Documents”
means this Agreement and the other agreements, documents, or instruments,
including any financing statements, and any amendments or supplements thereto,
creating, perfecting, or evidencing any Liens securing the Notes and any other
Obligation under the Collateral Documents.

(h) “Contract” means any lease,
agreement or contract to which Grantor is now or hereafter a party.

(i) “Control” means the
manner in which “control” is achieved under the UCC with respect to any
Collateral for which the UCC specifies a method of achieving “control.”

(j) “Controlled Depository”
has the meaning assigned thereto in Section 7(f).

(k) “Copyrights” means
collectively, all of the following of the Grantor: (i) all copyrights, rights
and interests in copyrights, works protectable by copyright, copyright
registrations and copyright applications anywhere in the world, (ii) all
reissues, extensions, continuations (in whole or in part) and renewals of any
of the foregoing, (iii) all income, royalties, damages and payments now or
hereafter due and/or payable under any of the foregoing or with respect to any
of the foregoing, including, without limitation, damages or payments for past
or future infringements of any of the foregoing, (iv) the right to sue for
past, present and future infringements of any of the foregoing, and (v) all
rights corresponding to any of the foregoing throughout the world.

(l) “Copyright Licenses”
means any agreement now or
hereafter in effect granting any right to any third party under
any Copyright now or
hereafter owned by the Grantor or which the Grantor otherwise has the right to
license, or granting any right to the Grantor under any property of the type
described in the definition of Copyright herein now or hereafter owned by any
third party, and all rights of the Grantor under any such agreement.

(m) “Effective Endorsement and Assignment”
means, with respect to any specific type of Collateral, all such endorsements,
assignments and other instruments of transfer reasonably 

 

2

 

requested by the Collateral Agent with respect to
the Security Interest granted in such Collateral, and in each case, in form and
substance satisfactory to the Collateral Agent.

(n) “Escrow Deposit” shall
have the meaning set forth in the Notes.

(o) “Event of Default”
shall have the meaning set forth in the Notes.

(p) “Government Contract”
means a contract between the Grantor and an agency, department or
instrumentality of the United States or any state, municipal or local
Governmental Authority located in the United States or all obligations of any
such Governmental Authority arising under any Account now or hereafter owing by
any such Governmental Authority, as account debtor, to the Grantor.

(q) “Governmental Authority”
means any federal, national, supranational, state, provincial, local, or
similar government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal, or judicial or arbitral body.

(r) “Grantor” has the
meaning set forth in the preamble of this Agreement.

(s) “Intellectual Property”
means collectively, all of the following of the Grantor: (i) all systems
software, applications software and internet rights, including, without
limitation, screen displays and formats, internet domain names, web sites
(including web links), program structures, sequence and organization, all
documentation for such software, including, without limitation, user manuals,
flowcharts, programmer’s notes, functional specifications, and operations
manuals, all formulas, processes, ideas and know-how embodied in any of the
foregoing, and all program materials, flowcharts, notes and outlines created in
connection with any of the foregoing, whether or not patentable or
copyrightable, (ii) concepts, discoveries, improvements and ideas, (iii) any
useful information relating to the items described in clause (i) or (ii),
including know-how, technology, engineering drawings, reports, design
information, trade secrets, practices, laboratory notebooks, specifications,
test procedures, maintenance manuals, research, development, manufacturing,
marketing, merchandising, selling, purchasing and accounting, (iv) Patents and
Patent Licenses, Copyrights and Copyright Licenses, Trademarks and Trademark
Licenses, and (v) other licenses to use any of the items described in the foregoing
clauses (i), (ii), (iii) and (iv) or any other similar items of the Grantor
necessary for the conduct of its business.

(t) “Issuer” means any
issuer of any Investment Property (including, without limitation, any Issuer as
defined in the UCC).

(u) “Majority in Interest”
means with respect to the Holders, a majority in principal amount of the then
outstanding Notes.

(v)  “Material Adverse Effect” means any material
adverse effect on the business, properties, assets, operations, results of
operations, condition (financial or otherwise) or prospects of the Company, its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby or
in the other Transaction Documents (as defined in the Purchase Agreement), or
on the authority or ability of the Company to perform its obligations under the
Transaction Documents.

 

3

 

(w) “MELF Loan” means the
machinery and equipment loan in the original principal amount of $500,000
pursuant to that certain Term Machinery and Equipment Loan Agreement, dated
December 21, 2005 by and between the Company and the Pennsylvania Department of
Community and Economic Development Machinery and Equipment Loan Fund.

(x) “Obligations” means
the collective reference to all indebtedness and other liabilities and
obligations of every kind and description owed by the Grantor to the Holders
from time to time under or pursuant to this Agreement, the Notes, the
Registration Rights Agreement and/or the Purchase Agreement and all instruments
and other documents delivered pursuant to or in connection therewith, in each
case as may be modified, amended, amended and restated or replaced, however
evidenced, created or incurred, fixed or contingent, now or hereafter existing,
due or to become due, including any interest or other amount which accrues
during the pendency of any case under the United States Bankruptcy Code or any
similar statute (regardless of whether or not enforceable in such proceeding).

(y) “Partnership/LLC Interests”
means, with respect to the Grantor, the entire partnership, membership interest
or limited liability company interest, as applicable, of the Grantor in each
partnership, limited partnership or limited liability company owned thereby,
including, without limitation, the Grantor’s capital account, its interest as a
partner or member, as applicable, in the net cash flow, net profit and net
loss, and items of income, gain, loss, deduction and credit of any such
partnership, limited partnership or limited liability company, as applicable,
the Grantor’s interest in all distributions made or to be made by any such
partnership, limited partnership or limited liability company, as applicable,
to the Grantor and all of the other economic rights, titles and interests of
the Grantor as a partner or member, as applicable, of any such partnership,
limited partnership or limited liability company, as applicable, whether set
forth in the partnership agreement or membership agreement, as applicable, of
such partnership, limited partnership or limited liability company, as
applicable, by separate agreement or otherwise.

(z) “Patents” means
collectively, all of the following of the Grantor: (i) all patents, rights and
interests in patents, patentable inventions and patent applications, recordings
and registrations anywhere in the world, (ii) all reissues, extensions, divisions,
substitutions, continuations (in whole or in part) and renewals of any of the
foregoing, (iii) all income, royalties, damages or payments now or hereafter
due and/or payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages or payments for past or
future infringements of any of the foregoing, (iv) the right to sue for past,
present and future infringements of any of the foregoing, and (v) all rights
corresponding to any of the foregoing throughout the world, in each case
whether now owned or existing or hereafter acquired or arising.

(aa) “Patent License” means
all agreements now or hereafter in existence, whether written or oral,
providing for the grant by or to the Grantor of any right to manufacture, use
or sell any invention covered in whole or in part by a Patent.

(bb) “Perfection Certificate”
means the perfection certificate dated as of the date hereof, substantially in
the form of Exhibit A attached hereto, and duly certified by an officer,
partner, manager or member, as applicable, of the Grantor.

 

4

 

(cc) “Person” means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

(dd) “Purchase Agreement”
shall have the meaning assigned thereto in the preamble of this Agreement.

(ee) “Securities Act” means
the Securities Act of 1933, as amended, including all amendments thereto and
regulations promulgated thereunder.

(ff) “Security Interests”
means the liens and security interests granted pursuant to Section 3.

(gg) “Subsidiary” means any
joint venture or any entity in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest.

(hh) “Subsidiary Issuer”
means any Issuer of Investment Property which is a direct or indirect
Subsidiary of the Grantor.

(ii) “Trademarks” means
collectively, all of the following of the Grantor: (i) all trademarks, rights
and interests in trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, trade dress, service
marks, logos, other business identifiers, prints and labels on which any of the
foregoing have appeared or appear, all registrations and recordings thereof, designs
and general intangibles of a similar nature and all applications in connection
therewith anywhere in the world, (ii) all reissues, extensions, continuations
(in whole or in part) and renewals of any of the foregoing, (iii) all income,
royalties, damages and payments now or hereafter due and/or payable under any
of the foregoing or with respect to any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing, (iv) the right to sue for past, present and future infringements of
any of the foregoing, and (v) all rights corresponding to any of the foregoing
throughout the world and all goodwill associated therewith in each case.

(jj) “Trademark License”
means any agreement now or hereafter in existence, whether written or oral,
providing for the grant by or to the Grantor of any right to use any Trademark.

(kk) “UCC” means the
Uniform Commercial Code as from time to time in effect in the State of New
York; provided, however, that, in the event that, by reason of mandatory
provisions of any applicable law, any of the attachment, perfection or priority
of the Collateral Agent’s security interest in any Collateral is governed by
the Uniform Commercial Code of a jurisdiction other than the State of New York,
“UCC” shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of the definitions related to or
otherwise used in such provisions.

(ll) “Vehicles” means all
cars, trucks, trailers, and other vehicles covered by a certificate of title
under the laws of any state, all tires and all other appurtenances to any of
the foregoing.

 

5

 

(mm) Other Definitional
Provisions. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned thereto in the Purchase Agreement. The words “hereof,”
“herein,” “hereto” and “hereunder” and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section and Schedule references are
to this Agreement unless otherwise specified. The meanings given to terms
defined herein shall be equally applicable to both the singular and plural
forms of such terms. Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to the Grantor, shall
refer to the Grantor’s Collateral or the relevant part thereof. The word “including”
and words of similar import when used in this Agreement shall mean “including,
without limitation,” unless otherwise specified.

3.             Grant of
Security Interest.

 

(a) The Grantor hereby
grants, pledges and collaterally assigns and delivers to the Collateral Agent
for the ratable benefit of itself and the Holders a security interest in all of
the Grantor’s right, title and interest in the following property now or
hereafter owned by the Grantor or in which the Grantor now has any right, title
or interest, and wherever located or deemed located (collectively, the “Collateral”), as
collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations:

(i)                                     all cash and
currency;

(ii)                                  all Accounts;

(iii)                               all Chattel
Paper;

(iv)                              all Commercial
Tort Claims;

(v)                                 all Contracts;

(vi)                              all Deposit
Accounts;

(vii)                           all Documents;

(viii)                        all Equipment (provided however, that Equipment securing
the MELF Loan (the “MELF
Collateral”) shall not be included in the Collateral until the
earlier of (A) such time as the provisions of Section 7(q) herein have been satisfied
and (B) such time as the restrictions in the MELF Loan on granting a security
interest in the MELF Collateral are no longer applicable);

(ix)                                all Fixtures;

(x)                                   all General
Intangibles;

(xi)                                all Goods;

 

6

 

(xii)                             all
Instruments;

(xiii)                          all
Intellectual Property (except as set forth in Section 4);

(xiv)                         all Inventory;

(xv)                            all Investment
Property (provided, that, and notwithstanding anything to the contrary
contained herein, with respect to any shares of capital stock or other equity
interests owned by Grantor and issued by an entity organized in a jurisdiction
not within the United States, only 65% of the total shares or other equity
interests of such entity shall secure, pursuant to this Security Agreement, the
Obligations of the Grantor);

(xvi)                         all Letter of
Credit Rights;

(xvii)                      all Vehicles;

(xviii)                   the Escrow Deposit;

(xix)                           all other
personal property and fixtures not otherwise described above;

(xx)                              all books and
records pertaining to the Collateral;

(xxi)                           all Records
evidencing or relating to any of the foregoing or that are otherwise necessary
or useful in the collection thereof;

(xxii)                        all accessions,
additions, attachments, improvements, modifications and upgrades to,
replacements of and substitutions for any of the foregoing; and

(xxiii)                     to the extent not otherwise
included, all Proceeds and products of any and all of the foregoing and all
collateral security and Supporting Obligations (as now or hereafter defined in
the UCC) given by any Person and any items directly substituted therefor as
replacements with respect to any of the foregoing.

(b) Notwithstanding the
foregoing provisions of this Section 3, to the extent that the grant of a
security interest in any contract rights would, notwithstanding Sections 9-406,
9-407 and 9-408 of the UCC or other Applicable Law, cause a breach of the
subject Contract permitting the conterparty thereto to terminate such Contract
under Applicable Law, such contract rights shall not be part of the Collateral
(but the proceeds thereof and any supporting obligations therefor shall be part
of the Collateral).

 

7

 

4.             Partial Release of Collateral.
Notwithstanding the provisions of Section 3, in the event that and at such time
as the aggregate outstanding principal amount of the Notes shall be equal to or
less than $500,000 by reason of (i) conversion of Notes, or (ii) repurchases of
Notes by the Company, all Intellectual Property shall be deemed immediately released
from the Security Interests without any further action and shall no longer be
deemed part of the Collateral; provided, however, that at such time the Company’s
latest audited financial statements do not contain a “going concern”
qualification in the report of the Company’s independent registered public
accounting firm and the Company shall have delivered such audited financial
statements to the Collateral Agent.  At
the time of such release, Sections 7(h), 9(b)(i)(2) and all other provisions of
this Agreement relating to Security Interests in Intellectual Property shall be
of no further force or effect. Upon receipt of written notice from a Majority
in Interest of the Holders, the Collateral Agent shall cooperate with the
Grantor in the Grantor’s preparation and filing of such documents and
statements effecting the release of Intellectual Property from the Security
Interests.

5.
            Grantor Remains Liable.
Anything herein to the contrary notwithstanding: (i) the Grantor shall remain
liable under the contracts and agreements included in the Collateral to the
extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (ii)
the exercise by the Collateral Agent of any of the rights hereunder shall not
release the Grantor from any of its duties or obligations under the contracts
and agreements included in the Collateral, (iii) the Collateral Agent shall
have no obligation or liability under the contracts and agreements included in
the Collateral by reason of this Agreement, nor shall the Collateral Agent be
obligated to perform any of the obligations or duties of the Grantor
thereunder, and (iv) the Collateral Agent shall have no liability in contract
or tort for the Grantor’s acts or omissions. 

6.
            Representations and
Warranties of the Grantor.  To induce
the Holders to enter into the Purchase Agreement and purchase the Notes
thereunder, the Grantor hereby represents and warrants to the Collateral Agent
that:

(a) Existence. The
Grantor is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or formation, has the requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being and hereafter proposed to be conducted and is duly
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification and authorization other than in any such jurisdiction where
failure to so qualify would not reasonably be expected to have a Material
Adverse Effect.

(b) Authorization of
Agreement; No Conflict. The Grantor has the right, power and authority and
has taken all necessary corporate and other action to authorize the execution,
delivery and performance of this Agreement. This Agreement has been duly
executed and delivered by the duly authorized officers of the Grantor and this
Agreement constitutes the legal, valid and binding obligation of the Grantor
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar state
or federal debtor relief laws from time to time in effect which affect the
enforcement of creditors’ rights in general, and the availability of equitable
remedies. The execution, delivery and performance by the Grantor of this
Agreement will not, by the passage of time, the giving of 

 

 

8

 

notice or otherwise, violate any material provision
of any Applicable Law or any Contract material to the business of the Grantor
and will not result in the creation or imposition of any Lien, other than the
Security Interests, upon or with respect to any property or revenues of the
Grantor.

(c) Consents. No
approval, consent, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against the Grantor or any Subsidiary Issuer of this Agreement,
except (i) as may be required by laws affecting the offering and sale of
securities generally, (ii) filings with the United States Patent and Trademark
Office, (iii) filings under the UCC and (iv) such as have been made or obtained
and are in full force and effect.

(d) Perfected First
Priority Liens. The Security Interests granted pursuant to this Agreement
(a) constitute valid security interests in all of the Collateral in favor of
the Collateral Agent, as collateral security for the Obligations, enforceable
in accordance with the terms hereof against all creditors of the Grantor and
any Persons purporting to purchase any Collateral from the Grantor, and (b) are
prior to all other Liens on the Collateral in existence on the date hereof
except to the extent of any priority accorded under Applicable Law to any
Permitted Liens. Upon the filing of financing statements in the jurisdiction of
formation of the Grantor reflected in the Perfection Certificate, and the
filing of appropriate collateral assignments with the United States Patent and
Trademark Office, the Security Interests will be perfected first priority
security interests in all Collateral in which a security interest can be
perfected by means of filing; and upon delivery to the Collateral Agent of the
certificates representing the Collateral consisting of Certificated Securities,
the Security Interests will be perfected first priority security interests in
such Collateral.

(e) Title; No Other Liens.
Except for the Security Interests, the Grantor has good and marketable title
to, or valid leasehold interests in, each item of the Collateral free and clear
of any and all Liens or claims other than Permitted Liens. No financing
statement under the UCC of any state which names a Grantor as debtor or other
public notice with respect to all or any part of the Collateral is on file or
of record in any public office, except such as have been filed in favor of the
Collateral Agent pursuant to this Agreement or in connection with Permitted
Liens. No Collateral is in the possession or Control of any Person asserting
any claim thereto or security interest therein, except that (a) the Collateral Agent
or its designee may have possession or Control of Collateral as contemplated
hereby, (b) a depositary bank may have Control of a Deposit Account owned by
the Grantor at such depositary bank and a Securities Intermediary may have
Control over a Securities Account owned by a Grantor at such Securities
Intermediary, in each case subject to the terms of any Deposit Account control
agreement or Securities Account control agreement, as applicable and to the
extent required by Section 7, in favor of the Collateral Agent, and (c) a
bailee, consignee or other Person may have possession of the Collateral as
contemplated by, and so long as, the Grantor has complied to the satisfaction
of the Collateral Agent with the applicable provisions of Section 7.

(f) State of
Organization; Location of Inventory, Equipment and Fixtures; Other Information.

 

9

 

(i)                                     (A) The exact
legal name and federal tax identification number of the Grantor are as set
forth in the Perfection Certificate; (B) the Grantor has not used any trade
names except as set forth in the Perfection Certificate; (C) the Grantor has
not used any name other than as set forth in the Perfection Certificate for the
preceding five years; and (D) no entity has merged into Grantor or been
acquired by Grantor within the past year except as set forth in the Perfection
Certificate.

(ii)                                  All Collateral
consisting of Inventory, Equipment and Fixtures is located at the locations
specified in the Perfection Certificate.  All such locations are leased by the Grantor.

(iii)                               The mailing
address, chief place of business, chief executive office and office where the
Grantor keeps its books and records relating to the Documents, General
Intangibles, Instruments and Investment Property in which it has any interest
is located at the locations specified for the Grantor in the Perfection
Certificate. The Grantor has no other places of business. The Grantor does not
do business nor has done business during the past five years under any trade
name or fictitious business name except as disclosed for the Grantor in the
Perfection Certificate. Except as disclosed in the Perfection Certificate, the
Grantor has not acquired assets from any Person, other than assets acquired in
the ordinary course of the Grantor’s business, during the past five years.

(g) Chattel Paper. As
of the date hereof, the Grantor holds no Chattel Paper.

(h) Commercial Tort
Claims. As of the date hereof, the Grantor does not hold any Commercial
Tort Claims.

(i) Deposit Accounts.
As of the date hereof, all Deposit Accounts (including, without limitation,
cash management accounts that are Deposit Accounts) owned by the Grantor are
listed in the Perfection Certificate.

(j) Intellectual Property.
Annexes 1, 2 and 3 correctly set forth all registered Copyrights,
Patents and Trademarks owned by the Grantor as of the date hereof and used or
proposed to be used in its business.  The
Grantor owns or possesses the valid right to use all Copyrights, Patents and
Trademarks; all registrations therefor have been validly issued under Applicable
Law and are in full force and effect. 
Except as disclosed in the Schedules to the Purchase Agreement, no claim
has been made in writing that any of the Copyrights, Patents or Trademarks is
invalid or unenforceable or violates or infringes the rights of any other
Person, and there is no such violation or infringement in existence; and to the
knowledge of the Grantor, no other Person is presently infringing upon the
rights of the Grantor with regard to any of the Copyrights, Patents or
Trademarks.  None of the Intellectual
Property owned by the Grantor is the subject of any written licensing or
franchise agreement pursuant to which the Grantor is the licensor or
franchisor, except as would not be deemed Material Contracts under the Purchase
Agreement.

 

10

 

(k) Inventory.
Collateral consisting of Inventory is of good and merchantable quality, free
from any material defects. To the knowledge of the Grantor, none of such
Inventory is subject to any license, Trademark, trade name or Copyright with
any Person that restricts the Grantor’s ability to manufacture or sell such
Inventory. The completion of the manufacturing process of such Inventory by a
Person other than the Grantor would be permitted under any contract to which
the Grantor is a party or to which the Inventory is subject.

(l) Investment Property.

(i)                                     As of the date
hereof, all Investment Property owned by the Grantor is listed in the
Perfection Certificate.

(ii)                                  All Investment
Property issued by any Subsidiary Issuer to the Grantor (i) have been duly and
validly issued and, if applicable, are fully paid and nonassessable, (ii) are
beneficially owned as of record by the Grantor, and (iii) constitute all the
issued and outstanding shares of all classes of the capital stock or equity
interest of such Subsidiary Issuer issued to the Grantor.

(iii)                               None of the
Investment Property (i) are traded on a securities exchange or in securities
markets or (ii) by their terms expressly provide that they are Securities
governed by Article 8 of the UCC.

(m) Instruments. As
of the date hereof, the Grantor does not hold any Instruments or is named a
payee of any promissory note or other evidence of indebtedness.

(n) Accounts. Each
Account is, or at the time it arises will be, (i) a bona fide, valid and
legally enforceable indebtedness of the account debtor according to its terms,
arising out of or in connection with the sale, lease or performance of Goods or
services by the Grantor, (ii) subject to no offsets, discounts, counterclaims,
contra accounts or any other defense of any kind and character, other than
warranties and discounts customarily given by the Grantor in the ordinary
course of business and warranties provided by applicable law, (iii) to the
extent listed on any schedule of Accounts at any time furnished to the
Collateral Agent, a true and correct statement of the amount actually and
unconditionally owing thereunder, maturing as stated in such schedule and in
the invoice covering the transaction creating such Account, and (iv) not
evidenced by any Tangible Chattel Paper or other Instrument; or if so, such
Tangible Chattel Paper or other Instrument (other than invoices and related
correspondence and supporting documentation) shall promptly be duly endorsed to
the order of the Collateral Agent and delivered to the Collateral Agent to be
held as Collateral hereunder.  To the
knowledge of the Grantor, there are no facts, events or occurrences that would
in any way impair the validity or enforcement of any Accounts except as set
forth above.

(o) Limitation. No
representation and warranty is made with respect to matters relating to the
Company to the extent existing or arising prior to the date hereof.

7.             Covenants.  Unless express written consent has been
obtained from the Collateral Agent, the Grantor covenants and agrees that: 

 

11

 

(a) Maintenance of
Perfected Security Interest; Further Information.

(i)                                     The Grantor
shall maintain the Security Interests created by this Agreement as perfected
Security Interests having at least the priority described in Section 6(d) and
shall defend such Security Interests against the claims and demands of all
Persons whomsoever (except Permitted Liens).

(ii)                                  The Grantor
will furnish to the Collateral Agent from time to time statements and schedules
further identifying and describing the assets and property of the Grantor and
such other reports in connection therewith as a Majority in Interest of the
Holders may reasonably request, all in reasonable detail.

(b) Maintenance of
Insurance.

(i)                                     The Grantor
will maintain, with financially sound and reputable companies, insurance
policies (A) insuring the Collateral against loss by fire, explosion, theft,
fraud and such other casualties, including business interruption, as may be
reasonably satisfactory to Majority in Interest of the Holders in amounts and
with deductibles at least as favorable as those generally maintained by
businesses of similar size engaged in similar activities, and (B) insuring the
Grantor against liability for hazards, risks and liability to persons and
property relating to the Collateral, in amounts and with deductibles at least
as favorable as those generally maintained by businesses of similar size
engaged in similar activities, such policies to be in such form and having such
coverage as may be reasonably satisfactory to a Majority in Interest of the
Holders.

(ii)                                  All such
insurance shall (A) name the Collateral Agent as loss payee (to the extent
covering risk of loss or damage to tangible property) and as an additional
insured as its interests may appear (to the extent covering any other risk),
(B) provide that no cancellation, material reduction in amount or material
change in coverage thereof shall be effective until at least thirty (30) days
after receipt by the Collateral Agent of written notice thereof, and (C) be
reasonably satisfactory in all other respects to a Majority in Interest of the
Holders.

(iii)                               If the Grantor
fails to obtain and maintain any of the policies of insurance required to be
maintained hereunder or to pay any premium in whole or in part, after
applicable grace periods, the Collateral Agent may, without waiving or
releasing any obligation or default, at the Grantor’s expense, but without any
obligation to do so, procure such policies or pay such premiums.  All sums so disbursed by the Collateral
Agent, including reasonable attorneys’ fees, court costs, expenses and other
charges related thereto, shall be payable by the Grantor to the Collateral
Agent on demand and shall be additional Obligations hereunder, secured by the
Collateral.

 

12

 

(iv)                              Upon the
request of a Majority in Interest of the Holders, the Grantor shall deliver to
the Collateral Agent periodic information from a reputable insurance broker
with respect to the insurance referred to in this Section 7(b).

(c) Changes in Locations;
Changes in Name or Structure. The Grantor will not, except upon fifteen
(15) days’ prior written notice to the Collateral Agent and delivery to the
Collateral Agent of all additional financing statements (executed if necessary
for any particular filing jurisdiction) and other instruments and documents
reasonably requested by a Majority in Interest of the Holders to maintain the
validity, perfection and priority of the Security Interests, and if applicable,
a written supplement to the Perfection Certificate:

(i)                                     permit any
Deposit Account to be held by or at a depositary bank other than the depositary
bank that held such Deposit Account as of the date hereof as set forth in the
Perfection Certificate;

(ii)                                  permit any of
the Documents, Inventory, Equipment or Fixtures to be kept at a location other
than those listed in the Perfection Certificate, except as otherwise permitted
hereunder;

(iii)                               permit any
Investment Property to be held by a Securities Intermediary;

(iv)                              change its
jurisdiction of organization or the location of its chief executive office from
that identified in the Perfection Certificate; or

(v)                                 change its
name, identity or corporate or organizational structure to such an extent that
any financing statement filed by the Grantor or the Collateral Agent in
connection with this Agreement would become misleading.

(d) Required
Notifications. The Grantor shall promptly notify the Collateral Agent, in
writing, of: (i) any Lien (other than the Security Interests or Permitted
Liens) on any of the Collateral, (ii) the occurrence of any other event which
could reasonably be expected to have a Material Adverse Effect on the aggregate
value of the Collateral or on the Security Interests, (iii) any Collateral
which, to the knowledge of the Grantor, constitutes a Government Contract, and
(iv) the acquisition or ownership by the Grantor of any Commercial Tort Claim
or (B) Investment Property after the date hereof.

(e) Delivery Covenants.
The Grantor will promptly deliver and pledge to the Collateral Agent all
Certificated Securities, Partnership/LLC Interests evidenced by a certificate,
negotiable Documents, Instruments, and tangible Chattel Paper owned or held by
the Grantor and constituting part of the Collateral, in each case, together
with an Effective Endorsement and Assignment and all Supporting Obligations, as
applicable, unless such delivery and pledge has been waived in writing by the
Collateral Agent.

(f) Control Covenants.

 

13

 

(i)                                     The Grantor
shall instruct (and otherwise use its reasonable efforts to cause) (i) each
depositary bank holding a Deposit Account owned by the Grantor, and (ii) each
Securities Intermediary holding any Investment Property owned by the Grantor, in
each case, to the extent constituting part of the Collateral, to execute and
deliver a control agreement, substantially in the form attached hereto as Exhibit
C, sufficient to provide the Collateral Agent with Control of such Deposit
Account or Investment Property (any such depositary bank executing and delivery
any such control agreement, a “Controlled
Depositary,” and any such Securities Intermediary executing and
delivering any such control agreement, a “Controlled Intermediary”). In the event any such depositary
bank or Securities Intermediary refuses to execute and deliver such control
agreement, a Majority in Interest of the Holders, in thier sole discretion, may
require the applicable Deposit Account and Investment Property to be
transferred to the Collateral Agent or a Controlled Intermediary, as
applicable.

(ii)                                  The Grantor
will take such actions and deliver all such agreements as are requested by a
Majority in Interest of the Holders to provide the Collateral Agent with
Control of all Letter of Credit Rights and Electronic Chattel Paper owned or
held by the Grantor and constituting part of the Collateral, including, without
limitation, with respect to any such Electronic Chattel Paper, by having the
Collateral Agent identified as the assignee of the Record(s) pertaining to the
single authoritative copy thereof.

(g) Filing Covenants.
Pursuant to Section 9-509 of the UCC and any other Applicable Law, the Grantor
authorizes the Collateral Agent to file or record financing statements and
other filing or recording documents or instruments with respect to the
Collateral without the signature of the Grantor in such form and in such
offices as a Majority in Interest of the Holders determines appropriate to
perfect the Security Interests of the Collateral Agent under this Agreement.
Such financing statements may describe the Collateral in the same manner as
described herein or may contain an indication or description of Collateral that
describes such property in any other manner as a Majority in Interest of the
Holders may reasonably determine to be necessary, advisable or prudent to
ensure the perfection of the Security Interest in the Collateral granted
herein. Further, a photographic or other reproduction of this Agreement shall
be sufficient as a financing statement or other filing or recording document or
instrument for filing or recording in any jurisdiction.  The Collateral Agent shall have no
responsibility for preparing, recording, filing, re-recording or refiling any
financing statement, continuation statement or other instrument in any public
office; provided, however that the
Company shall prepare, record, file, re-record or re-file any such instrument upon
the instructions and at the direction of a Majority in Interest of the Holders.
 Notwithstanding anything to the contrary
contained herein, the Company shall file or record with respect to the
Collateral (i) the initial financing statement with the Delaware Secretary of
State and (ii) the confirmations of grant of security interest in trademarks
and patents with the appropriate offices of the United States Patent and
Trademark Office, in each case within 3 Business Days following the Closing
Date.

(h) Intellectual Property.

 

14

 

(i)                                     As and when the
Grantor shall identify and/or confirm the existence of any registered
Intellectual Property owned or claimed to be owned by the Grantor, the Grantor
shall immediately notify the Collateral Agent of the particulars thereof
(including the name or title of the subject Intellectual Property, the filing
office in which any filings may have been made in respect thereof, and the
filing date and registration number of each such filing), and shall execute and
deliver to the Grantor, for filing, any and all such collateral assignments as a
Majority in Interest of the Holders may reasonably request in order to confirm
and/or perfect the Security Interests in such Intellectual Property.

(ii)                                  The Grantor
(either itself or through licensees) (A) will continue to use each registered
Trademark (owned by the Grantor) and Trademark for which an application (owned
by the Grantor) is pending, to the extent reasonably necessary to maintain such
Trademark in full force free from any claim of abandonment for non-use, (B)
will maintain products and services offered under such Trademark at a level
substantially consistent with the quality of such products and services as of
the date hereof, (C) will not (and will not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby such Trademark
could reasonably be expected to become invalidated or impaired in any way, (D)
will not do any act, or knowingly omit to do any act, whereby any issued Patent
owned by the Grantor would reasonably be expected to become forfeited,
abandoned or dedicated to the public, (E) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any registered Copyright owned by the Grantor or Copyright for which an
application is pending (owned by the Grantor) could reasonably be expected to
become invalidated or otherwise impaired, and (F) will not (either itself or
through licensees) do any act whereby any material portion of the Copyrights
may fall into the public domain, except, in each of the foregoing cases, to the
extent the Grantor has determined in its reasonable judgment that such
Trademark, Patent or Copyright is no longer useful in or material to its
business and that it is in its best business interest to permit same to be
forfeited, abandoned or dedicated to the public.

(iii)                               The Grantor
will notify the Collateral Agent promptly if the Grantor knows, or has reason
to know, that any application or registration relating to any material
Intellectual Property owned by the Grantor may become forfeited, abandoned or
dedicated to the public, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination
or development in, any proceeding in the United States Patent and Trademark
Office or any court or tribunal in any country) regarding the Grantor’s
ownership of, or the validity of, any material Intellectual Property owned by
the Grantor or the Grantor’s right to register the same or to own and maintain
the same.

 

15

 

(iv)                              The Grantor
will take all reasonable and necessary steps, at the Grantor’s sole cost and
expense, including, without limitation, in any proceeding before the United
States Patent and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain each
registration of the material Intellectual Property, including, without
limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.

(v)                                 In the event
that any material Intellectual Property owned by a Grantor is infringed,
misappropriated or diluted by a third party, the Grantor shall (A) at the
Grantor’s sole cost and expense, take such actions as the Grantor shall
reasonably deem appropriate under the circumstances to protect such
Intellectual Property, and (B) if such Intellectual Property is of material
economic value, promptly notify the Collateral Agent and the Holders after it
learns of such infringement, misappropriation or dilution.

(vi)                              Anything
elsewhere contained in this Agreement to the contrary notwithstanding, the
Grantor shall retain and may exercise full discretion, on such terms and
conditions as the Grantor may determine, to license its Collateral consisting of
Intellectual Property to third parties; provided, that all such licenses shall
constitute part of the Collateral subject to the Security Interests hereunder.

(i) Investment Property.

(i)                                     Without the
prior written consent of the Collateral Agent (acting at the written direction
of a Majority in Interest of the Holders), the Grantor will not (A) vote to
enable, or take any other action to permit, any Subsidiary Issuer to issue any
Investment Property, except for that additional Investment Property that will
be subject to the Security Interest granted herein in favor of the Collateral
Agent, or (B) enter into any agreement or undertaking restricting the right or
ability of the Grantor or the Collateral Agent to sell, assign or transfer any
Investment Property or Proceeds thereof. The Grantor will defend the right,
title and interest of the Collateral Agent in and to any Investment Property
against the claims and demands of all Persons whomsoever.

(ii)                                  If the Grantor
shall become entitled to receive or shall receive (A) any Certificated
Securities (including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification, increase or
reduction of capital or any certificate issued in connection with any
reorganization), option or rights in respect of the ownership interests of any
Issuer, whether in addition to, in substitution of, as a conversion of, or in
exchange for, any Investment Property, or otherwise in respect thereof, or (B)
any sums paid upon or in respect of any Investment Property upon the
liquidation or dissolution of any Issuer, 

 

16

the Grantor shall accept the
same as the agent of the Collateral Agent, hold the same in trust for the
Collateral Agent, segregated from other funds of the Grantor, and promptly
deliver the same to the Collateral Agent in accordance with the terms hereof.

(j) Equipment. The
Grantor will maintain each item of Equipment in good working order and
condition (reasonable wear and tear and obsolescence excepted), and in
accordance with any manufacturer’s manual, and will as quickly as practicable
provide all maintenance, service and repairs necessary for such purpose and
will promptly furnish to the Collateral Agent and the Holders a statement
respecting any material loss or damage to any of the Equipment.

(k) Vehicles. Upon
the request of a Majority in Interest of the Holders at any time and from time
to time, any and all applications for certificates of title or ownership
indicating the Collateral Agent’s first priority Lien on the Vehicle covered by
such certificate, and any other necessary documentation, shall be filed in each
office in each jurisdiction which a Majority in Interest of the Holders shall
deem reasonably advisable to perfect its Liens on the Vehicles. Prior thereto,
each certificate of title or ownership relating to each Vehicle shall be
maintained by the Grantor in accordance with Applicable Law to reflect the
ownership interest of the Grantor.

(l) Inventory.  The Grantor will, in accordance with sound
business practices, maintain all Inventory held by it or on its behalf in good
saleable or useable condition.  Unless
notified otherwise by the Collateral Agent in accordance with the terms hereof,
the Grantor may, in any lawful manner not inconsistent with the provisions of
this Agreement and the Notes, process, use and, in the ordinary course of
business but not otherwise, sell its Inventory. 
The Grantor shall not return any Inventory to the supplier thereof,
except for damaged or unsalable Inventory or otherwise in the ordinary course
of the Grantor’s business.  Without
limiting the generality of the foregoing, in the event the Grantor becomes a “debtor
in possession” as defined in 11 U.S.C. §1101 (or any successor thereto), the
Grantor agrees, to the extent permitted by Applicable Law, not to move pursuant
to 11 U.S.C. §546 (or any successor thereto) for permission to return goods to
any creditor which shipped such goods to the Grantor without the written consent
of a Majority in Interest of the Holders, and each Grantor hereby waives any
rights to return such Inventory arising under 11 U.S.C. §546(h), or any
successor section thereto.

(m) Collateral in
Possession of Third Party.  Without
limiting the generality of any other provision of this Agreement, the Grantor
agrees that it shall not permit any Collateral to be in the possession of any
bailee, warehouseman, agent, processor or other third party at any time unless
such bailee or other Person shall have been notified of the security interest
created by this Agreement (or, if required under applicable law in order to
perfect the Collateral Agent’s security interest in such Collateral, such
bailee or other Person shall have acknowledged to the Collateral Agent in
writing that it is holding such Collateral for the benefit of the Collateral
Agent and subject to such security interest of the Collateral Agent) and the
Grantor shall have exercised its reasonable best efforts to obtain from such
bailee or other Person, at the Grantor’s sole cost and expense, the written
acknowledgement described above (if not already required by Applicable Law to
perfect the Collateral Agent’s security interest) and agreement to waive and
release any Lien (whether arising by operation of law or otherwise) it may have
with respect to such Collateral, such agreement to be in form and substance
reasonably satisfactory to a Majority in Interest of the Holders.

 

17

 

(n) Commercial Tort Claims.  The Grantor agrees that it will, promptly
upon becoming aware of any Commercial Tort Claim in its favor or as otherwise
reasonably requested by the Collateral Agent, furnish to the Collateral Agent a
description thereof meeting the requirements of Section 9-108(e) of the
UCC, execute and deliver such documents, financing statements and other
instruments, and take such other action, as a Majority in Interest of the
Holders may reasonably request in order to include such Commercial Tort Claim
as Collateral hereunder and to perfect the security interest of the Collateral
Agent therein.

(o) Deposit Accounts.  The Grantor agrees that, unless the
Collateral Agent consents otherwise in writing, (i) it will not open or
maintain any Deposit Account (other than Deposit Accounts used exclusively for
payroll purposes) except with a bank or financial institution that has executed
and delivered to the Collateral Agent a control agreement with respect to such
Deposit Account in form and substance reasonably satisfactory to the Collateral
Agent, and (ii) in the event the Grantor opens any Deposit Account not already
listed on Annex 4, it shall (in addition to complying with the other
requirements of this Section) promptly furnish written notice thereof to the
Collateral Agent together with information sufficient to permit the Collateral
Agent, upon its receipt of such notice, to (and the Grantor hereby authorizes
the Collateral Agent to) modify this Agreement, as appropriate, by amending Annex
4 to include such information.

(p) Accounts.  Unless notified otherwise by the Collateral
Agent in accordance with the terms hereof, the Grantor shall endeavor to
collect its Accounts and all amounts owing to it thereunder in the ordinary
course of its business and in accordance with sound business judgment and shall
apply forthwith upon receipt thereof all such amounts as are so collected to
the outstanding balances thereof, and in connection therewith shall, at the
reasonable request of the Collateral Agent, take such action as the Collateral
Agent may deem reasonably necessary or advisable (within applicable laws) to
enforce such collection.  The Grantor
shall not, except to the extent done in the ordinary course of its business or
otherwise in accordance with sound business judgment and provided that no Event
of Default shall have occurred and be continuing, (i) grant any material
extension of the time for payment of any material Account, (ii) compromise or
settle any material Account for an amount which is materially less than the full
amount thereof, (iii) release, in whole or in part, any Person or property
liable for the payment of any material Account, or (iv) allow any non-ordinary
course material credit or discount on any material Account.

(q) MELF Consent.  The Grantor agrees to use its reasonable best
efforts to deliver to the Holders, within forty-five (45) days of the Closing
Date, the written consent of the Pennsylvania Department of Community and
Economic Development to the grant in favor of the Collateral Agent of a security
interest in the Grantor’s right, title and interest in and to the MELF
Collateral.

(r) Additional Grantors.  To the extent required by Sections 4(j)(ii)
and 4(s) of the Notes, the Grantors shall cause each Subsidiary of the Grantor,
including any Person that shall at any time become a Subsidiary of the Grantor,
to immediately become a party hereto (an “Additional Grantor”) or to a similar security
agreement, as appropriate, by executing and delivering an “Additional Grantor
Joinder” in a form satisfactory to a Majority in Interest of the Holders and
comply with the provisions hereof applicable to the Grantor or by signing a
similar security 

 

 

18

 

agreement.  If
the Additional Grantor becomes a party hereto, concurrent therewith, the
Additional Grantor shall deliver replacement annexes for, or supplements to all
other Annexes to (or referred to in) this Agreement, as applicable, which
replacement annexes shall supersede, or supplements shall modify, the Annexes
then in effect.  The Additional
Grantor(s) shall also deliver such opinions of counsel, authorizing
resolutions, good standing certificates, incumbency certificates,
organizational documents, financing statements and other information and
documentation as a Majority in Interest of the Holders may reasonably
request.  Upon delivery of the foregoing
to the Collateral Agent, the Additional Grantor shall be and become a party to
this agreement with the same rights and obligations as the initial Grantor, for
all purposes hereof as fully and to the same extent as if it were an original
signatory hereto and shall be deemed to have made the representations,
warranties and covenants set forth herein as of the date of execution and
delivery of such Additional Grantor Joinder and thereafter at any time that
such representations and covenants must be restated pursuant to the Purchase
Agreement or any document delivered in connection with the Purchase Agreement
and all references herein to a “Grantor” shall be deemed to include each
Additional Grantor.

(s) Inspections.  Grantor will permit the Collateral Agent, the
Holders or their respective designees, to inspect the Collateral at any
reasonable time, wherever located.

(t) Further Assurances.
Upon the request of a Majority in Interest of the Holders and at the sole
expense of the Grantor, the Grantor will promptly and duly execute and deliver,
and have recorded, such further instruments and documents and take such further
actions as a Majority in Interest of the Holders may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, (i) the
collateral assignment of any Contract, (ii) with respect to Government
Contracts, collateral assignment agreements and notices of collateral
assignment, in form and substance satisfactory to a Majority in Interest of the
Holders, duly executed by the Grantor in compliance with the Assignment of
Claims Act (or analogous state Applicable Law), (iii) all applications,
certificates, instruments, registration statements, and all other documents and
papers a Majority in Interest of the Holders may reasonably request and as may
be required by law in connection with the obtaining of any consent, approval,
registration, qualification, or authorization of any Person deemed necessary or
appropriate for the effective exercise of any rights under this Agreement, and
(d) the designation of additional Collateral pursuant to the terms of Section 3
hereof.

8.             Remedial Provisions.

(a) General Remedies.
If an Event of Default shall occur and be continuing, the Collateral Agent (acting
at the written direction of a Majority in Interest of the Holders) may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the UCC or any other Applicable Law. Without limiting the generality of the
foregoing, the Collateral Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Grantor or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or 

19

 

may forthwith sell, lease, assign, give option or
options to purchase, or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels
at public or private sale or sales, at any exchange, broker’s board or office
of the Collateral Agent or elsewhere upon such terms and conditions as it may
deem advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. The Collateral Agent
may disclaim any warranties of title, possession and quiet enjoyment. The
Grantor further agrees, at the Collateral Agent’s request, to assemble the
Collateral and make it available to the Collateral Agent at places which the
Collateral Agent shall reasonably select, whether at the Grantor’s premises or
elsewhere. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least thirty (30) Business Days before such sale or other disposition.

(b) Specific Remedies.

(i)                                     Without
limitation to the provisions of Section 8(a), upon the occurrence and during
the continuance of an Event of Default:

(1)                                  Upon the
request of the Collateral Agent, the Grantor shall notify (such notice to be in
form and substance satisfactory to the Collateral Agent) any or all account
debtors or obligors under any Accounts, Contracts or other Collateral of the
security interest in favor of the Collateral Agent created hereby and to direct
all such Persons to make payments of all amounts due thereon or thereunder
directly to the Collateral Agent or to an account designated by the Collateral
Agent;

(2)                                  the Grantor
shall forward to the Collateral Agent, on the last Business Day of each week if
so requested by the Collateral Agent, deposit slips related to all cash, money,
checks or any other similar items of payment received by the Grantor during
such week, and, if requested by the Collateral Agent, copies of such checks or
any other similar items of payment, together with a statement showing the
application of all payments on the Collateral during such week and a collection
report with regard thereto, in form and substance satisfactory to the
Collateral Agent;

(3)                                  whenever the
Grantor shall receive any cash, money, checks or any other similar items of
payment relating to any Collateral (including any Proceeds of any Collateral),
the Grantor agrees that it will, within one (1) Business Day of such receipt,
deposit all such items of payment into the Collateral Account or in a Deposit
Account at Controlled Depositary; and until the Grantor shall deposit such
cash, money, checks or any other similar items of payment in the Collateral
Account or in a Deposit Account at a Controlled Depositary, the Grantor shall
hold such cash, money, checks or any other similar items of payment in trust
for the Collateral Agent and 

 

 

20

 

as property of the
Collateral Agent, separate from the other funds of the Grantor, and the
Collateral Agent shall have the right in to transfer or direct the transfer of
the balance of each Deposit Account to the Collateral Account. All such
Collateral and Proceeds of Collateral received by the Collateral Agent
hereunder shall be held by the Collateral Agent in the Collateral Account as
collateral security for all the Obligations and shall not constitute payment
thereof until applied as provided in Section 8(d).

(4)                                  the Collateral
Agent shall have the right to receive any and all cash dividends, payments or
distributions made in respect of any Investment Property or other Proceeds paid
in respect of any Investment Property or and any or all of any Investment
Property, shall be registered in the name of the Collateral Agent or its
nominee, and the Collateral Agent or its nominee may thereafter exercise (A)
all voting, corporate and other rights pertaining to such Investment Property,
at any meeting of shareholders, partners or members of the relevant Issuers,
and (B) any and all rights of conversion, exchange and subscription and any
other rights, privileges or options pertaining to such Investment Property as
if it were the absolute owner thereof (including, without limitation, the right
to exchange at its discretion any and all of the Investment Property upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the corporate, partnership or company structure of the Company or
upon the exercise by the Grantor or the Collateral Agent of any right,
privilege or option pertaining to such Investment Property, and in connection
therewith, the right to deposit and deliver any and all of the Investment
Property with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as the Collateral Agent may
determine), all without liability except to account for property actually
received by it; but the Collateral Agent shall have no duty to the Grantor to
exercise any such right, privilege or option and the Collateral Agent shall not
be responsible for any failure to do so or delay in so doing. In furtherance
thereof, the Grantor hereby authorizes and instructs each Issuer with respect
to any Collateral consisting of Investment Property to (i) comply with any
instruction received by it from the Collateral Agent in writing that (A) states
that an Event of Default has occurred and is continuing, and (B) is otherwise
in accordance with the terms of this Agreement, without any other or further
instructions from the Grantor, and the Grantor agrees that each Company shall
be fully protected in so complying, and (ii) except as otherwise expressly
permitted hereby, pay any dividends, distributions or other payments with
respect to any Investment Property directly to the Collateral Agent;

 

21

 

(5)                                  the Collateral
Agent shall be entitled to (but shall not be required to or have any liability
for failing to do so): (A) proceed to perform any and all obligations of
the Grantor under any Contract and exercise all rights of the Grantor
thereunder (other than taking any action which might reasonably be deemed to
impair the prospect of collecting present or future Accounts) as fully as the
Grantor itself could, (B) do all other acts which the Collateral Agent may deem
necessary or proper to protect its Security Interests granted hereunder,
provided such acts are not inconsistent with or in violation of the terms of
the Purchase Agreement or Applicable Law, and (C) sell, assign or otherwise
transfer any Contract constituting Collateral, subject, however, to the prior
approval of each other party to such Contract, to the extent required under the
Contract;

(6)                                  the Collateral
Agent shall be entitled to notify any or all depository institutions with which
any Deposit Accounts are maintained and which Deposit Accounts are subject to
Control in favor of the Collateral Agent to remit and transfer all monies,
securities and other property on deposit in such Deposit Accounts or deposited
or received for deposit thereafter to the Collateral Agent, for deposit in a
Collateral Account or such other accounts as may be designated by the
Collateral Agent, for application to the Obligations as provided herein;

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

(ii)                                  Unless an Event
of Default shall have occurred and be continuing and the Collateral Agent shall
have given notice to the Grantor of the Collateral Agent’s intent to exercise
its corresponding rights pursuant to Section 8(b)(i), the Grantor shall be permitted
to receive all cash dividends, payments or other distributions made in respect
of any Investment Property, in each case paid in the normal course of business
of the relevant Company and consistent with past practice, to the extent
permitted in the Purchase Agreement, and to exercise all voting and other
corporate, company or partnership rights with respect to any Investment
Property; provided that no vote shall be cast or other corporate, company or
partnership right exercised or other action taken which, in the Collateral
Agent’s reasonable judgment, would impair the Collateral or which would result
in an Event of Default under any provision of the Purchase Agreement, this
Agreement or any other Transaction Document.

(c) Private Sale.

 

22

 

(i)                                     The Grantor
recognizes that the Collateral Agent may be unable to effect a public sale of
any or all Collateral consisting of securities which have not been registered
for resale under the Securities Act (“Restricted
Securities Collateral”), by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. The Grantor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall not by reason thereof be
deemed not to have been made in a commercially reasonable manner. The
Collateral Agent shall be under no obligation to delay a sale of any of the
Restricted Securities Collateral for the period of time necessary to permit the
Issuer thereof to register such securities for public sale under the Securities
Act, or under applicable state securities laws, even if such Issuer would agree
to do so.

(ii)                                  The Grantor
agrees to use its best efforts to do or cause to be done all such other acts as
may be necessary to make such sale or sales of all or any portion of the
Restricted Securities Collateral valid and binding and in compliance with any
and all other Applicable Laws.

(d) Application of
Proceeds. At such intervals as may be agreed upon by the Company and the
Collateral Agent, or, if an Event of Default shall have occurred and be
continuing, at any time at the Collateral Agent’s election, the Collateral
Agent may apply all or any part of the Collateral or any Proceeds of the
Collateral in payment in whole or in part of the Obligations (equally and
ratably in accordance with the respective amounts thereof then due and owing)
after deducting all reasonable costs and expenses incurred in connection
therewith or relating to the care or safekeeping of any of the Collateral,
including, without limitation, reasonable attorneys’ fees and disbursements). Any
balance of such Proceeds remaining after payment in full of the Obligations
shall be paid over to the Grantor, or to whomever else may be lawfully entitled
to receive the same. Only after (i) the payment by the Collateral Agent of any
other amount required by any provision of law, including, without limitation,
Section 9-610 and Section 9-615 of the UCC, and (ii) the payment in full of the
Obligations, shall the Collateral Agent account for the surplus, if any, to the
Grantor, or to whomever else may be lawfully entitled to receive the same.

(e) Deficiency. The
Company shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay its Obligations and
the fees and disbursements of any attorneys employed by the Collateral Agent to
collect such deficiency.

(f) Waivers.  The Grantor, to the greatest extent not
prohibited by applicable law, hereby (i) agrees that it will not invoke, claim
or assert the benefit of any rule of law or statute now or hereafter in effect
(including, without limitation, any right to prior notice or judicial hearing
in connection with the Collateral Agent’s possession, custody or disposition of
any Collateral or 

 

 

23

 

any appraisal, valuation, stay, extension,
moratorium or redemption law), or take or omit to take any other action, that
would or could reasonably be expected to have the effect of delaying, impeding
or preventing the exercise of any rights and remedies in respect of the
Collateral, the absolute sale of any of the Collateral or the possession
thereof by any purchaser at any sale thereof, and waives the benefit of all
such laws and further agrees that it will not hinder, delay or impede the
execution of any power granted hereunder to the Collateral Agent, but that it
will permit the execution of every such power as though no such laws were in
effect, (ii) waives all rights that it has or may have under any rule of law or
statute now existing or hereafter adopted to require the Collateral Agent to
marshal any Collateral or other assets in favor of the Grantor or any other
party or against or in payment of any or all of the Obligations, and (iii)
waives all rights that it has or may have under any rule of law or statute now
existing or hereafter adopted to demand, presentment, protest, advertisement or
notice of any kind (except notices expressly provided for herein).

9.             The Collateral Agent.

(a) Appointment of
Collateral Agent. Each of the Holders hereby appoints BONY and BONY hereby
accepts the appointment of each Holder to act on behalf of all Holders as
Collateral Agent under this Agreement.  The duties of Collateral Agent shall be mechanical and administrative
in nature and Collateral Agent shall not have, or be deemed to have, by reason
of this Agreement or otherwise a fiduciary relationship or other relationship
in respect of any Holder except as expressly set forth herein.

(b) Collateral Agent’s
Appointment as Attorney-In-Fact.

(i)                                     The Grantor
hereby irrevocably constitutes and appoints the Collateral Agent and any
officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Grantor and in the name of the Grantor or in its own name, for
the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement,
and, without limiting the generality of the foregoing, the Grantor hereby gives
the Collateral Agent the power and right, on behalf of the Grantor, without
notice to or assent by the Grantor, to do any or all of the following upon the
occurrence and during the continuance of an Event of Default:

(1)                                  in the name of
the Grantor or its own name, or otherwise, take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for the
payment of moneys due under any Contract subject to a 

 

24

Security Interest or with
respect to any other Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Collateral Agent for the purpose of collecting any and all such moneys due
under any Contract subject to a Security Interest or with respect to any other
Collateral whenever payable;

(2)                                  in the case of
any Intellectual Property, execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as the Collateral Agent may
request to evidence the Collateral Agent’s security interest in such
Intellectual Property and the goodwill and General Intangibles of the Grantor
relating thereto or represented thereby;

(3)                                  pay or
discharge taxes and Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums therefor and the costs
thereof,

(4)                                  execute, in
connection with any sale provided for in this Agreement, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral; and

(5)                                  (A) direct
any party liable for any payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder directly to the Collateral
Agent or as the Collateral Agent shall direct; (B) ask or demand for,
collect, and receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral; (C) sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (D) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (E) defend any suit, action or proceeding
brought against the Grantor with respect to any Collateral; (F) settle,
compromise or adjust any such suit, action or proceeding and, in connection
therewith, give such discharges or releases as the Collateral Agent may deem
appropriate; (G) assign any Copyright, Patent or Trademark (along with the
goodwill of the business to which any such Copyright, Patent or Trademark
pertains), for such term or terms, on such conditions, and in such manner, as
the Collateral Agent shall in its sole discretion determine; and
(H) generally, sell, transfer, pledge and make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Collateral Agent were the absolute owner thereof for all purposes,
and do, at the Collateral Agent’s option and the Grantor’s expense, at any
time, or from time to time, all acts and things which the Collateral Agent 

 

25

deems necessary to protect,
preserve or realize upon the Collateral and the Collateral Agent’s Security
Interests therein and to effect the intent of this Agreement, all as fully and
effectively as the Grantor might do.

(ii)                                  If the Grantor
fails to perform or comply with any of its agreements contained herein, the
Collateral Agent, at its option, but without any obligation so to do, may
perform or comply, or otherwise cause performance or compliance, with such
agreement in accordance with the provisions of Section 9(b).

(iii)                               The expenses of
the Collateral Agent incurred in connection with actions taken pursuant to the
terms of this Agreement, together with interest thereon at the rate(s) in
effect from time to time pursuant to the Notes, from the date of payment by the
Collateral Agent to the date reimbursed by the Grantor, shall be payable by the
Company to the Collateral Agent on demand.

(iv)                              The Grantor
hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof in accordance with Section 9(b). All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the Security Interests
created hereby are released.

(c) Duty of Collateral
Agent. The Collateral Agent’s sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession,
under Section 9-207 of the UCC or otherwise, shall be to deal with it in the
same manner as the Collateral Agent deals with similar property for its own
account. Except as set forth in clauses (d)(i) and (d)(ii) below: (x) neither
the Collateral Agent nor any of its officers, directors, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of the Grantor or
any other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof and (y) the powers conferred on the Collateral
Agent hereunder are solely to protect the Collateral Agent’s and the Holders’ interests
in the Collateral and shall not impose any duty upon the Collateral Agent to
exercise any such powers. The Collateral Agent shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Grantor for any act or failure to act hereunder, except for
their own gross negligence, bad faith or willful misconduct.

(d) Exculpation. (i)
The Collateral Agent is acting in such capacity hereunder solely as an
accommodation to the Holders, and shall not have any liability to any Holder
other than (i) for monies or properties actually received by the Collateral
Agent hereunder, and (ii) by reason of any gross negligence, bad faith or
willful misconduct by the Collateral Agent hereunder. The Collateral Agent
shall have no duties or obligations hereunder other than as expressly set forth
in this Agreement, and no other duties or obligations shall be inferred upon
the Collateral Agent at any time. The Collateral Agent shall be entitled to
rely upon and assume to be accurate all 

 

26

 

notices and advice given to the Collateral Agent
hereunder to rely upon any document and/or signature believed by it in good
faith to be genuine and rendered by a representative of the subject person, and
to seek and rely upon (and be protected in relying upon) advice of counsel in
taking or refraining from taking any action hereunder. The Collateral Agent may
assume that any person purporting to have authority to give notices on behalf
of any of the parties in accordance with the provisions hereof has been duly
authorized to do so. Upon the Collateral Agent’s performance of its obligations
hereunder, the Collateral Agent shall be relieved of all liability,
responsibility and obligation with respect to the Collateral or arising out of
or under this Agreement or the Notes. Without limitation of the foregoing, the
Collateral Agent may refrain from taking action hereunder (including, without
limitation, actions to be taken upon the occurrence of an Event of Default) pending
written instructions from a Majority in Interest of the Holders, and shall be
under no obligation (regardless of any instructions of any Holders) to take any
action which the Collateral Agent reasonably deems to be unlawful,
inappropriate or potentially exposing the Collateral Agent to liability to any
person or entity.

(ii)  Absent direction from a Majority in Interest
of the Holders, the Collateral Agent shall not be under any obligation to take
any legal action in connection with this Agreement or towards its enforcement
or performance, or to appear in, prosecute or defend any action or legal
proceeding, or to file any return, or pay or withhold any income or other tax
payable with respect to any of the Collateral. None of the provisions of this
Agreement shall require the Collateral Agent to expend or risk its own funds or
otherwise to incur any liability, financial or otherwise, in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers.
The Collateral Agent may consult with independent counsel and the advice or any
opinion of such counsel shall be full and complete authorization and protection
in respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or opinion of counsel.

(iii)  The Collateral Agent may at any time resign
by giving ten (10) days written notice of resignation to the Company and
Holders. The Collateral Agent may be removed by a Majority in Interest of the
Holders with notice to the Company. Upon receiving such notice of resignation
or notice of removal, a Majority in Interest of the Holders shall promptly
appoint a successor and, upon the acceptance by the successor of such
appointment, release the resigning Collateral Agent from its obligations
hereunder by written instrument, a copy of which instrument shall be delivered
to the resigning Collateral Agent and the successor. If no successor shall have
been so appointed and have accepted appointment within forty-five (45) days
after the giving of such notice of resignation, the resigning Collateral Agent
may, at the expense of the Grantor, petition any court of competent
jurisdiction for the appointment of a successor.

(iv)  The Holders hereby agree, severally and not
jointly, to indemnify, ratably according to their pro rata share of the
aggregate principal amount of the Notes then outstanding, and hold the
Collateral Agent harmless from any and all liabilities, obligations, damages,
losses, claims, encumbrances, costs or expenses (including reasonable attorneys’
fees and expenses) (any or all of the foregoing herein referred to as a “Loss”) arising hereunder or
under or with respect to the Collateral, unless it is finally determined that
such Losses resulted from the willful misconduct, bad faith or gross negligence
of the Collateral Agent. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Collateral Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not 

 

 

27

 

limited to lost profits), even if the Collateral
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.

(e)           Fees.  Fees
due to the  Collateral Agent for
its services shall be as outlined in Exhibit
B  attached hereto and shall be paid when due by the
Company.

10.
Term.  This Agreement and the other Collateral
Documents shall terminate and have no further force or effect and all the
security interests, Liens, pledges, mortgages and other encumbrances of any
kind created pursuant to or granted under any of the Collateral Documents shall
be terminated and released, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Grantor, upon the earlier to occur of (i) a “Conversion Event”
(as defined in the Notes) or (ii) full payment and performance of the
Obligations.  At the written request of
the Grantor and a Majority in Interest of the Holders following any such
termination, the Collateral Agent shall deliver to the Grantor any Collateral
held by the Collateral Agent hereunder, and execute and deliver to the Grantor
such documents as the Grantor shall reasonably request to evidence such
termination and the security interest granted hereunder shall be released.

11.
                              Miscellaneous.

(a)
Amendment, Supplement, Waiver.

(i)            Notwithstanding subsection (ii) below, the Grantor and
the Collateral Agent may amend or supplement this Agreement without the consent
of any Holder in a manner that does not adversely affect the legal rights or
remedies hereunder of any Holder or impair the obligations of the Grantor
hereunder (A) to cure any ambiguity, defect or inconsistency and (B) to make
changes that would provide any additional rights or benefits to the
Holders.  After an amendment or
supplement under this subsection (i) becomes effective, the Grantor will
provide Holders with written notice describing such amendment or supplement.

(ii)           Except as provided in subsection (iii) below, the Grantor
and the Collateral Agent may amend or supplement this Agreement with the
consent of a Majority in Interest of the Holders; and, subject to this Section 11(a),
any existing default or non-compliance with any provision of this Agreement,
may be waived with the consent of a Majority in Interest of the Holders.

(iii)          However, without the consent of each Holder affected, an
amendment or waiver under this Section 11(a) may not amend or modify (including
by way of waiver of default or non-compliance) any of the provisions of this
Agreement in a manner adverse to the Holders of the Notes.  The Grantor will not offer consideration to
any Holder for any waiver or amendment under this Section 11(a), unless the
same consideration is offered ratably to the Holders all Notes then
outstanding.

(iv)          Any amendment to this Agreement made in conformity with the
provisions of this Section 11(a) shall be binding on all Holders of Notes.

(v)           In the event of any conflict between the terms of this
Agreement and the terms of the Notes, the terms of the Notes shall prevail.

 

28

 

(b) Notices. All
notices, requests and demands to or upon the Collateral Agent or the Grantor hereunder
shall be effected in the manner provided for in Section 9(g) of the Purchase
Agreement.

(c) No Waiver by Course
of Conduct, Cumulative Remedies. The Collateral Agent or any Holder shall
not by any act (except by a written instrument pursuant to Section 11(a)),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Event of Default. No failure to
exercise, nor any delay in exercising on the part of the Collateral Agent or
any Holder, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Collateral Agent or any
Holder of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Collateral Agent or any
Holder would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.

(d) Enforcement Expenses,
Indemnification.

(i)                                     The Company
agrees to pay or reimburse the Collateral Agent for all of its costs and
expenses incurred in connection with enforcing or preserving any rights under
this Agreement (including, without limitation, in connection with any workout,
restructuring, bankruptcy or other similar proceeding), including, without
limitation, the reasonable fees and disbursements of counsel to the Collateral
Agent.

(ii)                                  The Company
agrees to pay, and to save the Collateral Agent harmless from, any and all
liabilities with respect to, or resulting from any delay in paying, any and all
stamp, excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.

(iii)                               The agreements
in this Section 11(d) shall survive repayment of the Obligations and the
termination of this Agreement.

(e) Waiver of Jury Trial;
Preservation of Remedies.

(i)                                     Waiver of Jury
Trial. THE GRANTOR HEREBY IRREVOCABLY WAIVES ITS RIGHTS TO A JURY TRIAL WITH
RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER, OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.

(ii)                                  Preservation of
Certain Remedies. The parties hereto preserve, without diminution, certain
remedies that such Persons may employ or exercise freely, either alone, in
conjunction with or during a dispute. Each such 

 

29

 

Person shall have and hereby
reserves the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable: (A)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale granted under Applicable Law or by judicial
foreclosure and sale, including a proceeding to confirm the sale, (B) all
rights of self-help including peaceful occupation of property and collection of
rents, set-off, and peaceful possession of property, (C) obtaining provisional
or ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and in filing an involuntary bankruptcy
proceeding, and (D) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a dispute.

(f) Successors and
Assigns. This Agreement shall be binding upon the successors and assigns of
the Grantor and shall inure to the benefit of the Grantor, the Collateral Agent
and their successors and assigns.

Any corporation or
association into which the Collateral Agent may be merged or converted or with
which it may be consolidated, or any corporation or association resulting from
any merger, conversion or consolidation to which the Collateral Agent shall be
a party, or any corporation or association to which all or substantially all of
the corporate trust business of the Collateral Agent may be sold or otherwise
transferred, shall be the successor collateral agent hereunder without any
further act.

(g) Counterparts.
This Agreement may be executed by one or more of the parties to this Agreement
on any number of separate counterparts (including by telecopy), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

(h) Severability. Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.

(i) Section Headings.
The Section headings used in this Agreement are for convenience of reference
only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.

(j) Integration;
Relationship with Purchase Agreement. This Agreement and the other
agreements, instruments and documents referred to herein represent the
agreement of the Grantor and the Collateral Agent with respect to the subject
matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Collateral Agent relative to the subject
matter hereof and thereof not expressly set forth or referred to herein or in
the other agreements, instruments and documents referred to herein.  To the extent that any of the terms hereof are
inconsistent with any provision of the Purchase 

 

30

 

Agreement, those of the Purchase Agreement shall
control, except as to the Collateral Agent as to which the terms of this
Agreement shall control.

(k) Governing Law.
This Agreement shall be governed by, construed, interpreted and enforced in
accordance with, the laws of the State of New York.

(l) Consent to
Jurisdiction. The Grantor hereby irrevocably consents to the personal
jurisdiction of the state and federal courts located in New York, New York, in
any action, claim or other proceeding arising out of any dispute in connection
with this Agreement, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. The Grantor hereby irrevocably
consents to the service of a summons and complaint and other process in any
action, claim or proceeding brought by the Collateral Agent in connection with
this Agreement, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations, on behalf of itself or its
property, by registered or certified mail, return receipt requested, in the
manner specified in the Notes. Nothing in this Section 11(l) shall affect the
right of the Collateral Agent to serve legal process in any other manner
permitted by Applicable Law or affect the right of the Collateral Agent to
bring any action or proceeding against the Grantor or its properties in the
courts of any other jurisdictions.

(m) Acknowledgements.

(i)                                     The Grantor
hereby acknowledges that: (A) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement, (B) the Collateral Agent
has no fiduciary relationship with or duty to the Grantor arising out of or in
connection with the Purchase Agreement, this Agreement or any of the other
Transaction Documents, and the relationship between the Grantor (on the one
hand) and the Collateral Agent (on the other hand) in connection herewith or
therewith is solely that of debtor and creditor, and (B) no joint venture is
created hereby or otherwise exists by virtue of the transactions contemplated
hereby.

(ii)                                  Each Issuer
party to this Agreement acknowledges receipt of a copy of this Agreement and
agrees to be bound thereby and to comply with the terms thereof insofar as such
terms are applicable to it. Each Issuer agrees to provide such notices to the
Collateral Agent as may be necessary to give full effect to the provisions of
this Agreement.

(n) Certificate of
Incumbency.

(i)                                     Upon execution
of this Agreement, the Company shall execute and deliver to Collateral Agent a
certificate of incumbency substantially in the form set forth for such party in
Exhibit D hereto, for the purpose of
establishing the identity of the representative of the Company entitled to
issue instructions or directions to Collateral Agent on behalf of Company.  In the event of any change in the identity of
such representative, a new certificate of incumbency shall be executed and
delivered to Collateral Agent by the appropriate party with a copy
simultaneously sent to the 

 

31

 

other parties hereto.  Until such time as Collateral Agent shall
receive a new incumbency certificate, Collateral Agent shall be fully protected
in relying without inquiry on any then current incumbency certificate on file
with Collateral Agent.

(ii)                                  Upon execution
of this Agreement, each Holder shall execute and deliver to Collateral Agent a
certificate of incumbency substantially in the form set forth for such party in
Exhibit D hereto, for the purpose of
establishing the identity of the individual representative of the Holder
entitled to issue instructions or directions to Collateral Agent on behalf of
such Holder.  In the event of any change
in the identity of such representative, a new certificate of incumbency shall
be executed and delivered to Collateral Agent by the appropriate party with a
copy simultaneously sent to the other parties hereto.  Until such time as Collateral Agent shall
receive a new incumbency certificate, Collateral Agent shall be fully protected
in relying without inquiry on any then current incumbency certificate on file
with Collateral Agent.

[Remainder of page
intentionally left blank, signature pages to follow]

 

32

 

IN WITNESS WHEREOF, the parties hereto have
caused this Security Agreement to be executed by their duly authorized
officers, all as of the day and year first written above. 

 

	
   

  	
  POWER MEDICAL INTERVENTIONS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John P. Gandolfo

  
	
   

  	
   

  	
  Name: John P. Gandolfo

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  

 

 

33

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