Document:

ex102.htm

    Exhibit
10.2

     

    THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.

    

    

    URIGEN
PHARMACEUTICALS, INC.

    

    Senior
Secured Convertible Promissory Note

    due
October 9, 2009

    

     

    
      	 No.
      1 	
               $257,000

            

    

     

    Dated:  January
9, 2009

    

    

    For value
received, Urigen Pharmaceuticals, Inc., a Delaware corporation (the “Maker”), hereby
promises to pay to the order of Platinum-Montaur Life Sciences, LLC (together
with its successors, representatives, and permitted assigns, the “Holder”), in
accordance with the terms hereinafter provided, the principal amount of Two
Hundred Fifty-Seven Thousand Dollars ($257,000), together with interest
thereon.  Concurrently with the issuance of this Note, the Maker is or
may be issuing separate senior secured convertible promissory notes (the “Other Notes”) to
separate purchasers (the “Other Holders”)
pursuant to the Purchase Agreement (as defined in Section 1.1
hereof).

     

    All
payments under or pursuant to this Note shall be made in United States Dollars
in immediately available funds to the Holder at the address of the Holder first
set forth above or at such other place as the Holder may designate from time to
time in writing to the Maker or by wire transfer of funds to the Holder’s
account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on October
9, 2009 (the “Maturity
Date”) or at such earlier time as provided herein.

     

     

    ARTICLE
I

     

    Section
1.1 Purchase
Agreement.  This Note has been executed and delivered pursuant
to the Note Purchase Agreement, dated as of January 9, 2009 (the “Purchase Agreement”),
by and among the Maker and the purchasers listed therein.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
for such terms in the Purchase Agreement.

     

     

    
      
        
        

      

      
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    Section
1.2 ­Interest.  Beginning
on the issuance date of this Note (the “Issuance Date”), the outstanding
principal balance of this Note shall bear interest, in arrears, at a rate per
annum equal to ten percent (10%), payable quarterly on October 1, January 1,
April 1 and July 1 of each year (each, an “Interest Payment Date”), commencing
April 1, 2009, and on the Maturity Date. Interest shall be payable at the option
of the Maker in (A) cash or (B) in registered shares of the Maker’s common
stock, par value $0.001 per share (the “Common Stock”);  provided,
however, (i) payment of interest in shares of Common Stock may only occur if
during the 20 Trading Days immediately prior to the applicable Interest Payment
Date and through and including the date such shares of Common Stock are issued
to the Holder all of the Equity Conditions, unless waived by the Holder in
writing, have been met and the Maker shall have given the Holder notice in
accordance with the notice requirements set forth below, and (ii) as to such
Interest Payment Date, on or prior to such Interest Payment Date, the Maker
shall have delivered to the Holder’s account with The Depository Trust Company a
number of shares of Common Stock to be applied against such interest payment
equal to the quotient of (x) the applicable interest payment divided by (y) 90%
of the average VWAP for the five (5) Trading Days immediately preceding the
Interest Payment Date.  Interest shall be computed on the basis of a
360-day year of twelve (12) 30-day months, shall compound monthly and shall
accrue commencing on the Issuance Date.  Furthermore, upon the
occurrence of an Event of Default (as defined in Section 2.1 hereof), the Maker
will pay interest to the Holder, payable on demand, on the outstanding principal
balance of and unpaid interest on the Note from the date of the Event of Default
until such Event of Default is cured at the rate of the lesser of eighteen
percent (18%) and the maximum applicable legal rate per
annum.   Notwithstanding the above, the Maker may not issue a
number of shares of Common Stock in excess of the Maximum Monthly Interest Share
Amount toward the payment of Interest, as to all outstanding Series A Notes and
Series B Notes, in the aggregate, during any rolling twenty (20) Trading Day
period. For purposes hereof, “Maximum Monthly Interest Share Amount” means 20%
of the aggregate dollar trading volume (as reported on Bloomberg) of the Common
Stock on the principal Trading Market over the twenty (20) consecutive Trading
Day period immediately prior to the applicable Interest Payment
Date.

     

    Section
1.3 Payment of Principal;
Prepayment.   The Principal Amount hereof shall be paid in
full on the Maturity Date or, if earlier, upon acceleration of this Note in
accordance with the terms hereof. Any amount of principal repaid hereunder may
not be reborrowed.  The Maker may prepay any portion of the principal
amount of this Note without the prior written consent of the Holder by
delivering Holder notice thereof at least 10 days prior to the date of
prepayment; provided, that, the Maker shall be obligated to honor all conversion
requests delivered by the Holder during such 10 day period.

     

    Section
1.4 Security
Agreement.  The obligations of the Maker hereunder are secured
by a continuing security interest in certain assets of the Maker and its
subsidiaries (the “Guarantors”) pursuant
to the terms of a Security Agreement dated as of January 9, 2009 by and among
the Maker and the Maker’s subsidiaries, on the one hand, and the Holder and the
Other Holders, on the other hand.

     

    Section
1.5 Payment on Non-Business
Days.  Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State of New York,
such payment may be due on the next succeeding business day and such next
succeeding day shall be included in the calculation of the amount of accrued
interest payable on such date.

     

    Section
1.6 Transfer.  This
Note may be transferred or sold, subject to the provisions of Section 5.8 of
this Note, or pledged, hypothecated or otherwise granted as security by the
Holder.

     

    Section
1.7 Replacement.  Upon
receipt of a duly executed, notarized and unsecured written statement from the
Holder with respect to the loss, theft or destruction of this Note (or any
replacement hereof) and a standard indemnity, or, in the case of a mutilation of
this Note, upon surrender and cancellation of such Note, the Maker shall issue a
new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.

     

    Section
1.8 Use of
Proceeds.  The Maker shall use the proceeds of this Note as set
forth in the Purchase Agreement.

     

     

    
      
        
        

      

      
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    ARTICLE
II

    EVENTS OF
DEFAULT;  REMEDIES

     

    Section
2.1 ­Events of
Default.  The occurrence of any of the following events shall
be an “Event of
Default” under this Note:

     

    (a) any
default in the payment of (1) the principal amount hereunder when due, or (2)
interest on, or liquidated damages in respect of, this Note, as and when the
same shall become due and payable (whether on the Maturity Date or by
acceleration or otherwise); or

     

    (b) the Maker
shall fail to observe or perform any other covenant or agreement contained in
this Note or any Other Note which failure is not cured, if possible to cure,
within 3 business days after the occurrence thereof; or

     

    (c) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, the American Stock Exchange, the Nasdaq Capital Markets, the Nasdaq
Global Market, the Nasdaq Global Select Market or The New York Stock Exchange,
Inc. for a period of five (5) consecutive Trading Days; or

     

    (d) the
Maker’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply (including for any of the reasons described in
Section 3.7(a) hereof) or its intention not to comply with proper requests for
conversion of this Note into shares of Common Stock; or

     

    (e) the Maker
shall fail to (i) timely deliver the shares of Common Stock upon conversion of
the Note or any interest accrued and unpaid, or (ii) make the payment of any
fees and/or liquidated damages under this Note, the Purchase Agreement or the
other Transaction Documents, which failure is not remedied within three (3)
business days after the occurrence thereof; or

     

    (f) [reserved];
or

     

    (g) default
shall be made in the performance or observance of (i) any covenant, condition or
agreement contained in this Note and such default is not fully cured within
three (3) business days after the occurrence thereof or (ii) any material
covenant, condition or agreement contained in the Purchase Agreement, the Other
Notes or any other Transaction Document (including, without limitation, any use
of the proceeds of this Note and the Other Notes other than as permitted in the
Purchase Agreement) that is not covered by any other provisions of this Section
2.1 and such default is not fully cured within three (3) business days after the
Maker receives notice from the Holder of the occurrence
thereof;  or

     

    (h) any
material representation or warranty made by the Maker or Guarantor herein or in
the Purchase Agreement, the Other Notes or any other Transaction Document shall
prove to have been false or incorrect or breached in a material respect on the
date as of which made; or

     

    (i) the Maker
or any Guarantor shall (A) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$25,000 or (B)
default in the observance or performance of any other agreement or condition
relating to any Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders or beneficiary or beneficiaries of
such Indebtedness to cause with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity; or

     

    (j) the Maker
or any Guarantor shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing;
or

     

     

    
      
        
        

      

      
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    (k) a
proceeding or case shall be commenced in respect of the Maker or any Guarantor,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or any Guarantor or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of thirty (30) days or any order for relief shall be
entered in an involuntary case under United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic) against the Maker or any Guarantor or action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing shall be
taken with respect to the Maker or any Guarantor and shall continue undismissed,
or unstayed and in effect for a period of sixty (60) days; or

     

    (l) the
failure of the Maker to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities Act
and issue such unlegended certificates to the Holder within three (3) business
days of the Holder’s request so long as the Holder has provided reasonable
assurances to the Maker that such shares of Common Stock can be sold pursuant to
Rule 144; or

     

    (m) the
occurrence of any Event of Default under any of the Other Notes.

     

    Section
2.2 ­Remedies Upon An Event
of Default.  If an Event of Default shall have occurred and
shall be continuing, the Holder of this Note may at any time at its option
declare the entire unpaid principal balance of this Note, together with all
interest accrued hereon, due and payable, and thereupon, the same shall be
accelerated and so due and payable, without presentment, demand, protest, or
notice, all of which are hereby expressly unconditionally and irrevocably waived
by the Maker; provided, however, that upon
the occurrence of an Event of Default described (i) in Sections 2.1(j) or (k)
above, the outstanding principal balance shall become immediately due and
payable and (ii) in Sections 2.1(b)-(i) and (l) –(m) above, the Holder, in its
sole and absolute discretion, may (a) demand the prepayment of this Note
pursuant to Section 3.6(a) hereof (to the extent permitted by Section 3.6(a)
hereof), (b) demand that the principal amount of this Note then outstanding and
all accrued and unpaid interest thereon shall be converted into shares of Common
Stock at the Conversion Price per share on the Trading Day immediately preceding
the date the Holder demands conversion pursuant to this clause, or (c) exercise
or otherwise enforce any one or more of the Holder’s rights, powers, privileges,
remedies and interests under this Note, the Purchase Agreement or applicable
law.  No course of delay on the part of the Holder shall operate as a
waiver thereof or otherwise prejudice the right of the Holder.  No
remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereafter available at law, in equity, by statute or
otherwise.

     

     

    ARTICLE
III

    ­CONVERSION;
ANTIDILUTION; PREPAYMENT

     

    Section
3.1 ­Conversion
Option.  At any time and from time to time on or after the
Issuance Date, this Note shall be convertible (in whole or in part), at the
option of the Holder (the “Conversion Option”), into such number of fully paid
and non-assessable shares of Common Stock (the “Conversion Rate”) as is
determined by dividing (x) that portion of the outstanding principal balance
plus any accrued but unpaid interest under this Note as of such date that the
Holder elects to convert by (y) the Conversion Price (as defined in Section 3.2
hereof) then in effect on the date on which the Holder faxes a notice of
conversion (the “Conversion Notice”), duly executed, to the Maker (facsimile
number: [    ], Attn.: [CFO]) (the “Voluntary Conversion
Date” or “Conversion Date”), provided, however, that the Conversion Price shall
be subject to adjustment as described in Section 3.5 below.  The
Holder shall deliver this Note to the Maker at the address designated in the
Purchase Agreement at such time that this Note is fully
converted.  With respect to partial conversions of this Note, the
Maker shall keep written records of the amount of this Note converted as of each
Conversion Date.

     

     

     

    
      
        
        

      

      
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    Section
3.2 Conversion
Price.  The term “Conversion Price” shall mean $0.10, subject
to adjustment under Section 3.5 hereof.

     

    
          Section
3.3  Mechanics of
Conversion.

    

     

    (a) Not later
than three (3) Trading Days after any Conversion Date, the Maker or its
designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company (“DTC”) account on the
Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified
in the Conversion Notice, registered in the name of the Holder or its designee,
for the number of shares of Common Stock to which the Holder shall be
entitled.  In the alternative, not later than three (3) Trading Days
after any Conversion Date, the Maker shall deliver to the applicable Holder by
express courier a certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by Section 5.1 of
the Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of this Note (the “Delivery
Date”).  Notwithstanding the foregoing to the contrary, the
Maker or its transfer agent shall only be obligated to issue and deliver the
shares to the DTC on the Holder’s behalf via DWAC (or certificates free of
restrictive legends) if such conversion is in connection with a sale and the
Holder has complied with the applicable prospectus delivery requirements (as
evidenced by documentation furnished to and reasonably satisfactory to the
Maker) or such shares may be sold pursuant to Rule 144 (without restriction as
to volume).  If in the case of any Conversion Notice such certificate
or certificates are not delivered to or as directed by the applicable Holder by
the Delivery Date, the Holder shall be entitled by written notice to the Maker
at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.

     

    (b) The Maker
understands that a delay in the delivery of the shares of Common Stock upon
conversion of this Note beyond the Delivery Date could result in economic loss
to the Holder.  If the Maker fails to deliver to the Holder such
shares via DWAC (or, if applicable, certificates) by the Delivery Date, the
Maker shall pay to such Holder, in cash, an amount per Trading Day for each
Trading Day until such shares are delivered via DWAC or certificates are
delivered (if applicable), together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount of the Notes requested to be converted for the first five (5) Trading
Days after the Delivery Date and (ii) 2% of the aggregate principal amount of
the Notes requested to be converted for each Trading Day thereafter and (B)
$2,000 per day (which amount shall be paid as liquidated damages and not as a
penalty).  Nothing herein shall limit a Holder’s right to pursue
actual damages for the Maker’s failure to deliver certificates representing
shares of Common Stock upon conversion within the period specified herein and
such Holder shall have the right to pursue all remedies available to it at law
or in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).  Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay the liquidated
damages accrued in accordance with this Section 3.3(b) through the date the
Conversion Notice is withdrawn.

     

    (c) In
addition to any other rights available to the Holder, if the Maker fails to
cause its transfer agent to transmit via DWAC or transmit to the Holder a
certificate or certificates representing the shares of Common Stock issuable
upon conversion of this Note on or before the Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the shares of Common Stock issuable upon conversion of
this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the
Maker shall (1) pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of this Note that the
Maker was required to deliver to the Holder in connection with the conversion at
issue times (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Holder, either reinstate
the portion of the Note and equivalent number of shares of Common Stock for
which such conversion was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Maker timely complied
with its conversion and delivery obligations hereunder.  For example,
if the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Maker shall be
required to pay the Holder $1,000. The Holder shall provide the Maker written
notice indicating the amounts payable to the Holder in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by the Maker.  Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Maker’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required pursuant to the
terms hereof.

     

     

    
      
        
        

      

      
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          Section
3.4  Ownership Cap and Certain
Conversion Restrictions.

    

     

    (a) Notwithstanding
anything to the contrary set forth in this Note, at no time may all or a portion
of this Note be converted if the number of shares of Common Stock to be issued
pursuant to such conversion would exceed, when aggregated with all other shares
of Common Stock owned by the Holder at such time, the number of shares of Common
Stock which would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) more
than 4.99% of all of the Common Stock outstanding at such time; provided, however, that upon
the Holder providing the Maker with sixty-one (61) days notice (pursuant to
Section 4.1 hereof) (the “Waiver Notice”) that
the Holder would like to waive this Section 3.4(a) with regard to any or all
shares of Common Stock issuable upon conversion of this Note, this Section
3.4(a) will be of no force or effect with regard to all or a portion of the Note
referenced in the Waiver Notice.

     

    (b) Notwithstanding
anything to the contrary set forth in this Note, at no time may all or a portion
of this Note be converted if the number of shares of Common Stock to be issued
pursuant to such conversion, when aggregated with all other shares of Common
Stock owned by the Holder at such time, would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 9.99% of the then issued and outstanding
shares of Common Stock outstanding at such time.  The provisions of
this Section 3.4(b) may not be amended or waived by the Holder or the
Maker.

     

    Section
3.5 Adjustment of Conversion
Price.

     

    (a) Until the
Note has been paid in full or converted in full, the Conversion Price shall be
subject to adjustment from time to time as follows (but shall not be increased,
other than pursuant to Section 3.5(a)(i) hereof):

     

    (i) Adjustments for Stock Splits
and Combinations.  If the Maker shall at any time or from time
to time after the Issuance Date, effect a stock split of the outstanding Common
Stock, the applicable Conversion Price in effect immediately prior to the stock
split shall be proportionately decreased.  If the Maker shall at any
time or from time to time after the Issuance Date, combine the outstanding
shares of Common Stock, the applicable Conversion Price in effect immediately
prior to the combination shall be proportionately increased.  Any
adjustments under this Section 3.5(a)(i) shall be effective at the close of
business on the date the stock split or combination occurs.

     

    (ii)           Adjustments for Certain
Dividends and Distributions.  If the Maker shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in shares of Common Stock, then, and in each
event, the applicable Conversion Price in effect immediately prior to such event
shall be decreased as of the time of such issuance or, in the event such record
date shall have been fixed, as of the close of business on such record date, by
multiplying, the applicable Conversion Price then in effect by a
fraction:

     

    (1)           the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

     

    (2)           the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

     

    (iii)           Adjustment for Other
Dividends and Distributions.  If the Maker shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in other than shares of Common Stock, then, and in
each event, an appropriate revision to the applicable Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of this Note shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Maker or other issuer (as applicable) which they
would have received had this Note been converted into Common Stock on the date
of such event and had thereafter, during the period from the date of such event
to and including the Conversion Date, retained such securities (together with
any distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.5(a)(iii) with
respect to the rights of the holders of this Note and the Other Notes; provided, however, that if such
record date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions.

     

    (iv)           Adjustments for
Reclassification, Exchange or Substitution.  If the Common
Stock issuable upon conversion of this Note at any time or from time to time
after the Issuance Date shall be changed to the same or different number of
shares of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or
a reorganization, merger, consolidation, or sale of assets provided for in
Section 3.5(a)(v)), then, and in each event, an appropriate revision to the
Conversion Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

     

     

     

    
      
        
        

      

      
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    (v)           Adjustments for
Reorganization, Merger, Consolidation or Sales of Assets.  If
at any time or from time to time after the Issuance Date there shall be a
capital reorganization of the Maker (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.5(a)(iv)), or a merger or
consolidation of the Maker with or into another Person where the holders of
outstanding voting securities prior to such merger or consolidation do not own
over fifty percent (50%) of the outstanding voting securities of the merged or
consolidated entity, immediately after such merger or consolidation, or the sale
of all or substantially all of the Maker’s properties or assets to any other
Person (an “Organic
Change”), then as a part of such Organic Change, (A) if the surviving
entity in any such Organic Change is a public company that is registered
pursuant to the Securities Exchange Act of 1934, as amended, and its common
stock is listed or quoted on a national exchange or the OTC Bulletin Board, an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert such Note into the kind and amount of
shares of stock and other securities or property of the Maker or any successor
corporation resulting from Organic Change, and (B) if the surviving entity in
any such Organic Change is not a public company that is registered pursuant to
the Securities Exchange Act of 1934, as amended, or its common stock is not
listed or quoted on a national exchange or the OTC Bulletin Board, the Holder
shall have the right to demand prepayment pursuant to Section 3.6(b)
hereof.  In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3.5(a)(v) with respect to the
rights of the Holder after the Organic Change to the end that the provisions of
this Section 3.5(a)(v) (including any adjustment in the applicable Conversion
Price then in effect and the number of shares of stock or other securities
deliverable upon conversion of this Note and the Other Notes) shall be applied
after that event in as nearly an equivalent manner as may be
practicable.

     

    (vi)           Adjustments for Issuance of
Additional Shares of Common Stock. In the event the Maker, shall, at any
time, from time to time, issue or sell any additional shares of common stock
(otherwise than as provided  in the foregoing subsections (i) through
(v) of this Section 3.5(a) or pursuant to Common Stock Equivalents (hereafter
defined) granted or issued prior to the Issuance Date) (“Additional Shares of Common
Stock”), at a price per share less than the Conversion Price then in
effect or without consideration, then the Conversion Price upon each such
issuance shall be reduced to a price equal to the consideration per share paid
for such Additional Shares of Common Stock.

     

    (vii)           Issuance of Common Stock
Equivalents.  The provisions of this Section 3.5(a)(vii) shall
apply if (a) the Maker, at any time after the Issuance Date, shall issue any
securities convertible into or exchangeable for, directly or indirectly, Common
Stock (“Convertible
Securities”), other than the Notes, or (b) any rights or warrants or
options to purchase any such Common Stock or Convertible Securities
(collectively, the “Common Stock
Equivalents”) shall be issued or sold.  If the price per share
for which Additional Shares of Common Stock may be issuable pursuant to any such
Common Stock Equivalent shall be less than the applicable Conversion Price then
in effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall be less than the
applicable Conversion Price in effect at the time of such amendment or
adjustment, then the applicable Conversion Price upon each such issuance or
amendment shall be adjusted as provided in the first sentence of subsection (vi)
of this Section 3.5(a).

     

    (viii)                      Consideration for
Stock.  In case any shares of Common Stock or any Common Stock
Equivalents shall be issued or sold:

     

    (1)           in
connection with any merger or consolidation in which the Maker is the surviving
corporation (other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Maker shall be changed to or exchanged
for the stock or other securities of another corporation), the amount of
consideration therefor shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Maker, of such
portion of the assets and business of the nonsurviving corporation as such Board
may determine to be attributable to such shares of Common Stock, Convertible
Securities, rights or warrants or options, as the case may be; or

     

    (2)           in
the event of any consolidation or merger of the Maker in which the Maker is not
the surviving corporation or in which the previously outstanding shares of
Common Stock of the Maker shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Maker for stock or other securities of
any corporation, the Maker shall be deemed to have issued a number of shares of
its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation.  If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Notes, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Notes immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Notes.  In the event
Common Stock is issued with other shares or securities or other assets of the
Maker for consideration which covers both, the consideration computed as
provided in this Section 3.5(a)(viii) shall be allocated among such securities
and assets as determined in good faith by the Board of Directors of the Maker;
or

     

     

    
      
        
        

      

      
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    (3)           for
services, other than as permitted pursuant to Section 3.5(c) hereof, the amount
of consideration therefor shall be deemed to be the par value of the Common
Stock.

    

    (b) Record
Date.  In case the Maker shall take record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.

     

    (c) Certain Issues
Excepted.  Anything herein to the contrary notwithstanding, the
Maker shall not be required to make any adjustment to the Conversion Price in
connection with the following: (a) issuances of shares of Common Stock or
options to employees, officers or directors of the Maker pursuant to any stock
or option plan existing on the date hereof (and not amended to increase the
shares available for grant or issuance thereunder) if such grants were duly
approved by a majority of the non-employee members of the Board of Directors of
the Maker or a majority of the members of a committee of non-employee directors
established for such purpose and, in the case of any options, the exercise price
of such options are in excess of the closing price of the Common Stock on the
date of grant; (b) issuances of securities upon the exercise or exchange of or
conversion of any securities issued hereunder and/or securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the Issuance Date, provided that such securities have not been
amended since the Issuance Date to increase the number of such securities or to
decrease the exercise, exchange or conversion price of any such securities, and
(c) securities issued pursuant to acquisitions or strategic transactions,
provided any such issuance shall only be to a person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Maker and in which the Maker receives benefits in addition to
the investment of funds, but shall not include a transaction in which the Maker
is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.

    

    (d)           No
Impairment.  The Maker shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment.  In the event a Holder shall elect to convert any Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to one hundred thirty percent (130%) of the amount of the Notes the
Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder (as liquidated damages) in the event it obtains
judgment.

    

    (e)           Certificates as to
Adjustments.  Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.5, the Maker at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the Holder a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based.  The Maker shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the
Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this
Note.  Notwithstanding the foregoing, the Maker shall not be obligated
to deliver a certificate unless such certificate would reflect an increase or
decrease of at least one percent (1%) of such adjusted amount.

     

    (f)           Issue
Taxes.  The Maker shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the
Maker shall not be obligated to pay any transfer taxes resulting from any
transfer requested by the Holder in connection with any such
conversion.

     

    (g)           Fractional
Shares.  No fractional shares of Common Stock shall be issued
upon conversion of this Note.  In lieu of any fractional shares to
which the Holder would otherwise be entitled, the Maker shall pay cash equal to
the product of such fraction multiplied by the average of the Closing Bid Prices
of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.

     

    (h)           Reservation of Common
Stock.  The Maker shall at all times when this Note shall be
outstanding, reserve and keep available out of its authorized but unissued
Common Stock, such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of this Note and all interest accrued
thereon; provided that the
number of shares of Common Stock so reserved shall at no time be less than one
hundred twenty percent (120%) of the number of shares of Common Stock for which
this Note and all interest accrued thereon are at any time
convertible.  The Maker shall, from time to time in accordance with
Delaware law, increase the authorized number of shares of Common Stock if at any
time the unissued number of authorized shares shall not be sufficient to satisfy
the Maker’s obligations under this Section 3.5(h).

     

    (i)           ­Regulatory
Compliance.  If any shares of Common Stock to be reserved for
the purpose of conversion of this Note or any interest accrued thereon require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Maker shall, at its sole cost and expense, in good faith and as
expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.

     

     

     

    
      
        
        

      

      
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    Section
3.6 Prepayment.

     

    (a)           Prepayment Upon an Event of
Default.  Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default described in Sections
2.1(b)-(i) or (l)-(m) hereof, the Holder shall have the right, at such Holder’s
option, to require the Maker to prepay in cash all or a portion of this Note at
a price equal to one hundred and ten percent (110%) of the aggregate principal
amount of this Note plus all accrued and unpaid interest applicable at the time
of such request.  Nothing in this Section 3.6(a) shall limit the
Holder’s rights under Section 2.2 hereof.

     

    (b)           Prepayment Option Upon Major
Transaction.  In addition to all other rights of the Holder
contained herein, simultaneous with the occurrence of a Major Transaction (as
defined below), the Holder shall have the right, at the Holder’s option, to
require the Maker to prepay all or a portion of the Holder’s Notes in cash at a
price equal to the sum of (i) the greater of (A) one hundred and ten percent
(110%) of the aggregate principal amount of this Note plus all accrued and
unpaid interest and (B) in the event at such time the Holder is unable to obtain
the benefit of its conversion rights through the conversion of this Note and
resale of the shares of Common Stock issuable upon conversion hereof in
accordance with the terms of this Note and the other Transaction Documents or
the Equity Conditions are not satisfied with respect to all such shares of
Common Stock, the aggregate principal amount of this Note plus all accrued but
unpaid interest hereon, divided by the Conversion Price on (x) the date the
Prepayment Price (as defined below) is demanded or otherwise due or (y) the date
the Major Transaction Prepayment Price is paid in full, whichever is less,
multiplied by the VWAP on (x) the date the Major Transaction Prepayment Price is
demanded or otherwise due, and (y) the date the Major Transaction Prepayment
Price is paid in full, whichever is greater, and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of this Note and the other
Transaction Documents (the “Major Transaction Prepayment
Price”).

     

    (c)           Prepayment Option Upon
Triggering Event.  In addition to all other rights of the
Holder contained herein, after a Triggering Event (as defined below), the Holder
shall have the right, at the Holder’s option, to require the Maker to prepay all
or a portion of this Note in cash at a price equal to the sum of (i) the greater
of (A) one hundred and ten percent (110%) of the aggregate principal amount of
this Note plus all accrued and unpaid interest and (B) the aggregate principal
amount of this Note plus all accrued but unpaid interest hereon, divided by the
Conversion Price on (x) the date the Prepayment Price (as defined below) is
demanded or otherwise due or (y) the date the Prepayment Price is paid in full,
whichever is less, multiplied by the VWAP on (x) the date the Prepayment Price
is demanded or otherwise due, and (y) the date the Prepayment Price is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note and the other Transaction
Documents (the “Triggering Event Prepayment
Price,” and, collectively with the Major Transaction Prepayment Price,
the “Prepayment
Price”).

     

    (d)           “Major
Transaction.”  A “Major Transaction”
shall be deemed to have occurred at such time as any of the following
events:

     

    (i)           the
consolidation, merger or other business combination of the Maker with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Maker or
(B) a consolidation, merger or other business combination in which the Maker is
the surviving entity and the holders of the Maker’s voting power immediately
prior to the transaction continue after the transaction to hold, directly or
indirectly, the voting power of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their equivalent
if other than a corporation) of such entity or entities).

     

    (ii)           the
sale or transfer of more than fifty percent (50%) of the Maker’s assets (based
on the fair market value as determined in good faith by the Maker’s Board of
Directors) other than inventory in the ordinary course of business in one or a
related series of transactions; or

     

    (iii)           closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.

     

    (f) “Triggering Event.” A
“Triggering Event” shall be deemed to have occurred at such time as any of the
following events:

     

    (i) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, the American Stock Exchange, the Nasdaq Capital Markets, the Nasdaq
Global Market, the Nasdaq Global Select Market or The New York Stock Exchange,
Inc. for a period of five (5) consecutive Trading Days;

     

     

     

    
      
        
        

      

      
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    (ii) the
Maker’s notice to any holder of the Notes, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.7) or its intention not to comply with proper
requests for conversion of any Notes into shares of Common Stock;
or

     

    (iii) the
Maker’s failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within ten (10) business days after the receipt by
the Maker of the Conversion Notice; or

     

    (iv) the Maker
deregisters its shares of Common Stock and as a result such shares of Common
Stock are no longer publicly traded; or

     

    (v) the Maker
consummates a “going private” transaction and as a result the Common Stock is no
longer registered under Sections 12(b) or 12(g) of the Exchange Act;
or

     

    (vi) the Maker
defaults in the payment of (1) the principal amount hereunder when due, or (2)
interest on, or liquidated damages in respect of, this Note, as and when the
same shall become due and payable (whether on the Maturity Date or by
acceleration or otherwise); or

     

    (vii) the Maker
shall fail to comply with Section 5.12(c) of this Note.

     

    

    (h)           Mechanics of Prepayment at
Option of Holder Upon Major Transaction.  No sooner than
fifteen (15) days nor later than ten (10) days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Maker shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Major
Transaction”) to the Holder of this Note.  At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least ten (10) days prior to a Major
Transaction, at any time within ten (10) days prior to a Major Transaction), any
holder of the Notes then outstanding may require the Maker to prepay, effective
immediately prior to the consummation of such Major Transaction, all of the
holder’s Notes then outstanding by delivering written notice thereof via
facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Major Transaction”) to the Maker, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
principal amount of the Notes that such holder is electing to have prepaid and
(ii) the applicable Major Transaction Prepayment Price, as calculated pursuant
to Section 3.6(b) above.

     

    (i)           Mechanics of Prepayment at
Option of Holder Upon Triggering Event.  Within one (1)
business day after the occurrence of a Triggering Event, the Maker shall deliver
written notice thereof via facsimile and overnight courier (“Notice of Triggering
Event”) to each holder of the Notes.  At any time after the
earlier of a holder’s receipt of a Notice of Triggering Event and such holder
becoming aware of a Triggering Event, any holder of this Note and the Other
Notes then outstanding may require the Maker to prepay all of the Notes on a pro
rata basis by delivering written notice thereof via facsimile and overnight
courier (“Notice of
Prepayment at Option of Holder Upon Triggering Event”) to the Maker,
which Notice of Prepayment at Option of Holder Upon Triggering Event shall
indicate (i) the amount of the Note that such holder is electing to have prepaid
and (ii) the applicable Triggering Event Prepayment Price, as calculated
pursuant to Section 3.6(c) above.  A holder shall only be permitted to
require the Maker to prepay the Note pursuant to Section 3.6 hereof for the
greater of a period of ten (10) days after receipt by such holder of a Notice of
Triggering Event or for so long as such Triggering Event is
continuing.

     

    (j)           Payment of Prepayment
Price.  Upon the Maker’s receipt of a Notice(s) of Prepayment
at Option of Holder Upon Triggering Event or a Notice(s) of Prepayment at Option
of Holder Upon Major Transaction from any holder of the Notes, the Maker shall
immediately notify each holder of the Notes by facsimile of the Maker’s receipt
of such Notice(s) of Prepayment at Option of Holder Upon Triggering Event or
Notice(s) of Prepayment at Option of Holder Upon Major Transaction and each
holder which has sent such a notice shall promptly submit to the Maker such
holder’s certificates representing the Notes which such holder has elected to
have prepaid.  The Maker shall deliver the applicable Triggering Event
Prepayment Price, in the case of a prepayment pursuant to Section 3.6(i), to
such holder within five (5) business days after the Maker’s receipt of a Notice
of Prepayment at Option of Holder Upon Triggering Event and, in the case of a
prepayment pursuant to Section 3.6(h), the Maker shall deliver the applicable
Major Transaction Prepayment Price immediately prior to the consummation of the
Major Transaction; provided that a holder’s original Note shall have been so
delivered to the Maker; provided further that if the Maker is unable to prepay
all of the Notes to be prepaid, the Maker shall prepay an amount from each
holder of the Notes being prepaid equal to such holder’s pro-rata amount (based
on the number of Notes and Other Notes held by such holder relative to the
number of Notes and Other Notes outstanding) of all Notes being
prepaid.  If the Maker shall fail to prepay all of the Notes submitted
for prepayment (other than pursuant to a dispute as to the arithmetic
calculation of the Prepayment Price), in addition to any remedy such holder of
the Notes may have under this Note and the Purchase Agreement, the applicable
Prepayment Price payable in respect of such Notes not prepaid shall bear
interest at the rate of two percent (2%) per month (prorated for partial months)
until paid in full.  Until the Maker pays such unpaid applicable
Prepayment Price in full to a holder of the Notes submitted for prepayment, such
holder shall have the option (the “Void Optional Prepayment
Option”) to, in lieu of prepayment, require the Maker to promptly return
to such holder(s) all of the Notes that were submitted for prepayment by such
holder(s) under this Section 3.6 and for which the applicable Prepayment Price
has not been paid, by sending written notice thereof to the Maker via facsimile
(the “Void Optional
Prepayment Notice”).  Upon the Maker’s receipt of such Void
Optional Prepayment Notice(s) and prior to payment of the full applicable
Prepayment Price to such holder, (i) the Notice(s) of Prepayment at Option of
Holder Upon Triggering Event or the Notice(s) of Prepayment at Option of Holder
Upon Major Transaction, as the case may be, shall be null and void with respect
to those Notes submitted for prepayment and for which the applicable Prepayment
Price has not been paid, (ii) the Maker shall immediately return any Notes
submitted to the Maker by each holder for prepayment under this Section 3.6(j)
and for which the applicable Prepayment Price has not been paid and (iii) the
Conversion Price of such returned Notes shall be adjusted to the lesser of (A)
the Conversion Price as in effect on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Prepayment of Option of Holder Upon Major Transaction or the Notice(s) of
Prepayment at Option of Holder Upon Triggering Event, as the case may be, is
delivered to the Maker and ending on the date on which the Void Optional
Prepayment Notice(s) is delivered to the Maker; provided that no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect.  A holder’s delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Maker’s obligations to make any payments which have accrued prior to
the date of such notice.  Payments provided for in this Section 3.6
shall have priority to payments to other stockholders in connection with a Major
Transaction.

     

     

     

    
      
        
        

      

      
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    Section
3.7 Inability to Fully
Convert.

     

    (a)           Holder’s Option if Maker
Cannot Fully Convert.  If, upon the Maker’s receipt of a
Conversion Notice, the Maker cannot issue shares of Common Stock for any reason,
including, without limitation, because the Maker (x) does not have a sufficient
number of shares of Common Stock authorized and available, or (y) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice, then the Maker shall issue as many shares of Common Stock as it is able
to issue in accordance with the Holder’s Conversion Notice and, with respect to
the unconverted portion of this Note, the Holder, solely at Holder’s option, can
elect to:

     

    (i) If the
Maker’s inability to honor any conversion fully is pursuant to Section 3.7(a)(x)
above, require the Maker to prepay that portion of this Note for which the Maker
is unable to issue Common Stock in accordance with the Holder’s Conversion
Notice (the “Mandatory
Prepayment”) at a price per share equal to the Triggering Event
Prepayment Price as of such Conversion Date (the “Mandatory Prepayment
Price”);

     

    (ii) if the
Maker’s inability to fully convert is pursuant to Section 3.7(a)(y) above,
require the Maker to issue restricted shares of Common Stock in accordance with
such holder’s Conversion Notice;

     

    (iii) void its
Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder’s voiding its Conversion Notice shall not effect the Maker’s obligations
to make any payments which have accrued prior to the date of such
notice);

     

    (iv) exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions of
Section 3.3(c) of this Note.

     

    In the
event a Holder shall elect to convert any portion of its Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the principal amount of the Notes the Holder has elected
to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.

    

    (b)           Mechanics of Fulfilling
Holder’s Election.  The Maker shall immediately send via
facsimile to the Holder, upon receipt of a facsimile copy of a Conversion Notice
from the Holder which cannot be fully satisfied as described in Section 3.7(a)
above, a notice of the Maker’s inability to fully satisfy the Conversion Notice
(the “Inability to
Fully Convert Notice”).  Such Inability to Fully Convert Notice
shall indicate (i) the reason why the Maker is unable to fully satisfy such
holder’s Conversion Notice, (ii) the amount of this Note which cannot be
converted and (iii) the applicable Mandatory Prepayment Price.  The
Holder shall notify the Maker of its election pursuant to Section 3.7(a) above
by delivering written notice via facsimile to the Maker (“Notice in Response to
Inability to Convert”).

     

    (c)           Payment of Prepayment
Price.  If the Holder shall elect to have its Notes prepaid
pursuant to Section 3.7(a)(i) above, the Maker shall pay the Mandatory
Prepayment Price to the Holder within thirty (30) days of the Maker’s receipt of
the Holder’s Notice in Response to Inability to Convert, provided that prior
to the Maker’s receipt of the Holder’s Notice in Response to Inability to
Convert the Maker has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note.  If the Maker shall fail to pay the applicable Mandatory
Prepayment Price to the Holder on the date that is one (1) business day
following the Maker’s receipt of the Holder’s Notice in Response to Inability to
Convert (other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Prepayment Price), in addition to any remedy the
Holder may have under this Note and the Purchase Agreement, such unpaid amount
shall bear interest at the rate of two percent (2%) per month (prorated for
partial months) until paid in full.  Until the full Mandatory
Prepayment Price is paid in full to the Holder, the Holder may (i) void the
Mandatory Prepayment with respect to that portion of the Note for which the full
Mandatory Prepayment Price has not been paid, (ii) receive back such Note, and
(iii) require that the Conversion Price of such returned Note be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Holder
voided the Mandatory Prepayment and (B) the lowest Closing Bid Price during the
period beginning on the Conversion Date and ending on the date the Holder voided
the Mandatory Prepayment.

     

     

    
      
        
        

      

      
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    (d)           Pro-rata Conversion and
Prepayment.  In the event the Maker receives a Conversion
Notice from more than one holder of the Notes on the same day and the Maker can
convert and prepay some, but not all, of the Notes pursuant to this Section 3.7,
the Maker shall convert and prepay from each holder of the Notes electing to
have its Notes converted and prepaid at such time an amount equal to such
holder’s pro-rata amount (based on the principal amount of the Notes held by
such holder relative to the principal amount of the Notes and any Other Notes
outstanding) of all the Notes being converted and prepaid at such
time.

     

    Section
3.8 No Rights as
Shareholder.  Nothing contained in this Note shall be construed
as conferring upon the Holder, prior to the conversion of this Note, the right
to vote or to receive dividends or to consent or to receive notice as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Maker or of any other matter, or any other rights as a
shareholder of the Maker.

     

     

    ARTICLE
IV

    COVENANTS

    

    For so long as this Note is
outstanding, without the prior written consent of the holders of at least a
majority of the aggregate principal amount of the Notes and the Other Notes
(together, as one class):

    

    Section
4.1 No
Liens.  Other than Permitted Liens, the Maker shall not, and
shall not permit the Guarantors to, enter into, create, incur, assume or suffer
to exist any liens, security interests, charges, claims or other encumbrances of
any kind (collectively, “Liens”) on or with respect to any of its assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom.

     

    Section
4.2 No
Indebtedness.  Other than Indebtedness existing on the date
hereof and disclosed in the Commission Documents and Permitted Subordinated
Indebtedness, the Maker shall not, and shall not permit any Guarantor to, enter
into, create, incur, assume or suffer to exist any Indebtedness.

     

    Section
4.3 Compliance with Transaction
Documents.  The Maker shall, and shall cause the Guarantors to,
comply with its obligations under this Note and the other Transaction
Documents.

     

    Section
4.4 Compliance with
Law.  The Maker shall, and shall cause each of the Guarantors
to, comply with law and duly observe and conform in all material respects to all
valid requirements of governmental authorities relating to the conduct of its
business or to its properties or assets.

     

    Section
4.5 Transactions with
Affiliates.  The Maker shall not, and shall not permit the
Guarantors to, engage in any transactions with any officer, director, employee
or any Affiliate of the Maker, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Maker, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $50,000, other than (i) for payment of reasonable salary for
services actually rendered, as approved by the Board of Directors of the Maker
as fair in all respects to the Maker, and (ii) reimbursement for expenses
incurred on behalf of the Maker.

     

    Section
4.6 No
Dividends.  the Maker shall not, and shall not permit any
Guarantor to, (i) declare or pay any dividends or make any distributions to any
holder(s) of Common Stock or other equity security of the Maker or such
Guarantors (other than dividend and distributions from a Guarantor to the Maker
which are applied immediately to the repayment of this Note), (ii) purchase or
otherwise acquire for value, directly or indirectly, any shares or other equity
security of the Maker or any Guarantor, (iii) form, create or permit to exist
any subsidiary (other than the Guarantors existing on the date hereof) or become
a partner in any partnership or joint venture, or make any acquisition of any
interest in any Person or acquire substantially all of the assets of any Person,
or (iv) transfer, assign, pledge, issue or otherwise permit any equity or other
ownership interests in the Guarantors to be beneficially owned or held by any
person other than the Maker.

     

    Section
4.7 No Merger or Sale of
Assets.  The Maker shall not, and shall not permit any
Guarantor to, (i) merge or consolidate or sell or dispose of all its assets or
any substantial portion thereof or (ii) in any way or manner alter its
organizational structure or effect a change of entity;

     

    Section
4.8 Payment of Taxes,
Etc.  The Maker shall, and shall cause each of the Guarantors
to, promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Maker and the
Guarantors, except for such failures to pay that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Maker or such Guarantors shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Maker and such Guarantors will pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.

     

    Section
4.9 Corporate
Existence.  The Maker shall, and shall cause each of the
Guarantors to, maintain in full force and effect its corporate existence, rights
and franchises and all licenses and other rights to use property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business.

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     

    Section
4.10 Investment Company
Act.  The Maker shall conduct its businesses in a manner so
that it will not become subject to the Investment Company Act of 1940, as
amended.

     

    Section
4.11  Maintenance of
Assets.  The Maker shall, and shall cause the Guarantors to,
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto.

     

    Section
4.12 Indebtedness to
Affiliates.   The Maker shall not, and shall not permit
any Guarantor to, make any payment on any indebtedness owed to officers,
directors or Affiliates, or any indebtedness described on Schedule 2.1(k) of the
Purchase Agreement.

     

    Section
4.13 Restriction on
Dividends.  The Maker shall not, and shall not permit any
Guarantor to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Guarantor to pay dividends or distributions to the Maker, pay any indebtedness
owed to the Maker or transfer any properties or assets to the
Maker.

     

    Section
4.14 No
Investments.  The Maker shall not, and shall not permit any
Guarantor to, make or suffer to exist any Investments or commitments therefor,
other than Investments made in the ordinary course of business.

     

    Section
4.15 No Lien on
IP.  The Maker shall not, and the Maker shall not permit any
Guarantor to, directly or indirectly, to encumber or allow any Liens on, any of
its copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, any patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of the Maker and its Subsidiaries
connected with and symbolized thereby, know-how, operating manuals, trade secret
rights, rights to unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing, other than
Permitted Liens.

     

     

    ARTICLE
V

    ­MISCELLANEOUS

     

    Section
5.1 ­Notices.  Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery, telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first
occur.  The Maker will give written notice to the Holder at least ten
(10) days prior to the date on which the Maker takes a record (x) with respect
to any dividend or distribution upon the Common Stock, (y) with respect to any
pro rata subscription offer to holders of Common Stock or (z) for determining
rights to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such holder prior to
such information being made known to the public.  The Maker will also
give written notice to the Holder at least ten (10) days prior to the date on
which any Organic Change, dissolution, liquidation or winding-up will take place
and in no event shall such notice be provided to the Holder prior to such
information being made known to the public. The Maker shall promptly notify the
Holder of this Note of any notices sent or received, or any actions taken with
respect to the Other Notes.

     

    Section
5.2 Governing
Law.  This Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction.  This Note
shall not be interpreted or construed with any presumption against the party
causing this Note to be drafted.  All payment obligations arising
under this Note are subject to the express condition that at no time shall the
Borrower be obligated or required to pay interest at a rate which could subject
the Holder to either civil or criminal liability as a result of being in excess
of the maximum rate which the Borrower is permitted by law to contract or agree
to pay. If by the terms of this Note, the Borrower is at any time required or
obligated to pay interest at a rate in excess of such maximum rate, the
applicable rate of interest shall be deemed to be immediately reduced to such
maximum rate, and interest thus payable shall be computed at such maximum rate,
and the portion of all prior interest payments in excess of such maximum rate
shall be applied and shall be deemed to have been payments in reduction of
principal.

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

     

    Section
5.3 ­Headings.  Article
and section headings in this Note are included herein for purposes of
convenience of reference only and shall not constitute a part of this Note for
any other purpose.

     

    Section
5.4 Remedies, Characterizations,
Other Obligations, Breaches and Injunctive Relief.  The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note, at law or in equity (including, without
limitation, a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder’s
right to pursue actual damages for any failure by the Maker to comply with the
terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof) shall
be the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the Maker (or
the performance thereof).  The Maker acknowledges that a breach by it
of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

     

    Section
5.5 Enforcement
Expenses.  The Maker agrees to pay all costs and expenses of
enforcement of this Note, including, without limitation, reasonable attorneys’
fees and expenses.

     

    Section
5.6 Binding
Effect.   The obligations of the Maker and the Holder set
forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.

     

    Section
5.7 Amendments.  This
Note may not be modified or amended in any manner except in writing executed by
the Maker and the Holder.

     

    Section
5.8 Compliance with Securities
Laws.  The Holder of this Note acknowledges that this Note is
being acquired solely for the Holder’s own account and not as a nominee for any
other party, and for investment, and that the Holder shall not offer, sell or
otherwise dispose of this Note except in compliance with applicable securities
laws.  This Note and any Note issued in substitution or replacement
therefor shall be stamped or imprinted with a legend in substantially the
following form:

     

    “THIS NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION HEREOF HAVE MAY BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION
UNDER THE ACT AND SUCH STATE SECURITIES LAWS.”

    

    Section
5.9 ­Consent to
Jurisdiction.  Each of the Maker and the Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court sitting in the Southern District of New York and the courts of the State
of New York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper.  Each of the Maker and the
Holder consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under the Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing in
this Section 5.9 shall affect or limit any right to serve process in any other
manner permitted by law.  Each of the Maker and the Holder hereby
agree that the prevailing party in any suit, action or proceeding arising out of
or relating to this Note shall be entitled to reimbursement for reasonable legal
fees from the non-prevailing party.

     

    Section
5.10 ­Parties in
Interest.  This Note shall be binding upon, inure to the
benefit of and be enforceable by the Maker, the Holder and their respective
successors and permitted assigns.

     

    Section
5.11 ­Failure or Indulgence
Not Waiver.  No failure or delay on the part of the Holder in
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

     

    Section
5.12 ­Maker Waivers; Dispute
Resolution.  Except as otherwise specifically provided herein,
the Maker and all others that may become liable for all or any part of the
obligations evidenced by this Note, hereby waive presentment, demand, notice of
nonpayment, protest and all other demands’ and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

     

    (a) No delay
or omission on the part of the Holder in exercising its rights under this Note,
or course of conduct relating hereto, shall operate as a waiver of such rights
or any other right of the Holder, nor shall any waiver by the Holder of any such
right or rights on any one occasion be deemed a waiver of the same right or
rights on any future occasion.

     

    (b) THE MAKER
ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL
TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS
RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE
HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    (c) In the
case of a dispute as to the determination of the Closing Bid Price or the VWAP
or the arithmetic calculation of the Conversion Price, any adjustment to the
Conversion Price, liquidated damages amount, interest or dividend calculation,
or any redemption price, redemption amount, adjusted Conversion Price, or
similar calculation, or as to whether a subsequent issuance of securities is
prohibited hereunder or would lead to an adjustment to the Conversion Price, the
Maker shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt, or deemed receipt, of the
Conversion Notice, any redemption notice, default notice or other event giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Maker are unable to agree upon such determination or calculation within two (2)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Maker shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the Closing Price or the
VWAP to an independent, reputable investment bank selected by the Maker and
approved by the Holder, which approval shall not be unreasonably withheld, (b)
the disputed arithmetic calculation of the Conversion Price, adjusted Conversion
Price or any redemption price, redemption amount or default amount to the
Maker’s independent, outside accountant or (c) the disputed facts regarding
whether a subsequent issuance of securities is prohibited hereunder or would
lead to an adjustment to the Conversion Price (or any of the other above
described facts not expressly designated to the investment bank or accountant),
to an expert attorney from a nationally recognized outside law firm (having at
least 100 attorneys and having with no prior relationship with the Maker)
selected by the Maker and approved by the Lead Purchaser as defined in the
Purchase Agreement).  The Maker, at the Maker’s expense, shall cause
the investment bank, the accountant, the law firm, or other expert, as the case
may be, to perform the determinations or calculations and notify the Maker and
the Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s,
accountant’s or attorney’s determination or calculation, as the case may be,
shall be binding upon all parties absent demonstrable error.

     

    Section
5.13 Definitions.  Terms
used herein and not defined shall have the meanings set forth in the Purchase
Agreement.  For the purposes hereof, the following terms shall have
the following meanings:

     

    “Closing Bid Price”
shall mean, on any particular date (i) the last trading price per share of the
Common Stock on such date on the OTC Bulletin Board or another registered
national stock exchange on which the Common Stock is then listed, or if there is
no such price on such date, then the last trading price on such exchange or
quotation system on the date nearest preceding such date, or (ii) if the Common
Stock is not then listed or traded on a registered national securities exchange
or quoted on the OTC Bulletin Board, then the average of the “Pink Sheet” quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (iii) if the Common Stock is not then publicly traded the fair market value
of a share of Common Stock as determined by the Holder and reasonably acceptable
to the Maker.

    

    “Equity Conditions”
shall mean, during the period in question, (i) the Maker shall have duly honored
all conversions and redemptions scheduled to occur or occurring by virtue of one
or more Conversion Notices of the Holder, if any, (ii) all liquidated damages
and other amounts owing to the Holder in respect of this Note shall have been
paid; (iii) (A) there is an effective registration statement pursuant to which
the Holder is permitted to utilize the prospectus thereunder to resell all of
the shares issuable pursuant to this Note as a payment of interest or principal,
or (B) such shares may be sold by the Holder pursuant to Rule 144 under the
Securities Act without regards to volume limitations and the Maker and its
counsel shall have delivered all legal opinions and other documents necessary to
effect such sale, (iv) the Common Stock is trading on the Trading Market and all
of the shares issuable pursuant to the Transaction Documents are listed for
trading on a Trading Market (and the Maker believes, in good faith, that trading
of the Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (v) there is a sufficient number of authorized but unissued
and otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default or event which, with the passage of time or the
giving of notice, would constitute an Event of Default, (vii) the issuance of
the shares in question to the Holder would not violate the limitations set forth
in Section 3.4(a) or 3.4(b) hereof, (viii) no public announcement of a pending
or proposed Major Transaction or Triggering Event has occurred and (ix) the
average daily trading dollar volume of the Common Stock for each three
consecutive Trading Days throughout such period exceeds $100,000.

    

    “Indebtedness” means
(a) all obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, current swap
agreements, interest rate hedging agreements, interest rate swaps, or other
financial products, (c) all capital lease obligations that exceed $10,000 in the
aggregate in any fiscal year, (d) all obligations or liabilities secured by a
lien or encumbrance on any asset of the Maker, irrespective of whether such
obligation or liability is assumed, (e) all obligations for the deferred
purchase price of assets, together with trade debt and other accounts payable
that exceed $10,000 in the aggregate in any fiscal year, (f) all synthetic
leases, and (g) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse) any of the foregoing obligations of any other person; provided,
however, Indebtedness shall not include (a) usual and customary trade debt
incurred in the ordinary course of business and (b) endorsements for collection
or deposit in the ordinary course of business.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
 

    “Investment” means,
with respect to any Person, all investments in any other Person, whether by way
of extension of credit, loan, advance, purchase of stock or other ownership
interest (other than ownership interests in such Person), bonds, notes,
debentures or other securities, or otherwise, and whether existing on the date
of this Agreement or thereafter made, but such term shall not include the cash
surrender value of life insurance policies on the lives of officers or
employees, excluding amounts due from customers for services or products
delivered or sold in the ordinary course of business.

    

    “Permitted Lien”
means the individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet due or Liens
for taxes, assessments and other governmental charges or levies being contested
in good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Maker) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Maker’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Maker’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Maker and its consolidated subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of preventing for
the foreseeable future the forfeiture or sale of the property or asset subject
to such Lien; and (c) Liens securing the Permitted Subordinated Indebtedness to
the extent such Liens are expressly subordinate to the Liens securing this
Note.

    

    “Permitted Subordinated
Indebtedness” means Indebtedness incurred after the date hereof in an
aggregate amount not in excess of $257,000 that (i) shall be expressly
subordinate in right of payment to this Note in form and substance satisfactory
to the Holder in its reasonable discretion, (ii) shall not be secured by any
asset, agreement, guarantee or other collateral, other than Liens expressly
subordinate to the liens securing this Note, and (iii) in the event of any
bankruptcy, liquidation or other similar proceeding, shall provide for the
payment in full of this Note prior to the payment of any amounts in respect
thereof.

    

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

    

    “Trading Day” means
(a) a day on which the Common Stock is traded on the OTC Bulletin Board or a
registered national securities exchange, or (b) if the Common Stock is not
traded on the OTC Bulletin Board or a registered national securities exchange, a
day on which the Common Stock is quoted in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a) or (b)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

    

    “Trading Market” means
the Over the Counter Bulletin Board, the New York Stock Exchange, the Nasdaq
Capital Markets, the Nasdaq Global Markets, the Nasdaq Global Select Market or
the American Stock Exchange.

    

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

    

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    

    

    IN WITNESS WHEREOF, the Maker
has caused this Note to be duly executed by its duly authorized officer as of
the date first above indicated.

    

    
      
        	 	URIGEN PHARMACEUTICALS,
      INC.	 
	 	 	 	 
	
                Date

              	
                By:
      

              	/s/ William J. Garner,
      M.D.	 
	 	 	Name:  William
      J. Garner, M.D.	 
	 	 	Title:   Chief
      Executive Officer	 
	 	 	 	 

      

     

     

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

            

            

    EXHIBIT
A

    

    WIRE
INSTRUCTIONS

     

    

     

    Commerce
Bank

    

    ABA
026013673

    

    Account
Name: Platinum Montaur Life Sciences, LLC

    

    Account
Number: 7926319497

    

     

    

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    FORM
OF

     

    NOTICE OF
CONVERSION

     

    (To be
Executed by the Registered Holder in order to Convert the Note)

     

    The
undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount [and accrued interest thereon] of the above Note No. ___ into
shares of Common Stock of Urigen Pharmaceuticals, Inc. (the “Maker”) according
to the conditions hereof, as of the date written below.

     

    Date of
Conversion
_________________________________________________________

     

    Applicable
Conversion Price __________________________________________________

     

    Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the Date of Conversion: _________________________

     

    Signature___________________________________________________________________

     

    [Name]

     

    Address:__________________________________________________________________

     

    _______________________________________________________________________

     

    

     

    

     

     

     

    19ex103.htm

    Exhibit
10.3

     

    SECURITY
AGREEMENT

    

                This
SECURITY AGREEMENT, dated as of January 9, 2009 (this “Agreement”), is among
Urigen Pharmaceuticals, Inc., a Delaware corporation (the “Company”), all of the
subsidiaries of the Company (such subsidiaries, the “Guarantors” and together
with the Company, the “Debtors”), and Platinum-Montaur
Life Sciences, LLC (together with its successors and assigns, the “Secured Party”), as
collateral agent for the investors identified in the Purchase
Agreement (the “Lenders”), which
Lenders are the holders of the Company’s Senior Secured Convertible
Promissory Notes, issued on January 9, 2009 in the aggregate original
principal amount of $257,000 (the “Notes”).

    

    W
I T N E S S E T H:

    

                WHEREAS, pursuant to the
Notes, the Lenders have agreed to extend the loans to the Company evidenced by
the Notes;

    

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

    

                WHEREAS, in order to induce
the Secured Party to extend the loans evidenced by the Notes, each Debtor has
agreed to execute and deliver to the Secured Party this Agreement and to grant
the Secured Party a security interest, for the benefit of the Lenders,
in certain property of such Debtor to secure the prompt payment, performance and
discharge in full of all of the Company’s obligations under the Notes and
the Guarantors’ obligations under the Guaranty.

    

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

    

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

    

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

     

     

     

     

    
      
        
        

      

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

    

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

    

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

    

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

    

    (v) All
commercial tort claims;

    

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

    

    (vii) All
investment property;

    

    (viii) All
supporting obligations; 

    

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

     

     

     

    
      
        
        

      

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

    

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

     

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

    

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

    

    (c) “Necessary
Endorsement” means undated stock powers endorsed in blank or other
proper instruments of assignment duly executed and such other instruments or
documents as the Secured Party may reasonably request.

     

     

     

     

    
      
        
        

      

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

    

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

    

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

    

    (g) “Purchase Agreement”
means the Note and Warrant Purchase Agreement, dated as of the date hereof,
between the Company and the Lenders.

    

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

     

     

     

    
      
        
        

      

      
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    2. Grant of Security Interest in Collateral. As an
inducement for the Lenders to extend the loans as evidenced by the Notes and to
secure the complete and timely payment, performance and discharge in full, as
the case may be, of all of the Obligations, each Debtor hereby unconditionally
and irrevocably pledges, grants and hypothecates to the Secured Party a security
interest in and to, a lien upon, and a right of set-off against, all of its
respective right, title and interest of whatsoever kind and nature in and to the
Collateral (a “Security Interest”
and collectively, the “Security
Interests”).  To the extent there is at any time more than one
Secured Party hereunder, the Collateral will secure the Obligations to the
Secured Party on a pari passu basis, based on the then outstanding amount of
such Obligations.

    

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

    

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

    

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

    

    (b) The
Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of their
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule A attached
hereto.  The Debtors own of record, subject only to Permitted
Encumbrances (as defined in the Notes), the real property where such Collateral
is located, as identified on Schedule
A.  Except as disclosed on Schedule A, none of such
Collateral is in the possession of any consignee, bailee, warehouseman, agent or
processor.

    

    (c) Except
for Permitted Encumbrances and except as set forth on Schedule B attached
hereto, the Debtors are the sole owners of the Collateral, free and clear of any
liens, security interests, encumbrances, rights or claims, and are fully
authorized to grant the Security Interests.  Except with respect to
Permitted Encumbrances and except as set forth on Schedule B attached
hereto, there is not on file in any governmental or regulatory authority, agency
or recording office an effective financing statement, security agreement,
license or transfer or any notice of any of the foregoing (other than those that
will be filed in favor of the Secured Party pursuant to this Agreement) covering
or affecting any of the Collateral.  Except with respect to Permitted
Encumbrances, except as set forth on Schedule B attached
hereto and except pursuant to this Agreement, as long as this Agreement shall be
in effect, the Debtors shall not execute and shall not knowingly permit to be on
file in any such office or agency any other financing statement or other similar
document or instrument (except to the extent filed or recorded in favor of the
Secured Party pursuant to the terms of this Agreement).

    

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

    

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

     

     

    
      
        
        

      

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

    

    (g) Each
Debtor hereby authorizes the Secured Party to file one or more financing
statements under the UCC with respect to the Security Interests with the proper
filing and recording agencies in any jurisdiction deemed proper by it, which UCC
financing statement may describe the collateral as “All assets”.

    

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

    

    (i) The
capital stock and other equity interests listed on Schedule H hereto
(the “Pledged
Securities”) represent all of the capital stock and other equity
interests in and to the Guarantors and the other subsidiaries of the Company,
and represent all capital stock and other equity interests owned, directly or
indirectly, by the Company.  All of the Pledged Securities are validly
issued, fully paid and nonassessable, and the Company is the legal and
beneficial owner of the Pledged Securities, free and clear of any lien,
security interest or other encumbrance except for the security interests created
by this Agreement and other Permitted Encumbrances.  Each Debtor shall
cause the pledge and security interest of the Secured Party to be duly noted in
its corporate books and records. 

    

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

     

     

     

    
      
        
        

      

      
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    (k) Except
for Permitted Encumbrances (as defined in the Notes), each Debtor shall at all
times maintain the liens and Security Interests provided for hereunder as valid
and perfected first priority liens and security interests in the Collateral in
favor of the Secured Party until this Agreement and the Security Interests
hereunder shall be terminated pursuant to Section 14 hereof.  Each
Debtor hereby agrees to defend the same against the claims of any and all
persons and entities and to safeguard and protect all Collateral for the account
of the Secured Party.  At the reasonable request of the Secured Party,
each Debtor will sign and deliver to the Secured Party at any time or from time
to time one or more financing statements pursuant to the UCC in form reasonably
satisfactory to the Secured Party and will pay the cost of filing the same
in all public offices wherever filing is necessary to effect the rights and
obligations provided for herein. Without limiting the generality of the
foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to
maintain the Collateral and the Security Interests hereunder, and each Debtor
shall obtain and furnish to the Secured Party from time to time, upon
demand, such releases and/or subordinations of claims and liens which may be
required to maintain in accordance with this Agreement the priority of the
Security Interests hereunder.

    

    (l) Except
for Permitted Encumbrances (as defined in the Notes), no Debtor will transfer,
pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the
Collateral (except for non-exclusive revocable licenses granted by a Debtor in
its ordinary course of business and sales of inventory by a Debtor in its
ordinary course of business) without the prior written consent of the Secured
Party.

    

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

    

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

    

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

     

     

     

    
      
        
        

      

      
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    (p) Each
Debtor shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Secured Party may from time to time request as necessary to
perfect, protect or enforce the Secured Party’s security interest in the
Collateral (including, without limitation, the execution and delivery of a
separate security agreement with respect to each Debtor’s Intellectual Property
(“Intellectual Property Security
Agreement”) to be delivered on the date hereof) in which the Secured
Party has been granted a security interest hereunder, substantially in a form
reasonably acceptable to the Secured Party. 

    

    (q) Each
Debtor shall permit the Secured Party and its representatives and agents
reasonable access to inspect the Collateral during normal business hours, upon
reasonable prior notice and without undue interference with such Debtor’s
business operations, and to make copies of records pertaining to the Collateral
as may be reasonably requested by the Secured Party from time to
time.

    

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

    

    (s) Each
Debtor shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by such
Debtor that would have a material adverse effect on the value of the Collateral,
the Security Interest or the rights and remedies of the Secured Party
hereunder.

    

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

    

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

    

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

    

    (w) No Debtor
may consign any of its Inventory or sell any of its Inventory on bill and hold,
sale or return, sale on approval, or other conditional terms of sale without the
consent of the Secured Party, which shall not be unreasonably
withheld.

    

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

    

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

    

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

     

     

     

    
      
        
        

      

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    (ii) Each
Debtor shall cause each subsidiary of such Debtor with operations or material
operations (which, if in doubt, shall be in the sole determination of the
Secured Party) to immediately become a party hereto (an “Additional Debtor”),
by executing and delivering an Additional Debtor Joinder in substantially the
form of Annex A
attached hereto and comply with the provisions hereof applicable to the
Debtors.  As of the date hereof, the each Debtor represents and
warrants that none of its subsidiaries have any operations or material assets
(other than the Guarantors).  Concurrent therewith, the Additional
Debtor shall deliver replacement schedules for, or supplements to all other
Schedules to (or referred to in) this Agreement, as applicable, which
replacement schedules shall supersede, or supplements shall modify, the
Schedules then in effect.  The Additional Debtor shall also deliver
such opinions of counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing statements and
other information and documentation as the Secured Party may reasonably
request.  Upon delivery of the foregoing to the Secured Party, the
Additional Debtor shall be and become a party to this Agreement with the same
rights and obligations as the Debtors, for all purposes hereof as fully and to
the same extent as if it were an original signatory hereto and shall be deemed
to have made the representations, warranties and covenants set forth herein as
of the date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.

    

    (jj) Each
Debtor shall vote the Pledged Securities to comply with the covenants and
agreements set forth herein and in the Notes and the other Transaction Documents
(as defined in the Purchase Agreement).

     

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    
 

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

    

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

    

    (mm) Without
limiting the generality of the other obligations of the Debtors hereunder, each
Debtor shall promptly (i) cause to be registered at the United States Copyright
Office all of its material copyrights, (ii) cause the security interest
contemplated hereby with respect to all Intellectual Property registered at the
United States Copyright Office or United States Patent and Trademark Office to
be duly recorded at the applicable office, and (iii) give the Secured
Party notice whenever it acquires (whether absolutely or by license) or
creates any additional material Intellectual Property.  The Debtors
shall take all steps necessary, if permitted by law, to register the Secured
Party’s first property lien on any patents or copyrights (or applications
therefor) filed in any foreign jurisdiction within 60 days of the date hereof
and take any other steps necessary under the laws of such jurisdictions to
perfect the grant of the security interest to the Security Party to secure the
Obligations as contemplated herein.

    

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

    

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

    

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

     

     

     

    
      
        
        

      

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

    

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

    

    
      	
              (a)  

            	
              The occurrence of an Event of
      Default under the Notes;

            

    

    

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

    

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

    

    7. Duty To Hold In
Trust.

    

    (a) Upon the
occurrence and during the continuance of any Event of Default and at any time
thereafter, each Debtor shall, upon receipt of any revenue, income, dividend,
interest or other sums subject to the Security Interests, whether payable
pursuant to the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Party and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured
Party.  

    

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

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    
 

    
      	
              8.  

            	
              Rights and Remedies Upon
      Default.

            

    

    

    (a) Upon the
occurrence of any Event of Default and at any time thereafter, the Secured
Party shall have the right to exercise all of the remedies conferred
hereunder and under the other Transaction Documents, and the Secured Party shall
have all the rights and remedies of a secured party under the
UCC.  Without limitation, the Secured Party shall have the
following rights and powers:

    

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

    

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

    

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

    

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

    

    (v) The Secured
Party, may (but is not obligated to) direct any financial intermediary or any
other person or entity holding any investment property to transfer the same to
the Secured Party, or its designee.

    

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

    

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

     

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

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    9. Applications of Proceeds. The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy insuring any
portion of the Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like
(including, without limitation, any taxes, fees and other costs reasonably
incurred in connection therewith) of the Collateral, to the reasonable
attorneys’ fees and expenses incurred by the Secured Party in enforcing the
Secured Party’s rights hereunder and in connection with collecting, storing and
disposing of the Collateral, and then to satisfaction of the Obligations, and to
the payment of any other amounts required by applicable law, after which the
Secured Party shall pay to the applicable Debtor any surplus proceeds. If, upon
the sale, license or other disposition of the Collateral, the proceeds thereof
are insufficient to pay all amounts to which the Secured Party is legally
entitled, the Debtors will be liable for the deficiency, together with interest
thereon, at the rate of 24.99% per annum or the lesser amount permitted by
applicable law (the “Default Rate”), and
the reasonable fees of any attorneys employed by the Secured Party to collect
such deficiency.  To the extent permitted by applicable law, each
Debtor waives all claims, damages and demands against the Secured Party arising
out of the repossession, removal, retention or sale of the Collateral, unless
due solely to the gross negligence or willful misconduct of the Secured Party as
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction.

    

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

    

    11. Costs and Expenses. Each
Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder, including without
limitation, any financing statements pursuant to the UCC, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured
Party.  The Debtors shall also pay all other claims and charges which
would be reasonably likely to prejudice, imperil or otherwise affect the
Collateral or the Security Interests therein.  The Debtors will also,
upon demand, pay to the Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Secured Party, may incur in connection with
(i) the enforcement of this Agreement, (ii) the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the Collateral,
or (iii) the exercise or enforcement of any of the rights of the Secured Party
under the Notes and the other Transaction Documents. Until so paid, any fees
payable hereunder shall be added to the principal amount of the Notes and shall
bear interest at the Default Rate.

    

    12. Responsibility for Collateral.
The Debtors assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or its
unavailability for any reason.  Without limiting the generality of the
foregoing, (a) in no event shall the Secured Party (i) have any duty (either
before or after an Event of Default) to collect any amounts in respect of the
Collateral or to preserve any rights relating to the Collateral, or (ii) have
any obligation to clean-up or otherwise prepare the Collateral for sale, and (b)
each Debtor shall remain obligated and liable under each contract or agreement
included in the Collateral to be observed or performed by such Debtor
thereunder.  The Secured Party shall not have any obligation or
liability under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Secured Party of any payment relating to
any of the Collateral, nor shall the Secured Party be obligated in any manner to
perform any of the obligations of any Debtor under or pursuant to any such
contract or agreement, to make inquiry as to the nature or sufficiency of any
payment received by the Secured Party in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Secured Party or to which the Secured Party may be entitled at
any time or times.  The Secured Party shall be entitled, in its sole
discretion, to abandon any and all Collateral and any and all records concerning
the Collateral or any Debtor’s business at any time regardless of whether it has
obtained possession thereof, without any liability or responsibility of any kind
or nature whatsoever to any Debtor.

     

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    
 

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

    

    14. Term of Agreement. This
Agreement and the Security Interests shall terminate on the date on which all
payments under the Notes have been indefeasibly paid or otherwise satisfied in
full (including by way of conversion of the Notes) and all other Obligations
have been paid or discharged (other than contingent indemnification
obligations).

    

    15. Power of Attorney; Further
Assurances.

    

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

    

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

    

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

     

     

     

    
      
        
        

      

      
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    16. Notices. Any demand upon or
notice to the Debtors hereunder shall be effective when delivered by hand or
when properly deposited in the mails postage prepaid, or sent by telex,
answerback received, or electronic facsimile transmission, receipt acknowledged,
or delivered to a telegraph company or overnight courier, in each case addressed
to the Debtor at the address shown below or such other address as the Debtors
may advise the Secured Party in writing.  Any notice by the Debtors to
the Secured Party shall be given as aforesaid, addressed to the Secured Party at
the address shown below or such other address as the Secured Party may advise
the Debtors in writing.

    

                Secured
Party:                           Platinum-Montaur
Life Sciences

       152 West 57th Street,
54th
Floor

       New York,
NY 10019

    

               With
copy
to:                             Burak
Anderson & Melloni, PLC

       30 Main Street, PO
Box 787

       Burlington,
Vermont 05402-0787

       Attention: Shane
W. McCormack, Esq.

       Tel. No.: (802)
862-0500

       Fax No.: (802)
862-8176

    

    Debtors:                                 Urigen
Pharmaceuticals, Inc.

    27 Maiden Lane, Suite 595

    San Francisco,
California 94108

    Attention: William J. Gardener,
MD

                        Tel. No.: (650)
259-0239

                        Fax No.: (650)
259-0901 and (866) 816-1107

     

    With a copy
to:                    Sichenzia
Ross Friedman Ference LLP

    61 Broadway, 32nd
Floor

    New York, New York 10006

    Fax No.: (212) 930-9725

    

     

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

    

    18. Miscellaneous.

    

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

    

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

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    
 

    (c) This
Agreement, together with the exhibits and schedules hereto, the Notes, the
Transaction Documents and the related agreements contemplated hereby and thereby
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into this Agreement and the exhibits and schedules hereto. No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed, in the case of an amendment, by the
Debtors and the Secured Party or, in the case of a waiver, by the party against
whom enforcement of any such waived provision is
sought.  

    

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

    

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

    

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

    

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

    

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

     

     

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    
 

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

    

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

    

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

    

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

    

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

    

    (n) The
Lenders have, pursuant to the Purchase Agreement appointed the Agent, as their
agent for purposes of exercising any and all rights and remedies of the secured
parties hereunder.  Such appointment shall continue until revoked in
writing (with a copy delivered to the Debtors) in accordance with the Purchase
Agreement.

    

    [SIGNATURE
PAGES FOLLOW]

     

     

     

     

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    
 

    

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

    

    DEBTORS:

     

    URIGEN
PHARMACEUTICALS, INC.

     

    
      By: William J. Garner,
M.D. 

      
        
Name:
William J. Garner, M.D.

      Title:
Chief Executive Officer

    

     

     

    URIGEN N.A., INC.

     

     

    
      By:    /s/ Martin E.
Shmagin 

      
        
Name:
Martin E. Shmagin

      Title:
Chief Financial Officer

    

     

     

    SECURED PARTY:

     

    PLATINUM-MONTAUR LIFE SCIENCES,
LLC

     

    By:  /s/Michal M. Goldberg

    
      

      Name: Michael M. Goldberg

    
      Title:
Portfolio Manager

    

     

    SECURED PARTY:

     

    PLATINUM-MONTAUR LIFE SCIENCES,
LLC

     

    
      By: /s/Michal M.
Goldberg

      
        

      

      Name:
Michael M. Goldberg

      Title:
Portfolio Manager

    

     

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

     

     

    SCHEDULE
A

    

    Place of
business and location of Collateral :

    

    Urigen
Pharmaceuticals, Inc.

    27 Maiden
Lane, Suite 595

    San
Francisco, CA 94108

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    SCHEDULE
B

    Other
Owners or Collateral or Lienholders

    

    

    None

     

     

     

     

     

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    
 

    SCHEDULE
C

    

    Delaware

    SCHEDULE
D

    Legal
Names and Organizational Identification Numbers

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	 
      	
                                    NAME

                                  	
                                    STAE
      OF ORGANIZATION

                                  	
                                    ID
      #

                                  	 
      
	 
      	
                                    Urigen
      Pharmaceuticals, Inc.

                                  	
                                    DE

                                  	
                                    4386481

                                  	 
      
	 	 	 	 	 
	 
      	
                                    Urigen
      N.A, Inc.

                                  	
                                    DE

                                  	
                                    4230347

                                  	 
      
	 
      	 
      	 
      	 
      	 
      

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    
 

    SCHEDULE
E

    Names;
Mergers and Acquisitions

    

    Urigen
N.A, Inc. consummated a merger with a wholly owned subsidiary of Valentis, Inc.
on July 13, 1997.

    

    Urigen
Pharmaceuticals, Inc. was formerly known as Valentis, Inc.

     

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

     

     

    SCHEDULE
F

    Intellectual
Property

    

    Patents
and Patent Applications

    

    Patent Filings for
URG101

     

    

     

    
      	
              1.  

            	
              Urigen
      Patent Application

            

    

     

    
      	
              Title:

            	
              “KITS
      AND IMPROVED COMPOSITIONS FOR TREATING LOWER URINARY TRACT
      DISORDERS”

            

    

     

    
      	
              Abstract:

            	
              Superior
      buffered formulations and their kits for treating lower urinary tract
      symptoms and disorders are provided in the invention. In particular
      superior buffered formulations have demonstrated improvement for treating
      lower urinary tract symptoms of patients experiencing severe pain and/or
      urgency of the bladder and associated areas of the lower urinary
      tract.

            

    

     

    
      	
              Inventor:

            	
              FLASHNER
      MICHAEL; FRANKLIN AMIE E; GARNER WILLIAM J; PARSONS C
    LOWELL

            

    

     

    
      	
              Assignee:

            	
              Urigen
      Pharmaceuticals, Inc.

            

    

     

    
      	
              Attorney:

            	
              Benjamin
      Borson, PhD, JD, Borson Law

            

    

     

    
      	
              Priority
      date:

            	
              U.S.
      Provisional Application Ser. No. 60/752,287 filed on Dec. 19, 2005 and PCT
      filing US 2006/001388 Jan. 13, 2006

            

    

     

    Jurisdictions:

     

    
      	
              1.  

            	
              United
      States - pending

            

    

     

    
      	
              2.  

            	
              Australia:
      2006204769 - pending

            

    

     

    
      	
              3.  

            	
              Europe:
      06718460.6 - pending

            

    

     

    
      	
              4.  

            	
              Japan:  -
      pending

            

    

     

    
      	
              5.  

            	
              Korea:
      10-2007-7018672 - pending

            

    

     

    
      	
              6.  

            	
              Canada
      – pending

            

    

     

    

     

    
      	
              2.  

            	
              UCSD
      Patent

            

    

     

    
      	
              Title:

            	
              “NOVEL
      INTERSTITIAL THERAPY FOR IMMEDIATE SYMPTOM RELIEF AND CHRONIC THERAPY IN
      INTERSTITIAL CYSTITIS”

            

    

     

    
      	
              Abstract:

            	
              The
      present invention relates to a disorder of the lower urinary tract, and in
      particular, reducing the symptoms (including treatment) of interstitial
      cystitis in vivo. In a preferred embodiment, the present invention relates
      to treatment formulations and methods for reducing interstitial cystitis
      in patients. In one embodiment, the present invention contemplates a
      composition comprising: a) a heparinoid, b) a local anesthetic, and c) a
      buffering compound.

            

    

     

     

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

     

    
      	
              Inventor:

            	
              C.
      Lowell Parsons

            

    

     

    
      	
              Assignee:

            	
              The
      Regents of the University of
California

            

    

     

    
      	
              Licensee:

            	
              Urigen
      Pharmaceuticals

            

    

     

    
      	
              Attorney:

            	
              Steve
      Reiter, PhD, JD, Foley Lardner LLP

            

    

     

    
      	
              Priority
      date:

            	
              U.S.
      Provisional Application Ser. No. 60/540,186 filed on Jan. 28,
      2004

            

    

     

    Jurisdictions:

     

    
      	
              1.  

            	
              United
      States: US 7,414,039; additional composition of matter claims
      pending

            

    

     

    
      	
              2.  

            	
              Australia:
      AU2005209322 - pending

            

    

     

    
      	
              3.  

            	
              Canada:
      CA2554489 – pending

            

    

     

    
      	
              4.  

            	
              Europe:
      05712839.9 - pending

            

    

     

    

     

    Patent Filings for
URG300

     

    

    
      	
              1.  

            	
              Urigen
      Patent Application

            

    

     

    
      	
              Title:

            	
              Urethral
      Suppositories for Overactive
Bladder

            

    

     

    
      	
              Abstract:

            	
              This
      invention is directed to buffered urethral suppositories for treatment of
      overactive bladder (OAB), and methods for their use.  In
      particular, this invention relates to suppositories incorporating mixed
      anti-cholinergic agents and uses thereof to treat symptoms of overactive
      bladder.

            

    

     

    
      	
              Inventors:

            	
              Amie
      E Franklin, Dennis Giesing

            

    

     

    
      	
              Assignee:

            	
              Urigen
      Pharmaceuticals, Inc.

            

    

     

    
      	
              Attorney:

            	
              Benjamin
      Borson, PhD, JD, Borson Law

            

    

     

    
      	
              Priority
      date:

            	
              United
      States Provisional Patent Application No: 60/891,454, filed February 23,
      2007

            

    

     

    
      	
              Jurisdictions:

            	
              PCT,
      national stage filings not initiated
yet

            

    

     

    

     

    
      	
              2.  

            	
              Kalium
      U. S. Patent licensed by Urigen

            

    

     

    
      	
              Title:

            	
              Method
      of delivering therapeutic agents to the urethra and an urethral
      suppository

            

    

     

    
      	
              Abstract:

            	
              A
      urethral suppository having a shaft shaped for cooperating with the action
      of the periurethral musculature to retain the suppository within the
      urethra, and having a knob extending from an end of the shaft sized to
      prevent over insertion of the suppository. A method of delivering one or
      more therapeutic agents to the urethra and associated structures, the
      method involving insertion of the urethral suppository into the
      urethra.

            

    

     

    
      	
              Inventor:

            	
              Mulholland;
      S. Grant

            

    

     

    
      	
              Assignee:

            	
              Kalium,
      Inc.

            

    

     

    
      	
              Licensee:

            	
              Urigen
      Pharmaceuticals

            

    

     

    
      	
              Attorney:

            	
              Benjamin
      Borson, PhD, JD, Borson Law

            

    

     

    
      	
              Priority
      date:

            	
              November
      10, 1999

            

    

     

    
      	
              Jurisdiction:

            	
              United
      States issued Patent 6,464,670

            

    

     

    

     

    
      	
              3.  

            	
              Kalium
      U.S. Patent licensed by Urigen

            

    

     

    
      	
              Title:

            	
              Reinforced
      urethral suppository

            

    

     

    
      	
              Abstract:

            	
              A
      urethral suppository comprising a non-meltable base member sized to
      prevent insertion of the base member into the urethra, a non-meltable
      reinforcement projecting from the base member, and a meltable portion
      formed around a portion of the
reinforcement.

            

    

     

    
      	
              Inventors:

            	
              Mulholland;
      S. Grant, Zupkas; Paul

            

    

     

    
      	
              Assignee:

            	
              Kalium,
      Inc.

            

    

     

    
      	
              Licensee:

            	
              Urigen
      Pharmaceuticals

            

    

     

    
      	
              Attorney:

            	
              Benjamin
      Borson, PhD, JD, Borson Law

            

    

     

    
      	
              Priority
      date:

            	
              August
      30, 2001

            

    

     

    

     

    
      	
              Jurisdiction:

            	
              United
      States issued Patent 7,267,670

            

    

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    

     

    
      	
              4.  

            	
              Kalium
      Patent Application licensed by
Urigen

            

    

     

    
      	
              Title:

            	
              Transluminal
      drug delivery methods and devices

            

    

     

    
      	
              Abstract:

            	
              A
      urethral suppository include a carrier base material, an anesthetic agent,
      and a buffering agent formed into a solid structure configured for
      insertion into a patient’s urethra for the treatment of interstitial
      cystitis or the prevention of pain prior to a urethral
      procedure.

            

    

     

    
      	
              Inventors:

            	
              C.
      Lowell Parsons, Paul Zupkas

            

    

     

    
      	
              Assignee:

            	
              Kalium,
      Inc.

            

    

     

    
      	
              Licensee:

            	
              Urigen
      Pharmaceuticals, Inc.

            

    

     

    
      	
              Attorney:

            	
              Benjamin
      Borson, PhD, JD, Borson Law

            

    

     

    
      	
              Priority
      date:

            	
              U.S.
      Application Ser. No. 340071 (20070172507) filed on January 26, 2006 and
      U.S. Divisional Application CIP  Ser. No.
      475809  (20070172508)

            

    

     

    Jurisdictions:

     

    
      	
              1.  

            	
              United
      States – pending

            

    

     

    
      	
              2.  

            	
              PCT
      –                      PCT/US2007/061106
      application number, publication No. W0 2007/087624 -
    pending

            

    

     

    

    Trademarks
and Trademark Applications

    

    

    There is
one registered trademark “Urigen” is a word mark, information from USPTO
provided below.

     

    
      	
               
      

            	
              Word
      Mark

            	
              URIGEN

            

    

     

    
      	
              Goods
      and Services

            	
              IC
      005. US 006 018 044 046 051 052. G & S: Pharmaceutical and medicinal
      preparations for the treatment of urological disorders. FIRST USE:
      20060101. FIRST USE IN COMMERCE:
20060101

            

    

     

    
      	
               
      

            	
              Standard
      Characters Claimed

            

    

     

    
      	
              Mark
      Drawing Code

            	
              (4)
      STANDARD CHARACTER MARK

            

    

     

    
      	
               
      

            	
              Serial
      Number

            	
              77014140

            

    

     

    
      	
               
      

            	
              Filing
      Date

            	
              October
      4, 2006

            

    

     

    
      	
              Current
      Filing Basis

            	
              1A

            

    

     

    
      	
              Original
      Filing Basis

            	
              1A

            

    

     

    
      	
              Published
      for Opposition

            	
              November
      6, 2007

            

    

     

    
      	
              Registration
      Number

            	
              3371356

            

    

     

    
      	
              International
      Registration Number

            	
              0921047

            

    

     

    
      	
               
      

            	
              Registration
      Date

            	
              January
      22, 2008

            

    

     

    
      	
               
      

            	
              Owner

            	
              (REGISTRANT)
      Urigen N.A., Inc. CORPORATION DELAWARE Suite 235 875 Mahler Road
      Burlingame CALIFORNIA 94010

            

    

     

    
      	
              Attorney
      of Record

            	
              David
      M. Kohn

            

    

     

    
      	
               
      

            	
              Type
      of Mark

            	
              TRADEMARK

            

    

     

    
      	
               
      

            	
              Register

            	
              PRINCIPAL

            

    

     

    
      	
              Live/Dead
      Indicator

            	
              LIVE

            

    

     

     

     

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

     

    SCHEDULE
G

    Account
Debtors

    

    

    None

    SCHEDULE
H

    Pledged
Securities

    

    

    
      
        
          
            
              
                
                  	
                          Name
      Of Issuer/Guarantor

                        	
                          Type
      of Securities

                        	
                          No.
      of shares

                          owned

                        	
                          Percentage
      of Issuer owned

                        	
                          Stock
      Certificate

                          No.

                        
	
                          Urigen
      N.A, Inc.

                        	
                          Common
      Stock

                        	
                          1

                        	
                          100%

                        	
                          1

                        
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      

                

              

            

          

        

      

    

    

    

    

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    

    

    ANNEX
A

    to

    SECURITY

    AGREEMENT

    

    
      	
               
      

            	
              FORM
      OF ADDITIONAL DEBTOR JOINDER

            

    

    

               Security
Agreement dated as of January 9, 2009 made by Urigen
Pharmaceuticals, Inc., and its subsidiaries party thereto from time to time, as
Debtors to and in favor of the Secured Party identified therein (the
“Security
Agreement”)

    

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

    

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

    

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

    

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

    

    
      	
               
      

            	 

    

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

    

    
      	 	
              [Name
      of Additional Debtor]

            

    

    

    
      	 	
              By:

            

    

    
      	 	
              Name:

            

    

    
      	 	
              Title:

            

    

    

    
      	 	
              Address:

            

    

     

    
      	
               
      

            	
              Dated:

            

    

    

    

     

     

     

    27

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00152-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00152-of-00352.parquet"}]]