Document:

Subscription Agreement June 2005

    EXHIBIT
      10.74

    

     

    SUBSCRIPTION
      AGREEMENT

     

     

    THIS
      SUBSCRIPTION AGREEMENT
      (this
“Agreement”),
      dated
      as of June 23, 2005, by and among Kaire Holdings, Inc., a Delaware corporation
      (the “Company”),
      and
      the subscribers identified on the signature page hereto (each a “Subscriber”
      and
      collectively “Subscribers”).

     

    WHEREAS,
      the
      Company and the Subscribers are executing and delivering this Agreement in
      reliance upon an exemption from securities registration afforded by the
      provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“Commission”)
      under
      the Securities Act of 1933, as amended (the “1933
      Act”).

     

    WHEREAS,
      the
      parties desire that, upon the terms and subject to the conditions contained
      herein, the Company shall issue and sell to the Subscribers, as provided herein,
      and the Subscribers, in the aggregate, shall purchase up to Three Hundred and
      Fifty Thousand Dollars ($350,000) (the "Purchase
      Price")
      of
      principal amount of promissory notes of the Company (“Note”
      or
“Notes”),
      which
      Notes are convertible into shares of the Company's common stock, $.001 par
      value
      (the "Common
      Stock")
      at a
      per share conversion price set forth in the Note; and share purchase warrants
      (the “Warrants”)
      in the
      form attached hereto as Exhibit
      A, to
      purchase shares of Common Stock (the “Warrant
      Shares”).
      The
      Notes, shares of Common Stock issuable upon conversion of the Notes (the
“Shares”),
      the
      Warrants and the Warrant Shares are collectively referred to herein as the
      "Securities";
      and

     

    WHEREAS,
      the
      aggregate proceeds of the sale of the Notes, and the Warrants contemplated
      hereby shall be held in escrow pursuant to the terms of a Funds Escrow Agreement
      to be executed by the parties substantially in the form attached hereto as
      Exhibit
      B
      (the
      "Escrow
      Agreement").

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants and other agreements contained in this
      Agreement the Company and the Subscribers hereby agree as follows:

     

    1. Closing.
      Subject
      to the satisfaction or waiver of the terms and conditions of this Agreement,
      on
      the “Closing
      Date”
      (as
      defined in Section 13(b) hereof), each Subscriber shall purchase and the Company
      shall sell to each Subscriber a Note in the principal amount designated on
      the
      signature page hereto for the consideration set forth on the signature page
      hereto, and the amount of Warrants determined pursuant to Section 3
      below.

     

    2. Security
      Interest.
      The
      Subscribers will be granted a security interest in all the assets of the
      Company, including ownership of Subsidiaries as defined in Section 5(a) of
      this
      Agreement, and the assets of the Subsidiaries to be memorialized in
“Security
      Agreements”,
      forms
      of which are annexed hereto as Exhibit
      C1 and C2.
      The
      Company will execute such other agreements, documents and financing statements
      to be filed at the Company’s expense with such jurisdictions, states and
      counties designated by the Subscribers. The
      Company will also execute all such documents reasonably necessary in the opinion
      of Subscriber to memorialize and further protect the security interest described
      herein. The Subscribers will appoint a Collateral Agent to represent them
      collectively in connection with the security interest to be granted in the
      assets of the Company and Subsidiaries. The appointment will be pursuant to
      a
“Collateral
      Agent Agreement”,
      a form
      of which is annexed hereto as Exhibit
      D.

    

    3. Warrants.
      On the
      Closing Date, the Company will issue and deliver Warrants to the Subscribers.
      One Warrant will be issued for each two Shares issuable on the Closing Date
      assuming the complete conversion of the Note. The exercise price to acquire
      a
      Warrant Share upon exercise of a Warrant shall be equal to $0.04. The Warrants
      shall be exercisable until five years after the Closing Date.

     

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    4. Subscriber's
      Representations and Warranties.
      Each
      Subscriber hereby represents and warrants to and agrees with the Company only
      as
      to such Subscriber that:

    

    (a) Organization
      and Standing of the Subscribers.
      If the
      Subscriber is an entity, such Subscriber is a corporation, partnership or other
      entity duly incorporated or organized, validly existing and in good standing
      under the laws of the jurisdiction of its incorporation or
      organization.

    

    (b) Authorization
      and Power.
      Each
      Subscriber has the requisite power and authority to enter into and perform
      this
      Agreement and to purchase the Notes and Warrants being sold to it hereunder.
      The
      execution, delivery and performance of this Agreement by such Subscriber and
      the
      consummation by it of the transactions contemplated hereby and thereby have
      been
      duly authorized by all necessary corporate or partnership action, and no further
      consent or authorization of such Subscriber or its Board of Directors,
      stockholders, partners, members, as the case may be, is required. This Agreement
      has been duly authorized, executed and delivered by Subscriber and constitutes,
      or shall constitute when executed and delivered, a valid and binding obligation
      of the Subscriber enforceable against the Subscriber in accordance with the
      terms thereof.

    (c) No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the consummation
      by
      Subscriber of the transactions contemplated hereby or relating hereto do not
      and
      will not (i) result in a violation of such Subscriber’s charter documents or
      bylaws or other organizational documents or (ii) conflict with, or constitute
      a
      default (or an event which with notice or lapse of time or both would become
      a
      default) under, or give to others any rights of termination, amendment,
      acceleration or cancellation of any agreement, indenture or instrument or
      obligation to which such Subscriber is a party or by which its properties or
      assets are bound, or result in a violation of any law, rule, or regulation,
      or
      any order, judgment or decree of any court or governmental agency applicable
      to
      such Subscriber or its properties (except for such conflicts, defaults and
      violations as would not, individually or in the aggregate, have a material
      adverse effect on such Subscriber). Such Subscriber is not required to obtain
      any consent, authorization or order of, or make any filing or registration
      with,
      any court or governmental agency in order for it to execute, deliver or perform
      any of its obligations under this Agreement or to purchase the Notes or acquire
      the Warrants in accordance with the terms hereof, provided that for purposes
      of
      the representation made in this sentence, such Subscriber is assuming and
      relying upon the accuracy of the relevant representations and agreements of
      the
      Company herein.

    

    (d) Information
      on Company.
      The
      Subscriber has been furnished with or has had access at the EDGAR Website of
      the
      Commission to the Company's Form 10-KSB for the year ended December 31, 2004
      as
      filed with the Commission, together with all subsequently filed Forms 10-QSB,
      8-K, and filings made with the Commission available at the EDGAR website
      (hereinafter referred to collectively as the "Reports").
      The
      Subscriber has had an opportunity to ask questions and receive answers from
      representatives of the Company. In addition, the Subscriber has received in
      writing from the Company such other information concerning its operations,
      financial condition and other matters as the Subscriber has requested in writing
      (such other information is collectively, the "Other
      Written Information"),
      and
      considered all factors the Subscriber deems material in deciding on the
      advisability of investing in the Securities. 

     

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    (e) Information
      on Subscriber.
      The
      Subscriber is, and will be at the time of the conversion of the Notes and
      exercise of the Warrants, an "accredited
      investor",
      as
      such term is defined in Regulation D promulgated by the Commission under the
      1933 Act, is experienced in investments and business matters, has made
      investments of a speculative nature and has purchased securities of United
      States publicly-owned companies in private placements in the past and, with
      its
      representatives, has such knowledge and experience in financial, tax and other
      business matters as to enable the Subscriber to utilize the information made
      available by the Company to evaluate the merits and risks of and to make an
      informed investment decision with respect to the proposed purchase, which
      represents a speculative investment. The Subscriber has the authority and is
      duly and legally qualified to purchase and own the Securities. The Subscriber
      is
      able to bear the risk of such investment for an indefinite period and to afford
      a complete loss thereof. The information set forth on the signature page hereto
      regarding the Subscriber is accurate.

    (f) Purchase
      of Notes and Warrants.
      On the
      Closing Date, the Subscriber will purchase the Notes and Warrants as principal
      for its own account for investment only and not with a view toward, or for
      resale in connection with, the public sale or any distribution
      thereof.

    (g) Compliance
      with Securities Act.
       The
      Subscriber understands and agrees that the Securities have not been registered
      under the 1933 Act or any applicable state securities laws, by reason of their
      issuance in a transaction that does not require registration under the 1933
      Act
      (based in part on the accuracy of the representations and warranties of
      Subscriber contained herein), and that such Securities must be held indefinitely
      unless a subsequent disposition is registered under the 1933 Act or any
      applicable state securities laws or is exempt from such
      registration.

    (h) Shares
      Legend.
      The
      Shares and the Warrant Shares shall bear the following or similar
      legend:

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

    (i) Warrants
      Legend.
      The
      Warrants shall bear the following 

    or
      similar legend:

     

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

    

    (j) Note
      Legend.
      The
      Note shall bear the following legend:

     

    "THIS
      NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
      COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
      FOR
      SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
      STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
      SATISFACTORY TO KAIRE HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT
      REQUIRED."

     

    (k) Communication
      of Offer.
      The
      offer to sell the Securities was directly communicated to the Subscriber by
      the
      Company. At no time was the Subscriber presented with or solicited by any
      leaflet, newspaper or magazine article, radio or television advertisement,
      or
      any other form of general advertising or solicited or invited to attend a
      promotional meeting otherwise than in connection and concurrently with such
      communicated offer.

     

    (l) Authority;
      Enforceability.
      This
      Agreement and other agreements delivered together with this Agreement or in
      connection herewith have been duly authorized, executed and delivered by the
      Subscriber and are valid and binding agreements enforceable in accordance with
      their terms, subject to bankruptcy, insolvency, fraudulent transfer,
      reorganization, moratorium and similar laws of general applicability relating
      to
      or affecting creditors’ rights generally and to general principles of equity;
      and Subscriber has full corporate power and authority necessary to enter into
      this Agreement and such other agreements and to perform its obligations
      hereunder and under all other agreements entered into by the Subscriber relating
      hereto.

    

    (m) Restricted
      Securities.
      Subscriber understands that the Securities have not been registered under the
      1933 Act and such Subscriber will not sell, offer to sell, assign, pledge,
      hypothecate or otherwise transfer any of the Securities unless pursuant to
      an
      effective registration statement under the 1933 Act, or unless an exemption
      from
      registration is available. Notwithstanding anything to the contrary contained
      in
      this Agreement, such Subscriber may transfer (without restriction and without
      the need for an opinion of counsel) the Securities to its Affiliates (as defined
      below) provided that each such Affiliate is an “accredited investor” under
      Regulation D and such Affiliate agrees to be bound by the terms and conditions
      of this Agreement. For the purposes of this Agreement, an “Affiliate”
      of any
      person or entity means any other person or entity directly or indirectly
      controlling, controlled by or under direct or indirect common control with
      such
      person or entity. Affiliate includes each subsidiary of the Company. For
      purposes of this definition, “control”
      means
      the power to direct the management and policies of such person or firm, directly
      or indirectly, whether through the ownership of voting securities, by contract
      or otherwise.

    

    (n) No
      Governmental Review.
      Each
      Subscriber understands that no United States federal or state agency or any
      other governmental or state agency has passed on or made recommendations or
      endorsement of the Securities or the suitability of the investment in the
      Securities nor have such authorities passed upon or endorsed the merits of
      the
      offering of the Securities.

    

    (o) Correctness
      of Representations.
      Each
      Subscriber represents as to such Subscriber that the foregoing representations
      and warranties are true and correct as of the date hereof and, unless a
      Subscriber otherwise notifies the Company prior to the Closing Date shall be
      true and correct as of the Closing Date.

     

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    (p) Survival.
      The
      foregoing representations and warranties shall survive the Closing Date for
      a
      period of three years.

     

    5. Company
      Representations and Warranties.
      The
      Company represents and warrants to and agrees with each Subscriber
      that:

     

    (a) Due
      Incorporation.
      The
      Company and each of its Subsidiaries is a corporation or other entity duly
      incorporated or organized, validly existing and in good standing under the
      laws
      of the jurisdiction of its incorporation or organization and has the requisite
      corporate power to own its properties and to carry on its business as
presently
      conducted. The Company and each of its Subsidiaries is duly qualified as a
      foreign corporation to do business and is in good standing in each jurisdiction
      where the nature of the business conducted or property owned by it makes such
      qualification necessary, other than those jurisdictions in which the failure
      to
      so qualify would not have a Material Adverse Effect. For purposes of this
      Agreement, a “Material
      Adverse Effect”
      shall
      mean a material adverse effect on the financial condition, results of
      operations, properties or business of the Company and its Subsidiaries taken
      as
      a whole. For purposes of this Agreement, “Subsidiary”
      means,
      with respect to any entity at any date, any corporation, limited or general
      partnership, limited liability company, trust, estate, association, joint
      venture or other business entity of which more than 50% of (i) the
      outstanding capital stock having (in the absence of contingencies) ordinary
      voting power to elect a majority of the board of directors or other managing
      body of such entity, (ii) in the case of a partnership or limited liability
      company, the interest in the capital or profits of such partnership or limited
      liability company or (iii) in the case of a trust, estate, association,
      joint venture or other entity, the beneficial interest in such trust, estate,
      association or other entity business is, at the time of determination, owned
      or
      controlled directly or indirectly through one or more intermediaries, by such
      entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
      5(a)
      hereto.

     

    (b) Outstanding
      Stock.
      All
      issued and outstanding shares of capital stock of the Company has been duly
      authorized and validly issued and are fully paid and nonassessable.

     

    (c) Authority;
      Enforceability.
      This
      Agreement, the Note, the Warrants, the Escrow Agreement, Security Agreements
      and
      Collateral Agent Agreement, and any other agreements delivered together with
      this Agreement or in connection herewith (collectively “Transaction
      Documents”)
      have
      been duly authorized, executed and delivered by the Company and are valid and
      binding agreements enforceable in accordance with their terms, subject to
      bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
      similar laws of general applicability relating to or affecting creditors' rights
      generally and to general principles of equity. The Company has full corporate
      power and authority necessary to enter into and deliver the Transaction
      Documents and to perform its obligations thereunder.

     

    (d) Additional
      Issuances.
      There
      are no outstanding agreements or preemptive or similar rights affecting the
      Company's common stock or equity and no outstanding rights, warrants or options
      to acquire, or instruments convertible into or exchangeable for, or agreements
      or understandings with respect to the sale or issuance of any shares of common
      stock or equity of the Company or other equity interest in any of the
      Subsidiaries of the Company except as described on Schedule
      5(d).

     

    (e) Consents.
      No
      consent, approval, authorization or order of any court, governmental agency
      or
      body or arbitrator having jurisdiction over the Company, or any of its
      Affiliates, the Bulletin Board nor the Company's shareholders is required for
      the execution by the Company of the Transaction Documents and compliance and
      performance by the Company of its obligations under the Transaction Documents,
      including, without limitation, the issuance and sale of the
      Securities.

     

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    (f) No
      Violation or Conflict.
      Assuming the representations and warranties of the Subscribers in Section 4
      are
      true and correct, neither the issuance and sale of the Securities nor the
      performance of the Company’s obligations under this Agreement and all other
      agreements entered into by the Company relating thereto by the Company
      will:

     

    (i) violate,
      conflict with, result in a breach of, or constitute a default (or an event
      which
      with the giving of notice or the lapse of time or both would be reasonably
      likely to constitute a default) under (A) the articles or certificate of
      incorporation, charter or bylaws of the Company, (B) to the Company's knowledge,
      any decree, judgment, order, law, treaty, rule, regulation or determination
      applicable to the Company of any court, governmental agency or body, or
      arbitrator having jurisdiction over the Company or over the properties or assets
      of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
      note or any other evidence of indebtedness, or any agreement, stock option
      or
      other similar plan, indenture, lease, mortgage, deed of trust or other
      instrument to which the Company or any of its Affiliates is a party, by which
      the Company or any of its Affiliates is bound, or to which any of the properties
      of the Company or any of its Affiliates is subject, or (D) the terms of any
      "lock-up" or similar provision of any underwriting or similar agreement to
      which
      the Company, or any of its Affiliates is a party except the violation, conflict,
      breach, or default of which would not have a Material Adverse Effect;
      or

     

    (ii) result
      in
      the creation or imposition of any lien, charge or encumbrance upon the
      Securities or any of the assets of the Company or any of its Affiliates except
      as described herein; or

     

    (iii) result
      in
      the activation of any anti-dilution rights or a reset or repricing of any debt
      or security instrument of any other creditor or equity holder of the Company,
      nor result in the acceleration of the due date of any obligation of the Company;
      or

     

    (iv) result
      in
      the activation of any piggy-back registration rights of any person or entity
      holding securities of the Company or having the right to receive securities
      of
      the Company.

     

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    (g) The
      Securities.
      The
      Securities upon issuance:

     

    (i) are,
      or
      will be, free and clear of any security interests, liens, claims or other
      encumbrances, subject to restrictions upon transfer under the 1933 Act and
      any
      applicable state securities laws;

    

    (ii) have
      been, or will be, duly and validly authorized and on the date of issuance of
      the
      Shares and upon exercise of the Warrants, the Shares and Warrant Shares will
      be
      duly and validly issued, fully paid and nonassessable or if registered pursuant
      to the 1933 Act, and resold pursuant to an effective registration statement
      will
      be free trading and unrestricted);

     

    (iii) will
      not
      have been issued or sold in violation of any preemptive or other similar rights
      of the holders of any securities of the Company;

     

    (iv) will
      not
      subject the holders thereof to personal liability by reason of being such
      holders; and

     

    (v) assuming
      the representations warranties of the Subscribers as set forth in Section 4
      hereof are true and correct, will not result in a violation of Section 5 under
      the 1933 Act.

     

    (h) Litigation.
      There
      is no pending or, to the best knowledge of the Company, threatened action,
      suit,
      proceeding or investigation before any court, governmental agency or body,
      or
      arbitrator having jurisdiction over the Company, or any of its Affiliates that
      would affect the execution by the Company or the performance by the Company
      of
      its obligations under the Transaction Documents. Except as disclosed in the
      Reports and schedules hereto, there is no pending or, to the best knowledge
      of
      the Company, basis for or threatened action, suit, proceeding or investigation
      before any court, governmental agency or body, or arbitrator having jurisdiction
      over the Company, or any of its Affiliates which litigation if adversely
      determined would have a Material Adverse Effect.

     

    (i) Reporting
      Company.
      The
      Company is a publicly-held company subject to reporting obligations pursuant
      to
      Section 13 of the 1934
      Act
      and has
      a class of common shares registered pursuant to Section 12(g) of the 1934 Act.
      Pursuant to the provisions of the 1934 Act, the Company has filed all reports
      and other materials required to be filed thereunder with the Commission during
      the preceding twelve months.

     

    (j) No
      Market Manipulation.
      The
      Company and its Affiliates have not taken, and will not take, directly or
      indirectly, any action designed to, or that might reasonably be expected to,
      cause or result in stabilization or manipulation of the price of the Common
      Stock to
      facilitate the sale or resale of the Securities or affect the price at which
      the
      Securities may be issued or resold.

     

    (k) Information
      Concerning Company.
      The
      Reports contain all material information relating to the Company and its
      operations and financial condition as of their respective dates which
      information is required to be disclosed therein. Since the date of the financial
      statements included in the Reports, and except as modified in the Other Written
      Information or in the Schedules hereto, there has been no Material Adverse
      Event
      relating to the Company's business, financial condition or affairs not disclosed
      in the Reports. The Reports do not contain any untrue statement of a material
      fact or omit to state a material fact required to be stated therein or necessary
      to make the statements therein not misleading in light of the circumstances
      when
      made.

     

    (l) Stop
      Transfer.
      The
      Company will not issue any stop transfer order or other order impeding the
      sale,
      resale or delivery of any of the Securities, except as may be required by any
      applicable federal or state securities laws and unless contemporaneous notice
      of
      such instruction is given to the Subscriber.

     

    (m) Defaults.
      The
      Company is not in violation of its articles of incorporation or bylaws. Except
      as described on Schedule
      5(q),
      the
      Company is (i) not in default under or in violation of any other material
      agreement or instrument to which it is a party or by which it or any of its
      properties are bound or affected, which default or violation would have a
      Material Adverse Effect,
      (ii)
      not in default with respect to any order of any court, arbitrator or
      governmental body or subject to or party to any order of any court or
      governmental authority arising out of any action, suit or proceeding under
      any
      statute or other law respecting antitrust, monopoly, restraint of trade, unfair
      competition or similar matters, or (iii) to the Company’s knowledge not in
      violation of any statute, rule or regulation of any governmental authority
      which
      violation would have a Material Adverse Effect.

     

    (n) No
      Integrated Offering.
      Neither
      the Company, nor any of its Affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales of any security
      or
      solicited any offers to buy any security under circumstances that would cause
      the offer of the Securities pursuant to this Agreement to be integrated with
      prior offerings by the Company for purposes of the 1933 Act or any applicable
      stockholder approval provisions, including, without limitation, under the rules
      and regulations of the Bulletin Board. Nor will the Company or any of its
      Affiliates take any action or steps that would cause the offer or issuance
      of
      the Securities to be integrated with other offerings. The Company will not
      conduct any offering other than the transactions contemplated hereby that will
      be integrated with the offer or issuance of the Securities.

     

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    (o) No
      General Solicitation.
      Neither
      the Company, nor any of its Affiliates, nor to its knowledge, any person acting
      on its or their behalf, has engaged in any form of general solicitation or
      general advertising (within the meaning of Regulation D under the 1933 Act)
      in
      connection with the offer or sale of the Securities.

     

    (p) Listing.
      The
      Common Stock is quoted on the OTC Bulletin Board (“Bulletin
      Board”).
      The
      Company has not received any oral or written notice that the Common Stock is
      not
      eligible nor will become ineligible for quotation on the Bulletin Board nor
      that
      the Common Stock does not meet all requirements for the continuation of such
      quotation and the Company satisfies all the requirements for the continued
      quotation of the Common Stock on the Bulletin Board.

     

    (q) No
      Undisclosed Liabilities.
      The
      Company has no liabilities or obligations which are material, individually
      or in
      the aggregate, which are not disclosed in the Reports and Other Written
      Information, other than those incurred in the ordinary course of the Company’s
      businesses since December 31, 2004 and which, individually or in the aggregate,
      would reasonably be expected to have a Material Adverse Effect,
      except
      as disclosed on Schedule
      5(q).

     

    (r) No
      Undisclosed Events or Circumstances.
      Since
      December 31, 2004, no event or circumstance has occurred or exists with respect
      to the Company or its businesses, properties, operations or financial condition,
      that, under applicable law, rule or regulation, requires public disclosure
      or
      announcement prior to the date hereof by the Company but which has not been
      so
      publicly announced or disclosed in the Reports.

     

    (s)  Capitalization.
      The
      authorized and outstanding capital stock of the Company as of the date of this
      Agreement and the Closing Date (not including the Securities) are set forth
      on
Schedule
      5(d).
      Except
      as set forth on Schedule
      5(d),
      there
      are no options, warrants, or rights to subscribe to, securities, rights or
      obligations convertible into or exchangeable for or giving any right to
      subscribe for any shares of capital stock of the Company or any of its
      Subsidiaries. All of the outstanding shares of Common Stock of the Company
      have
      been duly and validly authorized and issued and are fully paid and
      nonassessable.

     

    (t)  Dilution.
      The
      Company's executive officers and directors understand the nature of the
      Securities being sold hereby and recognize that the issuance of the Securities
      will have a potential dilutive effect on the equity holdings of other holders
      of
      the Company’s equity or rights to receive equity of the Company. The board of
      directors of the Company has concluded, in its good faith business judgment
      that
      the issuance of the Securities is in the best interests of the Company. The
      Company specifically acknowledges that its obligation to issue the Shares upon
      conversion of the Notes, and the Warrant Shares upon exercise of the Warrants
      is
      binding upon the Company and enforceable regardless of the dilution such
      issuance may have on the ownership interests of other shareholders of the
      Company or parties entitled to receive equity of the Company.

     

    (u)  No
      Disagreements with Accountants and Lawyers.
      There
      are no disagreements of any kind presently existing, or reasonably anticipated
      by the Company to arise, between the Company and the accountants and lawyers
      formerly or presently employed by the Company, including but not limited to
      disputes or conflicts over payment owed to such accountants and
      lawyers.

     

    8

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
 

    (v) DTC
      Status.
      The
      Company’s transfer agent is a participant in and the Common Stock is eligible
      for transfer pursuant to the Depository Trust Company Automated Securities
      Transfer Program.

    

    (w) Investment
      Company.
      Neither
      the Company nor any Affiliate is an “investment company” within the meaning of
      the Investment Company Act of 1940, as amended.

    

    (x) Subsidiary
      Representations.
      The
      Company makes each of the representations contained in Sections 5(a), (b),
      (d),
      (f), (h), (k), (m), (q) through (s), (u) and (w) of this Agreement, as same
      relate to each Subsidiary of the Company.

    

    (y) Company
      Predecessor.
      All
      representations made by or relating to the Company of a historical or
      prospective nature and all undertaking described in Sections 9.1(g) through
      9.1(l) shall relate and refer to the Company, its predecessors, and the
      Subsidiaries.

    

    (z) Correctness
      of Representations.
      The
      Company represents that the foregoing representations and warranties are true
      and correct as of the date hereof in all material respects, and, unless the
      Company otherwise notifies the Subscribers prior to the Closing Date, shall
      be
      true and correct in all material respects as of the Closing Date.

     

    (AA) Survival.
      The
      foregoing representations and warranties shall survive the Closing Date for
      a
      period of three years.

     

    6. Regulation
      D Offering.
      The
      offer and issuance of the Securities to the Subscribers is being made pursuant
      to the exemption from the registration provisions of the 1933 Act afforded
      by
      Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
      D
      promulgated thereunder. On the Closing Date, the Company will provide an opinion
      reasonably acceptable to Subscriber from the Company's legal counsel opining
      on
      the availability of an exemption from registration under the 1933 Act as it
      relates to the offer and issuance of the Securities and other matters reasonably
      requested by Subscribers. A form of the legal opinion is annexed hereto as
      Exhibit
      E.
      The
      Company will provide, at the Company's expense, such other legal opinions in
      the
      future as are reasonably necessary for the issuance and/or resale of the Common
      Stock issuable upon conversion of the Notes and exercise of the Warrants
      pursuant to an effective registration statement.

    

    7.1. Conversion
      of Note.

    

    (a) Upon
      the
      conversion of a Note or part thereof, the Company shall, at its own cost and
      expense, take all necessary action, including obtaining and delivering, an
      opinion of counsel to assure that the Company's transfer agent shall issue
      stock
      certificates in the name of Subscriber (or its nominee) or such other persons
      as
      designated by Subscriber and in such denominations to be specified at conversion
      representing the number of shares of Common Stock issuable upon such conversion.
      The Company warrants that no instructions other than these instructions have
      been or will be given to the transfer agent of the Company's Common Stock and
      that, unless waived by the Subscriber, the Shares will be free-trading, and
      freely transferable, and will not contain a legend restricting the resale or
      transferability of the Shares provided the Shares are being sold pursuant to
      an
      effective registration statement covering the Shares or are otherwise exempt
      from registration. 

     

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    (b) Subscriber
      will give notice of its decision to exercise its right to convert the Note,
      interest, any sum due to the Subscriber under the Transaction Documents
      including Liquidated Damages, or part thereof by telecopying an executed and
      completed Notice of Conversion (a form of which is annexed as Exhibit
      A
      to the
      Note) to the Company via confirmed telecopier transmission or otherwise pursuant
      to Section 13(a) of this Agreement. The Subscriber will not be
      required to surrender the Note
      until
      the Note has been fully converted or satisfied. Each date on which a Notice
      of
      Conversion is telecopied to the Company in accordance with the provisions hereof
      shall be deemed a Conversion
      Date.
      The
      Company will itself or cause the Company’s transfer agent to transmit the
      Company's Common Stock certificates representing the Shares issuable upon
      conversion of the Note to the Subscriber via express courier for receipt by
      such
      Subscriber within three (3) business days after receipt by the Company of the
      Notice of Conversion (such third day being the "Delivery
      Date").
      In
      the event the Shares are electronically transferable, then delivery of the
      Shares must
      be made
      by electronic transfer provided request for such electronic transfer has been
      made by the Subscriber
      and the Subscriber has complied with all applicable securities laws in
      connection with the sale of the Common Stock, including, without limitation,
      the
      prospectus delivery requirements. A Note representing the balance of the Note
      not so converted will be provided by the Company to the Subscriber if requested
      by Subscriber, provided the Subscriber delivers the
      original Note to the Company. In the event that a Subscriber elects not to
      surrender a Note for reissuance upon partial payment or conversion, the
      Subscriber hereby indemnifies the Company against any and all loss or damage
      attributable to a third-party claim in an amount in excess of the actual amount
      then due under the Note.

    

    (c) The
      Company understands that a delay in the delivery of the Shares in the form
      required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
      described in Section 7.2 hereof, respectively after the Delivery Date or the
      Mandatory Redemption Payment Date (as hereinafter defined) could result in
      economic loss to the Subscriber. As compensation to the Subscriber for such
      loss, the Company agrees to pay (as liquidated damages and not as a penalty)
      to
      the Subscriber for late issuance of Shares in the form required pursuant to
      Section 7.1 hereof upon Conversion of the Note in the amount of $100 per
      business day after the Delivery Date for each $10,000 of Note principal amount
      being converted of the corresponding Shares which are not timely delivered.
      The
      Company shall pay any payments incurred under this Section in immediately
      available funds upon demand. Furthermore, in addition to any other remedies
      which may be available to the Subscriber, in the event that the Company fails
      for any reason to effect delivery of the Shares by the Delivery Date or make
      payment by the Mandatory Redemption Payment Date, the Subscriber will be
      entitled to revoke all or part of the relevant Notice of Conversion or rescind
      all or part of the notice of Mandatory Redemption by delivery of a notice to
      such effect to the Company whereupon the Company and the Subscriber shall each
      be restored to their respective positions immediately prior to the delivery
      of
      such notice, except that the liquidated damages described above shall be payable
      through the date notice of revocation or rescission is given to the
      Company.

    

    (d) Nothing
      contained herein or in any document referred to herein or delivered in
      connection herewith shall be deemed to establish or require the payment of
      a
      rate of interest or other charges in excess of the maximum permitted by
      applicable law. In the event that the rate of interest or dividends required
      to
      be paid or other charges hereunder exceed the maximum permitted by such law,
      any
      payments in excess of such maximum shall be credited against amounts owed by
      the
      Company to the Subscriber and thus refunded to the Company.

     

    10

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
 

    7.2. Mandatory
      Redemption at Subscriber’s Election.
      In the
      event the Company is prohibited from issuing Shares, or fails to timely deliver
      Shares on a Delivery Date, or upon the occurrence of any other Event of Default
      (as defined in the Note or in this Agreement) that is not cured during any
      applicable cure period and an additional ten days thereafter, then at the
      Subscriber's election, the Company must pay to the Subscriber ten (10) business
      days after request by the Subscriber, at the Subscriber’s election, a sum of
      money determined by (i) multiplying up to the outstanding principal amount
      of
      the Note designated by the Subscriber by 115%, or (ii) multiplying the number
      of
      Shares otherwise deliverable upon conversion of an amount of Note principal
      and/or interest designated by the Subscriber (with the date of giving of such
      designation being a “Deemed
      Conversion Date”)
      at the
      then Conversion Price that would be in effect on the Deemed Conversion Date
      by
      the highest closing price of the Common Stock on the principal market for the
      period commencing on the Deemed Conversion Date until the day prior to the
      receipt of the Mandatory Redemption Payment, whichever is greater, together
      with
      accrued but unpaid interest thereon and any other sums arising and outstanding
      under the Transaction Documents ("Mandatory
      Redemption Payment").
      The
      Mandatory Redemption Payment must be received by the Subscriber on the same
      date
      as the Company Shares otherwise deliverable or within ten (10) business days
      after request, whichever is sooner ("Mandatory
      Redemption Payment Date").
      Upon
      receipt of the Mandatory Redemption Payment, the corresponding Note principal
      and interest will be deemed paid and no longer outstanding. Liquidated damages
      calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued
      for
      the twenty day period prior to the actual receipt of the Mandatory Redemption
      Payment by the Subscriber shall be credited against the Mandatory Redemption
      Payment calculated pursuant to subsections (i) and (ii) above of this Section
      7.2. In the event of a “Change
      in Control”
      (as
      defined below), the Subscriber may demand, and the Company shall pay, a
      Mandatory Redemption Payment equal to 115% of the outstanding principal amount
      of the Note designated by the Subscriber together with accrued but unpaid
      interest thereon and any other sums arising and outstanding under the
      Transaction Documents. For purposes of this Section 7.2, “Change
      in Control”
      shall
      mean (i) the Company no longer having a class of shares publicly tradable and
      listed on a Principal Market, (ii) the Company becoming a Subsidiary of another
      entity or merging into or with another entity, (iii) a majority of the board
      of
      directors of the Company as of the Closing Date no longer serving as directors
      of the Company, other than due to natural causes, (iv) if the holders of the
      Company’s Common Stock as of the Closing Date beneficially owning at any time
      after the Closing Date less than thirty-five percent of the Common stock owned
      by them on the Closing Date, or (v) the sale, lease, license or transfer of
      substantially all the assets of the Company or Subsidiaries.

    

    7.3. Maximum
      Conversion.
      The
      Subscriber shall not be entitled to convert on a Conversion Date that amount
      of
      the Note in connection with that number of shares of Common Stock which would
      be
      in excess of the sum of (i) the number of shares of common stock beneficially
      owned by the Subscriber and its Affiliates on a Conversion Date, and (ii) the
      number of shares of Common Stock issuable upon the conversion of the Note with
      respect to which the determination of this provision is being made on a
      Conversion Date, which would result in beneficial ownership by the Subscriber
      and its Affiliates of more than 4.99% of the outstanding shares of common stock
      of the Company on such Conversion Date. For the purposes of the provision to
      the
      immediately preceding sentence, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
      Subscriber shall not be limited to aggregate conversions of only 4.99% and
      aggregate conversions by the Subscriber may exceed 4.99%. The Subscriber may
      waive the conversion limitation described in this Section 7.3, in whole or
      in
      part, or increase the permitted beneficial ownership amount upon and effective
      after 61 days prior written notice to the Company. The Subscriber may allocate
      which of the equity of the Company deemed beneficially owned by the Subscriber
      shall be included in the 4.99% amount described above and which shall be
      allocated to the excess above 4.99%.

    

    7.4. Injunction
      Posting of Bond.
      In the
      event a Subscriber shall elect to convert a Note or part thereof or exercise
      the
      Warrant in whole or in part, the Company may not refuse conversion or exercise
      based on any claim that such Subscriber or any one associated or affiliated
      with
      such Subscriber has been engaged in any violation of law, or for any other
      reason, unless, an injunction from a court, on notice, restraining and or
      enjoining conversion of all or part of such Note or exercise of all or part
      of
      such Warrant shall have been sought and obtained by the Company 
      and the
      Company has posted a surety bond for the benefit of such Subscriber in the
      amount of 120% of the amount of the Note, or aggregate purchase price of the
      Warrant Shares which are sought to be subject to the injunction, 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 Subscriber to the
      extent Subscriber obtains judgment.

     

    11

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
 

    7.5. Buy-In.
      In
      addition to any other rights available to the Subscriber, if the Company fails
      to deliver to the Subscriber such shares issuable upon conversion of a Note
      by
      the Delivery Date and if after seven (7) business days after the Delivery Date
      the Subscriber purchases (in an open market transaction or otherwise) shares
      of
      Common Stock to deliver in satisfaction of a sale by such Subscriber of the
      Common Stock which the Subscriber was entitled to receive upon such conversion
      (a "Buy-In"),
      then
      the Company shall pay in cash to the Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) the
      Subscriber's total purchase price (including brokerage commissions, if any)
      for
      the shares of Common Stock so purchased exceeds (B) the aggregate principal
      and/or interest amount of the Note for which such conversion was not timely
      honored,
      together with interest thereon at a rate of 15% per annum, accruing until such
      amount and any accrued interest thereon is paid in full (which amount shall
      be
      paid as liquidated damages and not as a penalty). For
      example, if the Subscriber purchases shares of Common Stock having a total
      purchase price of $11,000 to cover a Buy-In with respect to an attempted
      conversion of $10,000 of note principal and/or interest, the Company shall
      be
      required to pay the Subscriber $1,000,
      plus interest. The
      Subscriber shall provide the Company written notice indicating the amounts
      payable to the Subscriber in respect of the Buy-In.

    

    7.6 Adjustments.
      The
      Conversion Price, Warrant exercise price and amount of Shares issuable upon
      conversion of the Notes and exercise of the Warrants shall be equitably adjusted
      and as otherwise described in this Agreement, the Notes and
      Warrants.

     

    7.7. Redemption.
      The
      Note shall not be redeemable or callable except as described in the Note. The
      Warrants shall not be callable or redeemable. 

    

    8. Due
      Diligence/Legal Fees.

     

    (a) Due
      Diligence/Origination Fee.
      On the
      Closing Date, the
      Company will pay a due diligence/origination fee of $20,000 to the Subscribers’
      designee (“Lead
      Investor”)
      identified on Schedule
      8
      hereto
      (“Due
      Diligence Fee”).
      The
      Due Diligence Fee will be payable out of funds held pursuant to the Escrow
      Agreement.

     

    (b) Legal
      Fees.
      The
      Company shall pay to Grushko & Mittman, P.C., a fee of $10,000
      (“Legal
      Fees”)
      as
      reimbursement for services rendered to the Subscribers in connection with this
      Agreement and the purchase and sale of the Notes and Warrants (the “Offering”)
      and
      acting as Escrow Agent for the Offering. The Legal Fees will be payable out
      of
      funds held pursuant to the Escrow Agreement. Grushko & Mittman, P.C. will be
      reimbursed at Closing for all UCC search and filing fees.

     

    9. Covenants
      of the Company.
      The
      Company covenants and agrees with the Subscribers as follows:

     

    (a) Stop
      Orders.
      The
      Company will advise the Subscribers within two hours after the Company receives
      notice of issuance by the Commission, any state securities commission or any
      other regulatory authority of any stop order or of any order preventing or
      suspending any offering of any securities of the Company, or of the suspension
      of the qualification of the Common Stock of the Company for offering or sale
      in
      any jurisdiction, or the initiation of any proceeding for any such
      purpose.

     

    12

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b) Listing.
      The
      Company shall promptly secure the listing of the Shares and the Warrant Shares
      upon each national securities exchange, or electronic or automated quotation
      system upon which they are or become eligible for listing and shall maintain
      such listing so long as any Notes or Warrants are outstanding. The Company
      will
      maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
      SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
      Stock Exchange (whichever of the foregoing is at the time the principal trading
      exchange or market for the Common Stock (the “Principal
      Market”)),
      and
      will comply in all respects with the Company's reporting, filing and other
      obligations under the bylaws or rules of the Principal Market, as applicable.
      The Company will provide the Subscribers copies of all notices it receives
      notifying the Company of the threatened and actual delisting of the Common
      Stock
      from any Principal Market. As of the date of this Agreement and the Closing
      Date, the Bulletin Board is and will be the Principal Market.

     

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

     

    (d) Filing
      Requirements.
      From
      the date of this Agreement and until the sooner of (i) three (3) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitation, the Company will
      (A)
      cause its Common Stock to continue to be registered under Section 12(b) or
      12(g)
      of the 1934 Act, (B) comply in all respects with its reporting and filing
      obligations under the 1934 Act, (C) comply with all reporting requirements
      that
      are applicable to an issuer with a class of shares registered pursuant to
      Section 12(b) or 12(g) of the 1934 Act, as applicable, and (D) comply with
      all
      filing requirements related to any registration statement filed pursuant to
      this
      Agreement. The Company will use its best efforts not to take any action or
      file
      any document (whether or not permitted by the 1933 Act or the 1934 Act or the
      rules thereunder) to terminate or suspend such registration or to terminate
      or
      suspend its reporting and filing obligations under said acts until three (3)
      years after the Closing Date. Until the earlier of the resale of the Shares
      and
      Warrant Shares by each Subscriber or until three (3) years after the Warrants
      have been exercised, the Company will use its best efforts to continue the
      listing or quotation of the Common Stock on a Principal Market and will comply
      in all respects with the Company's reporting, filing and other obligations
      under
      the bylaws or rules of the Principal Market. The Company agrees to timely file
      a
      Form D with respect to the Securities if required under Regulation D and to
      provide a copy thereof to each Subscriber promptly after such
      filing.

     

    (e) Use
      of
      Proceeds.
      The
      proceeds of the Offering must be employed by the Company for the purposes set
      forth on Schedule
      9(e)
      hereto.
      Except as set forth on Schedule
      9(e),
      the
      Purchase Price may not and will not be used for accrued and unpaid officer
      and
      director salaries, payment of financing related debt, redemption of outstanding
      notes or equity instruments of the Company nor non-trade obligations outstanding
      on a Closing Date. The proceeds of the Offering to be used for designated
      purposes as set forth on Schedule
      9(e)
      will be
      paid out of the escrow account pursuant to the Escrow Agreement.

     

    (f) Reservation.
      Prior
      to the Closing Date, the Company undertakes to reserve, pro rata,
      on
      behalf of each holder of a Note or Warrant, from its authorized but unissued
      common stock, a number of common shares equal to 175%
      of
      the amount of Common Stock necessary to allow each holder of a Note to be able
      to convert all such outstanding Notes and interest and reserve the amount of
      Warrant Shares issuable upon exercise of the Warrants. Failure to have
      sufficient shares reserved pursuant to this Section 9(f) for three (3)
      consecutive business days or ten (10) days in the aggregate shall be a material
      default of the Company’s obligations under this Agreement and an Event of
      Default under the Note.

     

    13

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (g) Taxes.
      From
      the date of this Agreement and until the sooner of (i) three (3) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      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 Company; 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 Company shall have set aside on its books adequate
      reserves with respect thereto, and provided, further, that the Company 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
      therefore.

     

    (h) Insurance.
      From
      the date of this Agreement and until the sooner of (i) three (3) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      keep its assets which are of an insurable character insured by financially
      sound
      and reputable insurers against loss or damage by fire, explosion and other
      risks
      customarily insured against by companies in the Company’s line of business, in
      amounts sufficient to prevent the Company from becoming a co-insurer, and the
      Company will maintain, with financially sound and reputable insurers, insurance
      against other hazards and risks and liability to persons and property to the
      extent and in the manner customary for companies in similar businesses similarly
      situated and to the extent available on commercially reasonable
      terms.

     

    (i) Books
      and Records.
      From the
      date of this Agreement and until the sooner of (i) three (3) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company will
      keep true records and books of account in which full, true and correct entries
      will be made of all dealings or transactions in relation to its business and
      affairs in accordance with generally accepted accounting principles applied
      on a
      consistent basis.

     

    (j) Governmental
      Authorities.
      From the
      date of this Agreement and until the sooner of (i) three (3) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company shall
      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.

     

    (k) Intellectual
      Property.
      From
      the date of this Agreement and until the sooner of (i) three (3) years after
      the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company shall
      maintain in full force and effect its corporate existence, rights and franchises
      and all licenses and other rights to use intellectual property owned or
      possessed by it and reasonably deemed to be necessary to the conduct of its
      business.

     

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    (l) Properties.
      From the
      date of this Agreement and until the sooner of (i) three (3) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      (as
      defined in Section 11.1(iv) hereof) or pursuant to Rule 144, without regard
      to
      volume limitations, the Company will 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; and the Company will at all times comply with each
      provision of all leases to which it is a party or under which it occupies
      property if the breach of such provision could reasonably be expected to have
      a
      Material Adverse Effect.

     

    (m) Confidentiality/Public
      Announcement.
      From the
      date of this Agreement and until the sooner of (i) three (3) years after the
      Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
      or transferred by all the Subscribers pursuant to the Registration Statement
      or
      pursuant to Rule 144, without regard to volume limitations, the Company agrees
      that except in connection with a Form 8-K or the Registration Statement, it
      will
      not disclose publicly or privately the identity of the Subscribers unless
      expressly agreed to in writing by a Subscriber or only to the extent required
      by
      law and then only upon five days prior notice to Subscriber. In any event and
      subject to the foregoing, the Company shall file
      a
      Form 8-K or make a public announcement describing the Offering not later than
      the Closing Date. In the Form 8-K or public announcement, the Company will
      specifically disclose the amount of common stock outstanding immediately after
      the Closing. A form of the proposed Form 8-K or public announcement to be
      employed in connection with the Offering is annexed hereto as Exhibit
      F.

     

    (n) Further
      Registration Statements.
      Except
      for a registration statement filed on behalf of the Subscribers pursuant to
      Section 11 of this Agreement the Company will not file any registration
      statements or amend any already filed registration statement, including but
      not
      limited to Form S-8, with the Commission or with state regulatory authorities
      without the consent of the Subscriber until the sooner of (i) the Registration
      Statement shall have been current and available for use in connection with
      the
      resale of the Registrable Securities (as defined in Section 11.1(i) for a period
      of 365 days, or (ii) until all the Shares and Warrant Shares have been resold
      or
      transferred by the Subscribers pursuant to the Registration Statement or Rule
      144, without regard to volume limitations (“Exclusion
      Period”).
      The
      Exclusion Period will be tolled during the pendency of an Event of Default
      as
      defined in the Note.

     

    (o) Blackout.
      The
      Company undertakes and covenants that until the end of the Exclusion Period,
      the
      Company will not enter into any acquisition, merger, exchange or sale or other
      transaction that could have the effect of delaying the effectiveness of any
      pending registration statement or causing an already effective registration
      statement to no longer be effective or current for a period twenty
      (20) or more days; provided that this paragraph shall not impede the Company
      from raising additional capital, so long as the Company does not grant at any
      time any registration rights in connection with the raising of additional
      capital and does not register any equity in connection with that additional
      capital, so long as any of the Notes are outstanding.

     

    (p) Non-Public
      Information.
      The
      Company covenants and agrees that neither it nor any other person acting on
      its
      behalf will provide any Subscriber or its agents or counsel with any information
      that the Company believes constitutes material non-public information, unless
      prior thereto such Subscriber shall have agreed in writing to receive such
      information. The Company understands and confirms that each Subscriber shall
      be
      relying on the foregoing representations in effecting transactions in securities
      of the Company.

     

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    (q) Limited
      Standstill.
      The
      Company will deliver to the Subscribers on or before the Closing Date and
      enforce the provisions of irrevocable standstill agreements (“Limited
      Standstill Agreements”)
      in the
      form annexed hereto as Exhibit
      G,
      with
      the parties identified on Schedule
      9(q)
      hereto.

     

    (r) Board
      Representation or Attendance by Observer.
       The
      Company agrees until such time as 90% of the initial principal amount
      outstanding on the Notes shall have been fully paid or converted that the Lead
      Investor identified on Schedule
      8
      hereto
      shall,
      from
      time to time, designate in writing an observer to the Board of Directors of
      the
      Company. The Lead Investor shall have the right, but not the obligation, to
      designate an observer, who shall be entitled to attend and participate (but
      not
      vote) at all meetings of the Board of Directors of the Company and to receive
      all notices, reports, information, correspondence and communications sent by
      the
      Company to members of the Board of Directors. All reasonable costs and expenses
      incurred in connection therewith by any such designated observer, or by the
      Lead
      Investor on behalf of such observer, shall be reimbursed by the Company to
      the
      extent that the Company reimburses such expenses incurred by any directors
      of
      the Company. It
      is
      provided and agreed that the actions and advice of any person while serving
      pursuant to this section as an observer at meetings of the Board of Directors
      shall be construed to be the actions and advice of that person alone and not
      be
      construed as actions of any Subscriber as to any notice, requirements or rights
      of any Subscriber under the Transaction Documents, nor as action of any
      Subscriber to approve modifications, consents, amendments or waivers thereof;
      and all such actions or notices shall be deemed actions or notices to the
      Subscribers only when duly provided in writing and given in accordance with
      the
      provisions of the Transaction Documents. 
      The
      relationship between the Company and the Subscribers is, and shall at all times
      remain, solely that of the Company with a purchaser of its securities. The
      Subscribers neither undertake nor assume any responsibility or duty to the
      Company to review, inspect, supervise, pass judgment upon, or inform the Company
      of any matter in connection with any phase of the Company’s business,
      operations, or condition, financial or otherwise. The Company shall rely
      entirely upon its own judgment with respect to such matters, and any review,
      inspection, supervision, exercise of judgment, or information supplied to the
      Company by the Subscribers, or any representative or agent of the Subscribers,
      in connection with any such matter is for the protection of the Subscribers,
      and
      neither the Company nor any third party is entitled to rely thereon. It shall
      be
      deemed a default of a material obligation under the Notes if Company does not
      comply with the requirements of this section. The Company agrees to appoint
      an
      additional director (“Additional
      Director”),
      effective as of the Closing Date, which Additional Director shall be qualified
      as an “independent director” as that term is employed in Section 103 of
      Sarbanes-Oxley. The Additional Director may be replaced by one or more
      substitute directors provided same qualify as “independent directors.” Such
      Additional Director must serve as director for so long as more than 10% of
      Note
      principal remains outstanding.

     

    10. Covenants
      of the Company and Subscriber Regarding Indemnification.

     

    (a) The
      Company agrees to indemnify, hold harmless, reimburse and defend the
      Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
      persons, and principal shareholders, against any claim, cost, expense,
      liability, obligation, loss or damage (including reasonable legal fees) of
      any
      nature, incurred by or imposed upon the Subscriber or any such person which
      results, arises out of or is based upon (i) any material misrepresentation
      by
      Company or breach of any warranty by Company in this Agreement or in any
      Exhibits or Schedules attached hereto, or other agreement delivered pursuant
      hereto; or (ii) after any applicable notice and/or cure periods, any breach
      or
      default in performance by the Company of any covenant or undertaking to be
      performed by the Company hereunder, or any other agreement entered into by
      the
      Company and Subscriber relating hereto.

     

    (b) Each
      Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
      and each of the Company’s officers, directors, agents, Affiliates, control
      persons against any claim, cost, expense, liability, obligation, loss or damage
      (including reasonable legal fees) of any nature, incurred by or imposed upon
      the
      Company or any such person which results, arises out of or is based upon (i)
      any
      material misrepresentation by such Subscriber in this Agreement or in any
      Exhibits or Schedules attached hereto, or other agreement delivered pursuant
      hereto; or (ii) after any applicable notice and/or cure periods, any breach
      or
      default in performance by such Subscriber of any covenant or undertaking to
      be
      performed by such Subscriber hereunder, or any other agreement entered into
      by
      the Company and Subscribers, relating hereto.

     

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    (c) In
      no
      event shall the liability of any Subscriber or permitted successor hereunder
      or
      under any Transaction Document or other agreement delivered in connection
      herewith be greater in amount than the dollar amount of the net proceeds
      actually received by such Subscriber upon the sale of Registrable Securities
      (as
      defined herein).

     

    (d) The
      procedures set forth in Section 11.6 shall apply to the indemnification set
      forth in Sections 10(a) and 10(b) above.

     

    11.1. Registration
      Rights.
      The
      Company hereby grants the following registration rights to holders of the
      Securities.

     

    (i) On
      one
      occasion, for a period commencing one hundred and twenty-one (121) days after
      the Closing Date, but not later than two (2) years after the Closing Date
      (“Request
      Date”),
      upon
      a written request therefor from any record holder or holders of more than 50%
      of
      the Shares issued and issuable upon conversion of the Notes and Warrant Shares
      actually issued upon exercise of the Warrants, the Company shall prepare and
      file with the Commission a registration statement under the 1933 Act registering
      the Shares issuable upon conversion of all sums due under the Notes and Warrant
      Shares issuable upon exercise of the Warrants (collectively “Registrable
      Securities”)
      which
      are the subject of such request for unrestricted public resale by the holder
      thereof. For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities
      shall not include Securities (A) which are registered for resale in an effective
      registration statement, (B) included for registration in a pending registration
      statement, or (C) which have been issued without further transfer restrictions
      after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon the
      receipt of such request, the Company shall promptly give written notice to
      all
      other record holders of the Registrable Securities that such registration
      statement is to be filed and shall include in such registration statement
      Registrable Securities for which it has received written requests within ten
      (10) days after the Company gives such written notice. Such other requesting
      record holders shall be deemed to have exercised their demand registration
      right
      under this Section 11.1(i).

     

    (ii) If
      the
      Company at any time proposes to register any of its securities under the 1933
      Act for sale to the public, whether for its own account or for the account
      of
      other security holders or both, except with respect to registration statements
      on Forms S-4, S-8 or another form not available for registering the Registrable
      Securities for sale to the public, provided the Registrable Securities are
      not
      otherwise registered for resale by the Subscribers or Holder pursuant to an
      effective registration statement, each such time it will give at least fifteen
      (15) days' prior written notice to the record holder of the Registrable
      Securities of its intention so to do. Upon the written request of the holder,
      received by the Company within ten (10) days after the giving of any such notice
      by the Company, to register any of the Registrable Securities not previously
      registered, the Company will cause such Registrable Securities as to which
      registration shall have been so requested to be included with the securities
      to
      be covered by the registration statement proposed to be filed by the Company,
      all to the extent required to permit the sale or other disposition of the
      Registrable Securities so registered by the holder of such Registrable
      Securities (the “Seller”
      or
“Sellers”).
      In
      the event that any registration pursuant to this Section 11.1(ii) shall be,
      in
      whole or in part, an underwritten public offering of common stock of the
      Company, the number of shares of Registrable Securities to be included in such
      an underwriting may be reduced by the managing underwriter if and to the extent
      that the Company and the underwriter shall reasonably be of the opinion that
      such inclusion would adversely affect the marketing of the securities to be
      sold
      by the Company therein; provided, however, that the Company shall notify the
      Seller in writing of any such reduction. Notwithstanding the foregoing
      provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
      a delay of any registration statement referred to in this Section 11.1(ii)
      without thereby incurring any liability to the Seller.

     

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    (iii) If,
      at
      the time any written request for registration is received by the Company
      pursuant to Section 11.1(i), the Company has determined to proceed with the
      actual preparation and filing of a registration statement under the 1933 Act
      in
      connection with the proposed offer and sale for cash of any of its securities
      for the Company's own account and the Company actually does file such other
      registration statement, such written request shall be deemed to have been given
      pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
      the
      holders of Registrable Securities covered by such written request shall be
      governed by Section 11.1(ii).

     

    (iv) The
      Company shall file with the Commission a Form SB-2 or Form S-3 registration
      statement (the “Registration
      Statement”)
      (or
      such other form that it is eligible to use) in order to register the Registrable
      Securities for resale and distribution under the 1933 Act) not later
      than
      forty-five (45) days after the Closing Date (the “Filing
      Date”),
      and
      cause it to be declared effective not
      later
      than ninety (90) days after the Closing Date (the
      “Effective
      Date”).
      The
      Company will register not less than a number of shares of Common Stock in the
      aforedescribed registration statement that is equal to 175%
      of
      the Shares issuable upon conversion of the Notes and all of the Warrant Shares
      issuable upon exercise of the Warrants (as described on Schedule
      8
      hereto).
      The Registrable Securities shall be reserved and set aside exclusively for
      the
      benefit of each Subscriber and Warrant holder, pro rata,
      and not
      issued, employed or reserved for anyone other than each such Subscriber and
      Warrant holder. The Registration Statement will immediately be amended or
      additional registration statements will be immediately filed by the Company
      as
      necessary to register additional shares of Common Stock to allow the public
      resale of all Common Stock included in and issuable by virtue of the Registrable
      Securities. Without the written consent of the Subscriber, no securities of
      the
      Company other than the Registrable Securities will be included in the
      Registration Statement except as described on Schedule
      11.1,
      hereto.
      It shall be deemed a Non-Registration Event if at any time after the date the
      Registration Statement is declared effective by the Commission (“Actual
      Effective Date”)
      the
      Company has registered for unrestricted resale on behalf of a Subscriber fewer
      than 125%
      of
      the amount of Common Shares issuable upon full conversion of all sums due under
      the Notes and 100% of the Warrant Shares issuable upon exercise of the
      Warrants.

     

    11.2. Registration
      Procedures.
      If and
      whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
      or (iv) to effect the registration of any Registrable Securities under the
      1933
      Act, the Company will, as expeditiously as possible: 

     

    (a) subject
      to the timelines provided in this Agreement, prepare and file with the
      Commission a registration statement required by Section 11, with respect to
      such
      securities and use its best efforts to cause such registration statement to
      become and remain effective for the period of the distribution contemplated
      thereby (determined as herein provided), promptly provide to the holders of
      the
      Registrable Securities copies of all filings and Commission letters of comment
      and notify Subscribers (by telecopier and by e-mail addresses provided by
      Subscribers) and Grushko & Mittman, P.C. (by telecopier and by email to
Counslers@aol.com)
      on or
      before 3:00 PM EST on the next business day that the Company receives notice
      that (i) the Commission has no comments or no further comments on the
      Registration Statement, and (ii) the registration statement has been declared
      effective (failure to timely provide notice as required by this Section 11.2(a)
      shall be a material breach of the Company’s obligation and an Event of Default
      as defined in the Notes
      and
      a Non-Registration Event as defined in Section 11.4 of this Agreement);

     

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    (b) prepare
      and file with the Commission such amendments and supplements to such
      registration statement and the prospectus used in connection therewith as may
      be
      necessary to keep such registration statement effective until such registration
      statement has been effective for a period of three (3) years, and comply with
      the provisions of the 1933 Act with respect to the disposition of all of the
      Registrable Securities covered by such registration statement in accordance
      with
      the Sellers’ intended method of disposition set forth in such registration
      statement for such period; 

     

    (c) furnish
      to the Sellers, at the Company’s expense, such number of copies of the
      registration statement and the prospectus included therein (including each
      preliminary prospectus) as such persons reasonably may request in order to
      facilitate the public sale or their disposition of the securities covered by
      such registration statement; 

     

    (d) use
      its
commercially
      reasonable best efforts to register or qualify the Registrable Securities
      covered by such registration statement under the securities or “blue sky” laws
      of New York and such jurisdictions as the Sellers shall request in writing,
      provided, however, that the Company shall not for any such purpose be required
      to qualify generally to transact business as a foreign corporation in any
      jurisdiction where it is not so qualified or to consent to general service
      of
      process in any such jurisdiction; 

     

    (e) if
      applicable, list the Registrable Securities covered by such registration
      statement with any securities exchange on which the Common Stock of the Company
      is then listed; 

     

    (f) notify
      the Subscribers within two hours of the Company’s becoming aware that a
      prospectus relating thereto is required to be delivered under the 1933 Act,
      of
      the happening of any event of which the Company has knowledge as a result of
      which the prospectus contained in such registration statement, as then in
      effect, includes an untrue statement of a material fact or omits to state a
      material fact required to be stated therein or necessary to make the statements
      therein not misleading in light of the circumstances then existing or which
      becomes subject to a Commission, state or other governmental order suspending
      the effectiveness of the registration statement covering any of the Shares;
      and

     

    (g) provided
      same would not be in violation of the provision of Regulation FD under the
      1934
      Act, make available for inspection by the Sellers, and any attorney, accountant
      or other agent retained by the Seller or underwriter, all publicly available,
      non-confidential financial and other records, pertinent corporate documents
      and
      properties of the Company, and cause the Company's officers, directors and
      employees to supply all publicly available, non-confidential information
      reasonably requested by the seller, attorney, accountant or agent in connection
      with such registration statement. 

     

    11.3. Provision
      of Documents.
      In
      connection with each registration described in this Section 11, each Seller
      will
      furnish to the Company in writing such information and representation letters
      with respect to itself and the proposed distribution by it as reasonably shall
      be necessary in order to assure compliance with federal and applicable state
      securities laws. 

     

    11.4. Non-Registration
      Events.
      The
      Company and the Subscribers agree that the Sellers will suffer damages if the
      Registration Statement is not filed by the Filing Date and not declared
      effective by the Commission by the Effective Date, and any registration
      statement required under Section 11.1(i) or 11.1(ii) is not filed within 60
      days
      after written request and declared effective by the Commission within 120 days
      after such request, and maintained in the manner and within the time periods
      contemplated by Section 11 hereof, and it would not be feasible to ascertain
      the
      extent of such damages with precision. Accordingly, if (A) the Registration
      Statement is not filed on or before the Filing Date, (B) is not declared
      effective on or before the Effective Date, (C) the Registration Statement is
      not
      declared effective within three (3) business days after receipt by the Company
      or its attorneys of a written or oral communication from the Commission that
      the
      Registration Statement will not be reviewed or that the Commission has no
      further comments, (D) if the registration statement described in Sections
      11.1(i) or 11.1(ii) is not filed within 60 days after such written request,
      or
      is not declared effective within 120 days after such written request, or (E)
      any
      registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
      is
      filed and declared effective but shall thereafter cease to be effective (without
      being succeeded within fifteen (15) business days by an effective replacement
      or
      amended registration statement) for a period of time which shall exceed 20
      days
      in the aggregate per year (defined as a period of 365 days commencing on the
      date the Registration Statement is declared effective) (each such event referred
      to in clauses (A) through (E) of this Section 11.4 is referred to herein as
      a
      "Non-Registration Event"), then the Company shall deliver to the holder of
      Registrable Securities, as Liquidated Damages, an amount equal to two percent
      (2%) for each thirty (30) days or part thereof, thereafter of the Purchase
      Price
      of the Notes remaining unconverted and purchase price of Shares issued upon
      conversion of the Notes owned of record by such holder which are subject to
      such
      Non-Registration Event. The Company must pay the Liquidated Damages in cash
      or
      an amount equal to two hundred percent (200%) of such cash Liquidated Damages
      if
      paid in additional Shares of registered unlegended free-trading Shares of Common
      Stock. Such Common Stock shall be valued at a per share value equal to the
      Conversion Price then in effect on the first day of each thirty day or shorter
      period for which Liquidated Damages are payable. The Liquidated Damages must
      be
      paid within ten (10) days after the end of each thirty (30) day period or
      shorter part thereof for which Liquidated Damages are payable. In the event
      a
      Registration Statement is filed by the Filing Date but is withdrawn prior to
      being declared effective by the Commission, then such Registration Statement
      will be deemed to have not been filed. All
      oral
      or written comments received from the Commission relating to the Registration
      Statement must be satisfactorily responded to within
      ten (10) business days after receipt of comments from the Commission.
      Failure
      to
      timely respond to Commission comments is a Non-Registration Event for which
      Liquidated Damages shall accrue and be payable by the Company to the holders
      of
      Registrable Securities at the same rate set forth above. Notwithstanding the
      foregoing, the Company shall not be liable to the Subscriber under this Section
      11.4 for any events or delays occurring as a consequence of the acts or
      omissions of the Subscribers contrary to the obligations undertaken by
      Subscribers in this Agreement. Liquidated Damages will not accrue nor be payable
      pursuant to this Section 11.4 nor will a Non-Registration Event be deemed to
      have occurred for times during which Registrable Securities are transferable
      by
      the holder of Registrable Securities pursuant to Rule 144(k) under the 1933
      Act.

     

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    11.5. Expenses.
      All
      expenses incurred by the Company in complying with Section 11, including,
      without limitation, all registration and filing fees, printing expenses, fees
      and disbursements of counsel and independent public accountants for the Company,
      fees and expenses (including reasonable counsel fees) incurred in connection
      with complying with state securities or “blue sky” laws, fees of the National
      Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
      and registrars, costs of insurance and fee of one counsel for all Sellers are
      called “Registration
      Expenses.”
      All
      underwriting discounts and selling commissions applicable to the sale of
      Registrable Securities, including any fees and disbursements of one counsel
      to
      the Seller, are called "Selling
      Expenses."
      The
      Company will pay all Registration Expenses in connection with the registration
      statement under Section 11. Selling Expenses in connection with each
      registration statement under Section 11 shall be borne by the Seller and may
      be
      apportioned among the Sellers in proportion to the number of shares sold by
      the
      Seller relative to the number of shares sold under such registration statement
      or as all Sellers thereunder may agree.

     

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    11.6. Indemnification
      and Contribution.

     

    (a) In
      the
      event of a registration of any Registrable Securities under the 1933 Act
      pursuant to Section 11, the Company will, to the extent permitted by law,
      indemnify and hold harmless the Seller, each officer of the Seller, each
      director of the Seller, each underwriter of such Registrable Securities
      thereunder and each other person, if any, who controls such Seller or
      underwriter within the meaning of the 1933 Act, against any losses, claims,
      damages or liabilities, joint or several, to which the Seller, or such
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in any registration statement
      under which such Registrable Securities was registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading
      in light of the circumstances when made, and will subject to the provisions
      of
      Section 11.6(c) reimburse the Seller, each such underwriter and each such
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action; provided, however, that the Company shall not be liable
      to
      the Seller to the extent that any such damages arise out of or are based upon
      an
      untrue statement or omission made in any preliminary prospectus if (i) the
      Seller failed to send or deliver a copy of the final prospectus delivered by
      the
      Company to the Seller with or prior to the delivery of written confirmation
      of
      the sale by the Seller to the person asserting the claim from which such damages
      arise, (ii) the final prospectus would have corrected such untrue statement
      or
      alleged untrue statement or such omission or alleged omission, or (iii) to
      the
      extent that any such loss, claim, damage or liability arises out of or is based
      upon an untrue statement or alleged untrue statement or omission or alleged
      omission so made in conformity with information furnished by any such Seller,
      or
      any such controlling person in writing specifically for use in such registration
      statement or prospectus. 

     

    (b) In
      the
      event of a registration of any of the Registrable Securities under the 1933
      Act
      pursuant to Section 11, each Seller severally but not jointly will, to the
      extent permitted by law, indemnify and hold harmless the Company, and each
      person, if any, who controls the Company within the meaning of the 1933 Act,
      each officer of the Company who signs the registration statement, each director
      of the Company, each underwriter and each person who controls any underwriter
      within the meaning of the 1933 Act, against all losses, claims, damages or
      liabilities, joint or several, to which the Company or such officer, director,
      underwriter or controlling person may become subject under the 1933 Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in the registration statement
      under which such Registrable Securities were registered under the 1933 Act
      pursuant to Section 11, any preliminary prospectus or final prospectus contained
      therein, or any amendment or supplement thereof, or arise out of or are based
      upon the omission or alleged omission to state therein a material fact required
      to be stated therein or necessary to make the statements therein not misleading,
      and will reimburse the Company and each such officer, director, underwriter
      and
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating or defending any such loss, claim, damage,
      liability or action, provided, however, that the Seller will be liable hereunder
      in any such case if and only to the extent that any such loss, claim, damage
      or
      liability arises out of or is based upon an untrue statement or alleged untrue
      statement or omission or alleged omission made in reliance upon and in
      conformity with information pertaining to such Seller, as such, furnished in
      writing to the Company by such Seller specifically for use in such registration
      statement or prospectus, and provided, further, however, that the liability
      of
      the Seller hereunder shall be limited to the net proceeds actually received
      by
      the Seller from the sale of Registrable Securities covered by such registration
      statement.

     

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    (c) Promptly
      after receipt by an indemnified party hereunder of notice of the commencement
      of
      any action, such indemnified party shall, if a claim in respect thereof is
      to be
      made against the indemnifying party hereunder, notify the indemnifying party
      in
      writing thereof, but the omission so to notify the indemnifying party shall
      not
      relieve it from any liability which it may have to such indemnified party other
      than under this Section 11.6(c) and shall only relieve it from any liability
      which it may have to such indemnified party under this Section 11.6(c), except
      and only if and to the extent the indemnifying party is prejudiced by such
      omission. In case any such action shall be brought against any indemnified
      party
      and it shall notify the indemnifying party of the commencement thereof, the
      indemnifying party shall be entitled to participate in and, to the extent it
      shall wish, to assume and undertake the defense thereof with counsel
      satisfactory to such indemnified party, and, after notice from the indemnifying
      party to such indemnified party of its election so to assume and undertake
      the
      defense thereof, the indemnifying party shall not be liable to such indemnified
      party under this Section 11.6(c) for any legal expenses subsequently incurred
      by
      such indemnified party in connection with the defense thereof other than
      reasonable costs of investigation and of liaison with counsel so selected,
      provided, however, that, if the defendants in any such action include both
      the
      indemnified party and the indemnifying party and the indemnified party shall
      have reasonably concluded that there may be reasonable defenses available to
      it
      which are different from or additional to those available to the indemnifying
      party or if the interests of the indemnified party reasonably may be deemed
      to
      conflict with the interests of the indemnifying party, the indemnified parties,
      as a group, shall have the right to select one separate counsel and to assume
      such legal defenses and otherwise to participate in the defense of such action,
      with the reasonable expenses and fees of such separate counsel and other
      expenses related to such participation to be reimbursed by the indemnifying
      party as incurred.

     

    (d) In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the 1933 Act in any case in which either (i) a Seller, or any controlling
      person of a Seller, makes a claim for indemnification pursuant to this Section
      11.6 but it is judicially determined (by the entry of a final judgment or decree
      by a court of competent jurisdiction and the expiration of time to appeal or
      the
      denial of the last right of appeal) that such indemnification may not be
      enforced in such case notwithstanding the fact that this Section 11.6 provides
      for indemnification in such case, or (ii) contribution under the 1933 Act may
      be
      required on the part of the Seller or controlling person of the Seller in
      circumstances for which indemnification is not provided under this Section
      11.6;
      then, and in each such case, the Company and the Seller will contribute to
      the
      aggregate losses, claims, damages or liabilities to which they may be subject
      (after contribution from others) in such proportion so that the Seller is
      responsible only for the portion represented by the percentage that the public
      offering price of its securities offered by the registration statement bears
      to
      the public offering price of all securities offered by such registration
      statement, provided, however, that, in any such case, (y) the Seller will not
      be
      required to contribute any amount in excess of the public offering price of
      all
      such securities sold by it pursuant to such registration statement; and (z)
      no
      person or entity guilty of fraudulent misrepresentation (within the meaning
      of
      Section 11(f) of the 1933 Act) will be entitled to contribution from any person
      or entity who was not guilty of such fraudulent misrepresentation.

     

    11.7. Delivery
      of Unlegended Shares.

     

    (a) Within
      three (3) business days (such third business day being the “Unlegended
      Shares Delivery Date”)
      after
      the business day on which the Company has received (i) a notice that Shares
      or
      Warrant Shares have been sold pursuant to the Registration Statement or Rule
      144
      under the 1933 Act, (ii) a representation that the prospectus delivery
      requirements, or the requirements of Rule 144, as applicable and if required,
      have been satisfied, and (iii) the original share certificates representing
      the
      shares of Common Stock that have been sold, and (iv) in the case of sales under
      Rule 144, customary representation letters of the Subscriber and/or Subscriber’s
      broker regarding compliance with the requirements of Rule 144, the Company
      at
      its expense, (y) shall deliver, and shall cause legal counsel selected by the
      Company to deliver to its transfer agent (with copies to Subscriber) an
      appropriate instruction and opinion of such counsel, directing the delivery
      of
      shares of Common Stock without any legends including the legend set forth in
      Section 4(h)
      above,
      reissuable pursuant to any effective and current Registration Statement
      described in Section 11 of this Agreement or pursuant to Rule 144 under the
      1933
      Act (the “Unlegended
      Shares”);
      and
      (z) cause the transmission of the certificates representing the Unlegended
      Shares together with a legended certificate representing the balance of the
      submitted certificates, if any, to the Subscriber at the address specified
      in
      the notice of sale, via express courier, by electronic transfer or otherwise
      on
      or before the Unlegended Shares Delivery Date. Transfer fees shall be the
      responsibility of the Seller.

     

    22

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b) In
      lieu
      of delivering physical certificates representing the Unlegended Shares, if
      the
      Company’s transfer agent is participating in the Depository Trust Company
      (“DTC”)
      Fast
      Automated Securities Transfer program, upon request of a Subscriber, so long
      as
      the certificates therefor do not bear a legend and the Subscriber is not
      obligated to return such certificate for the placement of a legend thereon,
      the
      Company shall cause its transfer agent to electronically transmit the Unlegended
      Shares by crediting the account of Subscriber’s prime Broker with DTC through
      its Deposit Withdrawal Agent Commission system. Such delivery must be made
      on or
      before the Unlegended Shares Delivery Date.

    

    (c) The
      Company understands that a delay in the delivery of the Unlegended Shares
      pursuant to Section 11 hereof later than the Unlegended Shares Delivery Date
      could result in economic loss to a Subscriber. As compensation to a Subscriber
      for such loss, the Company agrees to pay late payment fees (as liquidated
      damages and not as a penalty) to the Subscriber for late delivery of Unlegended
      Shares in the amount of $100 per business day after the Delivery Date for each
      $10,000 of purchase price of the Unlegended Shares subject to the delivery
      default. If during any 360 day period, the Company fails to deliver Unlegended
      Shares as required by this Section 11.7 for an aggregate of thirty (30) days,
      then each Subscriber or assignee holding Securities subject to such default
      may,
      at its option, require the Company to redeem all or any portion of the Shares
      and Warrant Shares subject to such default at a price per share equal to 115%
      of
      the purchase price or value described in Section 12(e) hereof, of such Shares
      and Warrant Shares (“Unlegended
      Redemption Amount”).
      The
      amount of the aforedescribed liquidated damages that have accrued or been paid
      for the twenty day period prior to the receipt by the Subscriber of the
      Unlegended Redemption Amount shall be credited against the Unlegended Redemption
      Amount. The Company shall pay any payments incurred under this Section in
      immediately available funds upon demand.

    (d) In
      addition to any other rights available to a Subscriber, if the Company fails
      to
      deliver to a Subscriber Unlegended Shares as required pursuant to this
      Agreement, within seven (7) business days after the Unlegended Shares Delivery
      Date and the Subscriber purchases (in an open market transaction or otherwise)
      shares of common stock to deliver in satisfaction of a sale by such Subscriber
      of the shares of Common Stock which the Subscriber was entitled to receive
      from
      the Company (a "Buy-In"),
      then
      the Company shall pay in cash to the Subscriber (in addition to any remedies
      available to or elected by the Subscriber) the amount by which (A) the
      Subscriber's total purchase price (including brokerage commissions, if any)
      for
      the shares of common stock so purchased exceeds (B) the aggregate purchase
      price
      of the shares of Common Stock delivered to the Company for reissuance as
      Unlegended Shares  together
      with interest thereon at a rate of 15% per annum, accruing until such amount
      and
      any accrued interest thereon is paid in full (which amount shall be paid as
      liquidated damages and not as a penalty). For
      example, if a Subscriber purchases shares of Common Stock having a total
      purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
      price of shares of Common Stock delivered to the Company for reissuance as
      Unlegended Shares, the Company shall be required to pay the Subscriber
      $1,000,
      plus interest. The
      Subscriber shall provide the Company written notice indicating the amounts
      payable to the Subscriber in respect of the Buy-In.

     

                                            23

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (e) In
      the
      event a Subscriber shall request delivery of Unlegended Shares as described
      in
      Section 11.7 and the Company is required to deliver such Unlegended Shares
      pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
      Shares based on any claim that such Subscriber or any one associated or
      affiliated with such Subscriber has been engaged in any violation of law, or
      for
      any other reason, unless, an injunction or temporary restraining order from
      a
      court, on notice, restraining and or enjoining delivery of such Unlegended
      Shares or exercise of all or part of said Warrant shall have been sought and
      obtained
      and the
      Company has posted a surety bond for the benefit of such Subscriber in the
      amount of 120% of the amount of the aggregate purchase price of the Common
      Stock
      and Warrant Shares which are subject to the injunction or temporary restraining
      order, 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 Subscriber to the extent Subscriber obtains judgment in Subscriber’s
      favor.

    

    12. (a) Right
      of First Refusal.
      Until
      the sooner of (A) the Exclusion Period, or (B) for so long as any Notes or
      Warrants are outstanding, the Subscribers shall be given not less than seven
      (7)
      business days prior written notice of any proposed sale by the Company of its
      common stock or other securities or debt obligations, except in connection
      with
      (i) as
      a
      result of the exercise of options or warrants or conversion of convertible
      Notes
      or amounts which are granted, issued or accrue pursuant to this Agreement,
      (ii)
      as
      has
      been described in the Reports or Other Written Information filed with the
      Commission or delivered to the Subscribers prior to the Closing Date, (iii)
      full
      or partial consideration in connection with a strategic merger, consolidation
      or
      purchase of substantially all of the securities or assets of corporation or
      other entity, (iv)
      the
      Company’s issuance of securities in connection with strategic license agreements
      and other partnering arrangements so long as such issuances are not for the
      purpose of raising capital, and (v) the Company’s issuance of Common Stock or
      the issuance or grants of options to purchase Common Stock pursuant to the
      Company’s stock option plans and employee stock purchase plans as they now
      exist, which copies of such plans have been delivered to the
      Subscribers
      (collectively the foregoing are “Excepted
      Issuances”).
      The
      Subscribers who exercise their rights pursuant to this Section 12(a) shall
      have
      the right during the seven (7) business days following receipt of the notice
      to
      purchase in the aggregate up to 100% of such offered common stock, debt or
      other
      securities in accordance with the terms and conditions set forth in the notice
      of sale in the same proportion to each other as their purchase of Notes in
      the
      Offering. In the event such terms and conditions are modified during the notice
      period, the Subscribers shall be given prompt notice of such modification and
      shall have the right during the seven (7) business days following the notice
      of
      modification to exercise such right. 

     

    (b) Offering
      Restrictions.
      Other
      than the Excepted Issuances, during the Exclusion Period and during the pendency
      of an Event of Default, or when any compensatory or liquidated damages are
      accruing or are outstanding, the Company will not enter into an agreement to
      nor
      issue any equity, convertible debt or other securities convertible into common
      stock or equity of the Company nor modify any of the foregoing which may be
      outstanding at anytime, without the prior written consent of the Subscriber,
      which consent may be withheld for any reason. For so long as the Notes are
      outstanding the Company will not enter into any equity line of credit or similar
      agreement, nor issue or agree to issue any floating or variable priced equity
      linked instruments nor any of the foregoing or equity with price reset
      rights.

     

    24

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c) Favored
      Nations Provision.
      Except
      for the Excepted Issuances, if at any time Notes or Warrants are outstanding
      the
      Company shall offer, issue or agree to issue any common stock or securities
      convertible into or exercisable for shares of common stock (or modify any of
      the
      foregoing which may be outstanding) to any person or entity at a price per
      share
      or conversion or exercise price per share which shall be less than the
      Conversion Price in respect of the Shares, or if less than the Warrant exercise
      price in respect of the Warrant Shares, without the consent of each Subscriber
      holding Notes, Shares, Warrants, or Warrant Shares, then the Company shall
      issue, for each such occasion, additional shares of Common Stock to each
      Subscriber so that the average per share purchase price of the shares of Common
      Stock issued to the Subscriber (of only the Common Stock or Warrant Shares
      still
      owned by the Subscriber) is equal to such other lower price per share and the
      Conversion Price and Warrant Exercise Price shall automatically be reduced
      to
      such other lower price per share. The average Purchase Price of the Shares
      and
      average exercise price in relation to the Warrant Shares shall be calculated
      separately for the Shares and Warrant Shares. The foregoing calculation and
      issuance shall be made separately for Shares received upon Note conversion
      and
      separately for Warrant Shares. The delivery to the Subscriber of the additional
      shares of Common Stock shall be not later than the closing date of the
      transaction giving rise to the requirement to issue additional shares of Common
      Stock. The Subscriber is granted the registration rights described in Section
      11
      hereof in relation to such additional shares of Common Stock except that the
      Filing Date and Effective Date vis-à-vis such additional common shares shall be,
      respectively, the thirtieth (30th)
      and
      sixtieth (60th)
      date
      after the closing date giving rise to the requirement to issue the additional
      shares of Common Stock. For purposes of the issuance and adjustment described
      in
      this paragraph, the issuance of any security of the Company carrying the right
      to convert such security into shares of Common Stock or of any warrant, right
      or
      option to purchase Common Stock shall result in the issuance of the additional
      shares of Common Stock upon the sooner of the agreement to or actual issuance
      of
      such convertible security, warrant, right or option and again at any time upon
      any subsequent issuances of shares of Common Stock upon exercise of such
      conversion or purchase rights if such issuance is at a price lower than the
      Conversion Price or Warrant exercise price in effect upon such issuance. The
      rights of the Subscriber set forth in this Section 12 are in addition to any
      other rights the Subscriber has pursuant to this Agreement, the Note, any
      Transaction Document, and any other agreement referred to or entered into in
      connection herewith. 

     

    (d) Option
      Plan Restrictions.
      The
      only officer, director, employee and consultant stock option or stock incentive
      plan currently in effect or contemplated by the Company has been submitted
      to
      the Subscribers or is described with Reports. No other plan will be adopted
      nor
      may any options or equity not included in such plan be issued until after the
      Exclusion Period.

     

    (e) Paid
      In Kind.
      The
      Subscriber may demand that some or all of the sums payable to the Subscriber
      pursuant to Sections 7.1(c), 7.2, 7.5, 11.4, 11.7(c), 11.7(d) and 11.7(e) that
      are not paid within ten business days of the required payment date be paid
      in
      shares of Common Stock valued at the Conversion Price in effect at the time
      Subscriber makes such demand or, at the Subscriber’s election, at such other
      valuation described in the Transaction Documents. In addition to any other
      rights granted to the Subscriber herein, the Subscriber is also granted the
      registration rights set forth in Section 11.1(ii) hereof in relation to such
      shares of Common Stock and the Common Stock issuable pursuant to this Section
      12(e). For purposes only of determining any liquidated damages pursuant to
      the
      Transaction Documents, the entire Purchase Price shall be allocated to the
      Notes
      and none to the Warrants; and the Warrant Shares shall be valued at the actual
      exercise price thereof.

     

    (f) Maximum
      Exercise of Rights.
      In the
      event the exercise of the rights described in Sections 12(a), 12(c) and 12(e)
      would
      result in the issuance of an amount of common stock of the Company that would
      exceed the maximum amount that may be issued to a Subscriber calculated in
      the
      manner described in Section 7.3 of this Agreement, then the issuance of such
      additional shares of common stock of the Company to such Subscriber will be
      deferred in whole or in part until such time as such Subscriber is able to
      beneficially own such common stock without exceeding the maximum amount set
      forth calculated in the manner described in Section 7.3 of this Agreement.
      The
      determination of when such common stock may be issued shall be made by each
      Subscriber as to only such Subscriber.

     

    25

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    13. Miscellaneous.

     

    (a) Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be in writing and, unless otherwise
      specified herein, shall be (i) personally served, (ii) deposited in the mail,
      registered or certified, return receipt requested, postage prepaid, (iii)
      delivered by reputable air courier service with charges prepaid, or (iv)
      transmitted by hand delivery, telegram, or facsimile, addressed as set forth
      below or to such other address as such party shall have specified most recently
      by written notice. Any notice or other communication required or permitted
      to be
      given hereunder shall be deemed effective (a) upon hand delivery or delivery
      by
      facsimile, with accurate confirmation generated by the transmitting facsimile
      machine, at the address or number designated below (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 addresses for such
      communications shall be: (i) if to the Company, to: Kaire
      Holdings Incorporated, 552
      Sespe
      Avenue, Suite D, Fillmore, CA 93015, telecopier number: (805) 524-2344, with
      a
      copy by telecopier only to: Owen M. Naccarato, Esq., Naccarato & Associates,
      18301 Von Karman Avenue, Suite 430, Irvine, CA 92612, telecopier: (949)
      851-9262,
      and
      (ii) if to the Subscribers, to: the
      one
      or more addresses and telecopier numbers indicated on the signature pages
      hereto, with an additional copy by telecopier only to: Grushko & Mittman,
      P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
      (212) 697-3575.

     

    (b) Closing.
      The
      consummation of the transactions contemplated herein shall take place at the
      offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York,
      New York 10176, upon the satisfaction of all conditions to Closing set forth
      in
      this Agreement (“Closing
      Date”).

     

    (c) Entire
      Agreement; Assignment.
      This
      Agreement and other documents delivered in connection herewith represent the
      entire agreement between the parties hereto with respect to the subject matter
      hereof and may be amended only by a writing executed by both parties. Neither
      the Company nor the Subscribers have relied on any representations not contained
      or referred to in this Agreement and the documents delivered herewith. No right
      or obligation of the Company shall be assigned without prior notice to and
      the
      written consent of the Subscribers. 

     

    (d) 
      Counterparts/Execution.
      This
      Agreement may be executed in any number of counterparts and by the different
      signatories hereto on separate counterparts, each of which, when so executed,
      shall be deemed an original, but all such counterparts shall constitute but
      one
      and the same instrument. This Agreement may be executed by facsimile signature
      and delivered by facsimile transmission.

     

    (e) Law
      Governing this Agreement.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without regard to conflicts
      of laws principles
      that would result in the application of the substantive laws of another
      jurisdiction. Any action brought by either party against the other concerning
      the transactions contemplated by this Agreement shall be brought only in the
      state courts of New York or in the federal courts located in the state of New
      York. The
      parties and the individuals executing this Agreement and other agreements
      referred to herein or delivered in connection herewith on behalf of the Company
      agree to submit to the jurisdiction of such courts and waive trial by
      jury.
      The
      prevailing party shall be entitled to recover from the other party its
      reasonable attorney's fees and costs. In the event that any provision of this
      Agreement or any other agreement delivered in connection herewith is invalid
      or
      unenforceable under any applicable statute or rule of law, then such provision
      shall be deemed inoperative to the extent that it may conflict therewith and
      shall be deemed modified to conform with such statute or rule of law. Any such
      provision which may prove invalid or unenforceable under any law shall not
      affect the validity or enforceability of any other provision of any
      agreement.

     

    26

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (f) Specific
      Enforcement, Consent to Jurisdiction.
      The
      Company and Subscriber acknowledge and agree that irreparable damage would
      occur
      in the event that any of the provisions of this Agreement were not performed
      in
      accordance with their specific terms or were otherwise breached. It is
      accordingly agreed that the parties shall be entitled to one or more preliminary
      and final injunctions to prevent or cure breaches of the provisions of this
      Agreement and to enforce specifically the terms and provisions hereof, this
      being in addition to any other remedy to which any of them may be entitled
      by
      law or equity. Subject to Section 13(e) hereof, each of the Company, Subscriber
      and any signator hereto in his personal capacity 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 in New York 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. Nothing in this Section shall affect
      or limit any right to serve process in any other manner permitted by
      law.

     

    (g) Independent
      Nature of Subscribers.  
        The
      Company acknowledges that the obligations of each Subscriber under the
      Transaction Documents are several and not joint with the obligations of any
      other Subscriber, and no Subscriber shall be responsible in any way for the
      performance of the obligations of any other Subscriber under the Transaction
      Documents. The
      Company acknowledges that each Subscriber has represented that the decision
      of
      each Subscriber to purchase Securities has been made by such Subscriber
      independently of any other Subscriber and independently of any information,
      materials, statements or opinions as to the business, affairs, operations,
      assets, properties, liabilities, results of operations, condition (financial
      or
      otherwise) or prospects of the Company which may have been made or given by
      any
      other Subscriber or by any agent or employee of any other Subscriber, and no
      Subscriber or any of its agents or employees shall have any liability to any
      Subscriber (or any other person) relating to or arising from any such
      information, materials, statements or opinions.  The
      Company acknowledges that nothing contained in any Transaction Document, and
      no
      action taken by any Subscriber pursuant hereto or thereto (including, but not
      limited to, the (i) inclusion of a Subscriber in the Registration Statement
      and
      (ii) review by, and consent to, such Registration Statement by a Subscriber)
      shall be deemed to constitute the Subscribers as a partnership, an association,
      a joint venture or any other kind of entity, or create a presumption that the
      Subscribers are in any way acting in concert or as a group with respect to
      such
      obligations or the transactions contemplated by the Transaction Documents. 
      The Company acknowledges that each Subscriber shall be entitled to independently
      protect and enforce its rights, including without limitation, the rights arising
      out of the Transaction Documents, and it shall not be necessary
      for
      any other Subscriber to be joined as an additional party in any proceeding
      for
      such purpose.  The Company acknowledges that it has elected to provide
      all
      Subscribers with the same terms and Transaction Documents for the convenience
      of
      the Company and not because Company was required or requested to do so by the
      Subscribers.  The Company acknowledges that such procedure with respect
      to
      the Transaction Documents in no way creates a presumption that the Subscribers
      are in any way acting in concert or as a group with respect to the Transaction
      Documents or the transactions contemplated thereby.

     

    

    

    

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

    

    

    
      
        
          27

          

           

          

        

         

      

      
         

        
          

        

      

      
         

        
        

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (A)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    KAIRE
      HOLDINGS, INC.

    a
      Delaware corporation

    

    /S/
      Steve
      Westlund

    By:_________________________________

    Name:
      Steve Westlund

    Title:
      CEO Director

    

    Dated:
      June 23, 2005

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            	
              WARRANTS

            
	
              LONGVIEW
                FUND LP

              600
                Montgomery Street, 44th
                Floor

              San
                Francisco, CA 94111

              Attn:
                S. Michael Rudolph

              Fax:
                (415) 981-5301

               

               

               

              /S/
                Peter Benz

              ______________________________________

              (Signature)

              By:
                Peter Benz

            	
              $100,000.00

            	
              1,666,666

            

    

    

     

    28

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (B)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    KAIRE
      HOLDINGS, INC.

    a
      Delaware corporation

    

    /S/
      Steve
      Westlund

    By:_________________________________

    Name:
      Steve Westlund

    Title:
      CEO Director

    

    Dated:
      June 23, 2005

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            	
              WARRANTS

            
	
              LONGVIEW
                EQUITY FUND LP

              600
                Montgomery Street, 44th
                Floor

              San
                Francisco, CA 94111

              Attn:
                Wayne Coleson

              Fax:
                (415) 981-5301

               

               

               

              /S/
                Peter Benz

              ______________________________________

              (Signature)

              By:
                Peter Benz

            	
              $175,000.00

            	
              2,916,666

            

    

     

     

    29

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    SIGNATURE
      PAGE TO SUBSCRIPTION AGREEMENT (C)

     

    

    Please
      acknowledge your acceptance of the foregoing Subscription Agreement by signing
      and returning a copy to the undersigned whereupon it shall become a binding
      agreement between us.

    

    KAIRE
      HOLDINGS, INC.

    a
      Delaware corporation

    

    /S/
      Steve
      Westlund

    By:_________________________________

    Name:
      Steve Westlund

    Title:
      CEO, Director

    

    Dated:
      June 23, 2005

    

    

    

    
      	
              SUBSCRIBER

            	
              NOTE
                PRINCIPAL

            	
              WARRANTS

            
	
              LONGVIEW
                INTERNATIONAL EQUITY FUND LP

              600
                Montgomery Street, 44th
                Floor

              San
                Francisco, CA 94111

              Attn:
                Wayne Coleson

              Fax:
                (415) 981-5301

               

               

               

              /S/
                Peter Benz

              ______________________________________

              (Signature)

              By:
                Peter Benz, 

            	
              $75,000.00

            	
              1,250,000

            

    

    

    30

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    LIST
      OF EXHIBITS AND SCHEDULES

     

     

    Exhibit
      A  Form
      of
      Warrant

     

    Exhibit
      B  Escrow
      Agreement

     

    Exhibit
      C1  Security
      Agreement (Company)

     

    Exhibit
      C2  Security
      Agreement (Subsidiary)

     

    Exhibit
      D  Collateral
      Agent Agreement

     

    Exhibit
      E  Form
      of
      Legal Opinion

     

    Exhibit
      F  Form
      of
      Public Announcement or Form 8-K

     

    Exhibit
      G  Form
      of
      Limited Standstill Agreement

     

    Schedule
      5(a)  Subsidiaries

     

    Schedule
      5(d)  Additional
      Issuances / Capitalization

     

    Schedule
      5(q)  Undisclosed
      Liabilities

     

    Schedule
      8  Due
      Diligence Fee

     

    Schedule
      9(e)  Use
      of
      Proceeds

     

    Schedule
      9(q)  Providers
      of Limited Standstill Agreements

     

    Schedule
      11.1  Other
      Securities to be Registered

     

    31

    
 

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      G

    

    LIMITED
      STANDSTILL AGREEMENT

    

    This
      AGREEMENT (the "Agreement") is made as of the 23 day of June, 2005, by the
      signatories hereto (each a "Holder"), in connection with his ownership of shares
      of Kaire Holdings, Inc., a Delaware corporation (the "Company").

    

    NOW,
      THEREFORE, for good and valuable consideration, the sufficiency and receipt
      of
      which consideration are hereby acknowledged, Holder agrees as
      follows:

    

    1. Background.

    

    a.
       Holder
      is
      the beneficial owner of the amount of shares of the Common Stock, $0.01 par
      value, of the Company (“Common Stock”) and rights to purchase Common Stock
      designated on the signature page hereto.

    

    b. Holder
      acknowledges that the Company has entered into or will enter into an agreement
      with each subscriber (“Subscription Agreement”) to the Company’s secured
      convertible promissory notes and warrants (the “Subscribers”), for the sale to
      the Subscribers of an aggregate of up to $350,000 of principal amount of secured
      convertible promissory notes and warrants (the “Offering”). Holder understands
      that, as a condition to proceeding with the Offering, the Subscribers have
      required, and the Company has agreed to assist the Subscribers in obtaining,
      an
      agreement from the Holder to refrain from selling any securities of the Company
      from the date of the Subscription Agreement until the sooner of (i) the
      Registration Statement described in Section 11.1(iv) of the Subscription
      Agreement has been effective for 365 days (the "Restriction Period"), or (ii)
      until the Notes are no longer outstanding. 

    

    2. Share
      Restriction.
      

    

    a. Holder
      hereby agrees that during the Restriction Period, the Holder will not sell
      or
      otherwise dispose of any shares of Common Stock or any options, warrants or
      other rights to purchase shares of Common Stock or any other security of the
      Company which Holder owns or has a right to acquire as of the date hereof or
      acquires hereafter during the Restriction Period, other than in connection
      with
      an offer made to all shareholders of the Company or any merger, consolidation
      or
      similar transaction involving the Company. Holder further agrees that the
      Company is authorized to and the Company agrees to place "stop orders" on its
      books to prevent any transfer of shares of Common Stock or other securities
      of
      the Company held by Holder in violation of this Agreement.

    

    b. Any
      subsequent issuance to and/or acquisition of shares or the right to acquire
      shares by Holder will be subject to the provisions of this
      Agreement.

    

    c.
       Notwithstanding
      the foregoing restrictions on transfer, the Holder may, at any time and from
      time to time during the Restriction Period, transfer the Common Stock (i) as
      bona fide gifts or transfers by will or intestacy, (ii) to any trust for the
      direct or indirect benefit of the undersigned or the immediate family of the
      Holder, provided that any such transfer shall not involve a disposition for
      value, (iii) to a partnership which is the general partner of a partnership
      of
      which the Holder is a general partner, provided, that, in the case of any gift
      or transfer described in clauses (i), (ii) or (iii), each donee or transferee
      agrees in writing to be bound by the terms and conditions contained herein
      in
      the same manner as such terms and conditions apply to the undersigned. For
      purposes hereof, "immediate family" means any relationship by blood, marriage
      or
      adoption, not more remote than first cousin.

    d. In
      addition to transfers made pursuant to Section 2(c) above, during each twelve
      months of the Restriction Period, the Holder may sell up to 5% of the Common
      Stock actually owned by them but not more than 1% of the Common Stock actually
      owned by them during any thirty day period. Common Stock transferred pursuant
      to
      Section 2(c) above may not be sold pursuant to this Section 2(d).

    

    3. Miscellaneous.

    

    a. At
      any
      time, and from time to time, after the signing of this Agreement Holder will
      execute such additional instruments and take such action as may be reasonably
      requested by the Subscribers to carry out the intent and purposes of this
      Agreement.

    

    b. This
      Agreement shall be governed, construed and enforced in accordance with the
      laws
      of the State of New York without regard to conflicts of laws principles that
      would result in the application of the substantive laws of another jurisdiction,
      except to the extent that the securities laws of the state in which Holder
      resides and federal securities laws may apply. Any proceeding brought to enforce
      this Agreement may be brought exclusively in courts sitting in New York County,
      New York.

    

    c. This
      Agreement contains the entire agreement of the Holder with respect to the
      subject matter hereof.

    

    d. This
      Agreement shall be binding upon Holder, its legal representatives, successors
      and assigns.

    

    e. This
      Agreement may be signed and delivered by facsimile and such facsimile signed
      and
      delivered shall be enforceable.

    

    f. The
      Company agrees not to take any action or allow any act to be taken which would
      be inconsistent with this Agreement.

    

    IN
      WITNESS WHEREOF, and intending to be legally bound hereby, Holder has executed
      this Agreement as of the day and year first above written.

    

    HOLDER:

     

            ________________________________

    (Signature
      of Holder) 

    

    _________________________________

    (Print
      Name of Holder)       

    _________________________________

    Number
      of
      Shares of Common Stock

    Beneficially
      Owned

    

    COMPANY:

    

    KAIRE
      HOLDINGS, INC.

             
 /S/
      Steve Westlund

    By:______________________________

     

    32xxx

    Exhibit
      10.1

       

      United
        Commercial Bank

      555
        Montgomery Street

      San
        Francisco, CA 94111

      

      LOAN
        AND SECURITY AGREEMENT

      Facilities
        “B”&“C”

       

      THIS
        AGREEMENT,
        dated
        as of August
        12, 2005
        is
        entered into between
        Sigma Designs, Inc.
        (hereinafter collectively called “Borrower”) whose principal place of business
        is the address set forth in the Loan Term Sheet, and United Commercial Bank
        (hereinafter called “Bank”), with its place of business located at the address
        set forth above.

       

      The
        Parties hereby agree as follows:

       

      
        	
                1.

              	
                DEFINITIONS

              

      

       

      As
        used
        in this Agreement, the following terms shall have the following
        definitions:

       

      1.1. The
        term
“this Agreement” means and includes this Loan and Security Agreement, the Loan
        Term Sheet and any extensions, supplements, amendments or modifications
        thereto.

       

      1.2. The
        term
“Application for Irrevocable Documentary Credit” means a Bank standard form
        application for Commercial Letters of Credit.

       

      1.3. The
        term
        "Bank Expenses" means and includes, without limitation: all costs or expenses
        required to be paid by Borrower under this Agreement which are paid or advanced
        by Bank; taxes and insurance premiums of Borrower of every nature and kind
        paid
        by Bank; filing, recording, publication, search fees and audit costs paid
        or
        incurred by Bank in connection with Bank's transactions with Borrower; costs
        and
        expenses incurred by Bank in collecting the Receivables (with or without
        suit),
        to correct any default or enforce any provision of this Agreement, or in
        gaining
        possession of, maintaining, handling, preserving, storing, shipping, selling,
        disposing of, preparing for sale and/or advertising to sell the Collateral,
        whether or not a sale is consummated; costs and expenses of suit incurred
        by
        Bank in any proceeding enforcing, defending or relating to this Agreement
        or any
        portion hereof, including, but not limited to, expenses incurred by Bank
        in
        attempting to obtain relief from any stay, restraining order, injunction
        or
        similar process which prohibits Bank from exercising any of its rights or
        remedies; and attorneys' fees and expenses incurred by Bank in structuring,
        drafting, reviewing, amending, terminating, enforcing, defending or concerning
        this Agreement, or any portion hereof or any agreement related hereto, whether
        or not suit is brought. Bank Expenses shall include Bank's in-house legal
        charges at reasonable rates.

       

      1.4. The
        term
“Borrower’s Books” means and includes all of Borrower’s books and records
        including, but not limited to: minute books; ledgers; records indicating,
        summarizing or evidencing Borrower’s assets, liabilities, the Collateral and all
        information relating thereto; records indicating, summarizing or evidencing
        Borrower’s business operations or financial condition; and all computer
        programs, disc or tape files, printouts, runs, and other computer prepared
        information and the equipment containing such information.

       

      1.5. The
        term
“Borrowing Base” has the meaning giving to that term in the Loan Term
        Sheet.

       

      1.6. The
        term
“the Code” means the California Uniform Commercial Code, and any and all terms
        used in this Agreement which are defined in the code and not specifically
        defined herein shall be construed and defined in accordance with the meaning
        and
        definition ascribed to such terms under the Code.

       

      1.7. The
        term
“Collateral” means and includes each and all of the following: the Real
        Property; the Receivables; the Intangibles; the Negotiable Collateral; the
        Inventory; all money, deposit accounts and all other assets of Borrower in
        which
        Bank receives a security interest or which hereafter come into the possession,
        custody or control of Bank; and the proceeds of any of the foregoing, including,
        but not limited to, proceeds of insurance covering the Collateral and any
        and
        all Receivables, Intangibles, Negotiable Collateral, Inventory, equipment,
        money
        deposit accounts or other tangible and intangible property of Borrower resulting
        from the sale or other disposition of the Collateral, and the proceeds thereof
        including all proceeds of any type described above acquired with cash proceeds
        and all causes of action, and all sums due or payable to Borrower for injury
        or
        damage to Borrower’s Receivables, Intangibles, Negotiable Collateral, and
        Inventory, or as damages incurred in connection with the transactions in
        which
        the Credit was made, including causes of action and damages for breach of
        contract, fraud, concealment, or other torts, are hereby assigned, and all
        proceeds from such causes of action and all such sums shall be paid to Bank
        for
        credit upon the Obligations. Notwithstanding anything to the contrary contained
        herein, Collateral shall not include any waste or other materials, which
        have
        been or may be designated as toxic or hazardous by Bank.

       

      1.8. The
        term
“Credit” means all Obligations of Borrower to Bank except those obligations
        arising pursuant to any letter of credit issued or bankers acceptances created
        or discounted under Section 3.1 of this Agreement and those obligations arising
        pursuant to any other separate contract, instrument, note, or other separate
        agreement which, by its terms, provides for a specified interest rate and
        term.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      1.9. The
        term
“Current Ratio” is defined as current assets divided by current
        liabilities.

       

      1.10. The
        term
“Daily Balance” shall mean the amount determined by taking the amount of the
        Credit owed at the beginning of a given day, adding any new Credit advanced
        or
        incurred on such date, and subtracting any payments or collections which
        are
        deemed to be paid and are applied by Bank in reduction of the Credit on that
        date under the provisions of this Agreement.

       

      1.11. The
        term
        "Documentary Collection" means and includes a documentary collection, in
        form
        and substance acceptable to Bank (i) which has been drawn on parties acceptable
        to Bank and (ii) in which Bank has validly perfected assignment of the proceeds
        thereof first in priority.

       

      1.12. The
        term
“Event of Default” means the occurrence of any one of the events set forth in
        Article 8 of this Agreement.

       

      1.13. The
        term
        "Export Letter of Credit" means and includes a letter of credit, in form
        and
        substance acceptable to Bank, delivered by Borrower to Bank; (i) which has
        been
        issued for Borrower's benefit by a bank acceptable to Bank and (ii) in which
        Bank has a validly perfected assignment of the proceeds thereof first in
        priority.

       

      1.14. The
        term
“Insolvency Proceeding” means and includes any proceeding, commenced by or
        against any person or entity, including borrower, under any provision of
        the
        federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
        law, including, but not limited to, assignments for the benefit of creditors,
        formal or informal moratoriums, compositions or extensions with some or all
        creditors.

       

      1.15. The
        term
“Intangibles” means and includes all of Borrower’s present and future general
        intangibles and other personal property (including, without limitation, any
        and
        all choses or things in action, goodwill, patents, trade names, copyrights,
        trademarks, service marks, blueprints, drawings, purchase orders, computer
        programs, computer discs, computer tapes, literature, reports, catalogs,
        deposit
        accounts and tax refunds) other than Inventory and Receivables, but including
        Borrower’s Books relating to any of the foregoing.

       

      1.16. The
        term
“Inventory” means and includes all present and future inventory in which
        Borrower has any interest, including, but not limited to, goods held by Borrower
        for sale or lease or to be furnished under a contract of service and all
        of
        Borrower’s present and future raw materials, work in process, finished goods,
        advertising materials, and equipment, fixtures or other property used in
        the
        storing, moving, preserving, identifying, accounting for and shipping or
        preparing for the shipping of Inventory, and any and all other items hereafter
        acquired by Borrower by way of substitution, replacement, return, repossession
        or otherwise, and all additions and accessions thereto, and the resulting
        product or mass, and any documents of title respecting any of the
        above.

       

      1.17. The
        term
“Judicial Officer or Assignee” means and includes any trustee, receiver,
        controller, custodian, assignee for the benefit of creditors or any other
        person
        or entity having powers or duties like or similar to the powers and duties
        of a
        trustee, receiver, controller, custodian or assignee for the benefit of
        creditors.

       

      1.18. The
        term
        "L/C Backed Commercial Letters of Credit" means and includes commercial letters
        of credit issued by Bank for Borrower's account, each in the face amount
        no
        greater than ninety percent (90%) of the undrawn amount of an Export Letter
        of
        Credit. 

       

      1.19. The
        term
“Leverage Ratio” is defined as total liabilities net of subordinated debt
        divided by Tangible Net Worth.

       

      1.20. The
        term
“Loan Term Sheet” means the currently effective Loan Term Sheet, in form similar
        to the page entitled Loan Term Sheet executed and attached to this Agreement
        that has been executed by the parties to this Agreement and is made a part
        of
        the Agreement. The terms listed in the Loan Term Sheet, and any amendments
        to
        the Loan Term Sheet are incorporated herein and made a part hereof.

       

      1.21. The
        term
“Maximum Credit Limit” means the total amount of credit committed to Borrower as
        detailed in the Loan Term Sheet.

       

      1.22. The
        term
“Maximum Sublimit” means the total available to Borrower for specific purposes
        within the Maximum Credit Limit as detailed in the Loan Term Sheet.

       

      1.23. The
        term
“Negotiable Collateral” shall have the meaning set forth in Section 5.1 of this
        Agreement.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      1.24. The
        term
“Obligations” means and includes any and all loans, advances, overdrafts, debts,
        liabilities (including, without limitation, any and all amounts charged to
        Borrower’s account pursuant to any agreement authorizing Bank to charge
        Borrower’s account), obligations, lease payments, guaranties, covenants and
        duties of any kind and description owing by Borrower to Bank (whether advanced
        pursuant to or evidenced by this Agreement, by any note or other instrument,
        or
        by any other agreement between Bank and Borrower and whether or not for the
        payment of money), whether direct or indirect, absolute or contingent, due
        or to
        become due, now existing or hereafter arising, and including, without
        limitation, any debt, liability or obligation owing from Borrower to others
        which Bank may have obtained by assignment, merger, participation, purchase
        or
        otherwise, and further including, without limitation, all interest and fees
        not
        paid when due and all Bank Expenses which Borrower is required to pay or
        reimburse by this Agreement and the Loan Term Sheet, the Promissory Note,
        by
        law, or otherwise.

       

      1.25. The
        term
“Over Line” shall have the meaning set forth in Section 2.1 and 3.1 of this
        Agreement.

       

      1.26. The
        term
“Over Advance” means if the aggregate of advances made under Section 2.1 and
        acceptances created under Section 3.1 of this Agreement exceed the prescribed
        Borrowing Base, if any, as defined in the Loan Term Sheet.

       

      1.27. The
        term
        "Person" shall mean and include natural persons, corporations, partnerships,
        unincorporated associations, joint ventures and any other form of legal
        entity.

       

      1.28. The
        term
        "Prime Rate" shall mean the variable rate of interest, expressed as an annual
        rate, called the Prime Rate of interest for Corporate Loans as published
        by the
        Wall Street Journal (Western Edition) in its Money Rates Section. This Prime
        Rate is the base rate on corporate loans posted by at least 75% of the nation’s
        30 largest banks.

       

      1.29. The
        term
“Quick Ratio” is defined as cash, cash equivalents plus Accounts Receivable
        divided by Current Liabilities.

       

      1.30. The
        term
“Rate” shall have the meaning set forth in Section 2.4 of this Agreement and in
        the Loan Term Sheet.

       

      1.31. The
        term
“Receivables” means and includes all presently existing and hereafter arising
        accounts, general intangibles, contract rights, instruments, documents, chattel
        paper, and all other forms of obligations owing to Borrower, whether or not
        earned by performance, and any and all credit insurance, guaranties and other
        security therefor as well as all merchandise returned to or reclaimed by
        Borrower, and Borrower’s Books (except minute books) relating to any of the
        foregoing.

       

      1.32. The
        term
“Tangible Net Worth” means net worth as determined in accordance with generally
        accepted accounting principles consistently applied, increased by debt
        subordinated to Bank if any, and decreased by the following: patents, licenses,
        goodwill, subscription lists, organization expenses and monies due from
        affiliates (including officers, directors, shareholders, parents, partners,
        joint ventures, subsidiaries and commonly held companies).

       

      1.33. The
        term
        "Value of Finished Goods" as used in this Agreement means the lesser of the
        cost
        of Borrower's finished goods inventory as shown on monthly lists of inventory
        given by Borrower to Bank hereunder or the value of such finished goods as
        determined by Bank in its sole and absolute discretion based on the age,
        seasonability or other factors that may affect the value of such finished
        goods."

       

      1.34. The
        term
“Working Capital” is defined as Current Assets minus Current
        Liabilities.

       

      1.35. All
        accounting terms and computations shall be based on generally accepted
        accounting principles, consistently applied.

       

       

      
        	
                2.

              	
                LOANS

              

      

       

      2.1. At
        the
        request of Borrower, made at anytime and from time to time during the term
        of
        this Agreement, and so long as no Event of Default has occurred hereunder
        and
        Borrower is in full, faithful and timely compliance with each and all the
        covenants, conditions, warranties and representations contained in this
        Agreement and the Loan Term Sheet and/or any other agreement between Bank
        and
        Borrower, Bank will make advances as provided in the Loan Term Sheet, provided,
        however, all advances made, letters of credit issued and other financial
        accommodations extended by Bank to or for the account or benefit of Borrower
        under this Agreement and the Loan Term Sheet shall be added to and deemed
        part
        of the Obligations and Credit when made and/or issued. Notwithstanding any
        other
        provisions of this Agreement, at no time shall Bank be obligated to provide
        any
        financial accommodations whenever the Maximum Credit Limit or sublimits provided
        for in the Loan Term Sheet are exceeded.

       

      If,
        at
        any time for any reason such Maximum Credit Limit is exceeded or if any Maximum
        Sublimit on any subcomponent of the Credit, as provided in the Loan Term
        Sheet,
        is exceeded, then Borrower shall immediately pay to Bank, in cash, the amount
        by
        which such Maximum Credit Limit or Maximum Sublimit is exceeded (“Over
        Line”).

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      If,
        at
        any time for any reason the aggregate of advances made hereunder exceeds
        the
        prescribed Borrowing Base, if any, then Borrower shall immediately pay to
        Bank,
        in cash, the amount by which such Borrowing Base is exceeded (“Over
        Advance”).

       

      2.2. Bank
        is
        hereby authorized to make the loans and the extensions of credit provided
        for in
        this Agreement based upon telephone or other instructions received from anyone
        purporting to be an authorized representative of Borrower or, at the discretion
        of Bank, if said loans are necessary to satisfy any Obligation of Borrower
        to
        Bank. Bank shall have no duty to make inquiry or verify the authority of
        any
        such party, and Borrower shall hold Bank harmless from any damages, claims,
        or
        liability by reason of Bank’s honor of, or failure to honor, any such
        instructions. Nevertheless, Bank reserves the right to withhold advancing
        any
        loan hereunder pending receipt of such additional information as Bank may,
        from
        time to time, request.

       

      2.3. Except
        as
        hereinbelow provided, the Credit shall bear interest, on the Daily Balance
        owing, at the Rate provided in the Loan Term Sheet. From and after the
        occurrence of an Event of Default and without constituting a waiver of any
        such
        Event of Default, the Credit shall bear interest at the Default Rate provided
        for in the Loan Term Sheet. All Over Advances shall bear additional interest
        on
        the amount thereof at the rate equal to the Default Rate provided for in
        the
        Loan Term Sheet, payable from the date incurred and for each month the
        hereafter, until repaid in full. All interest chargeable under this Agreement
        that is based upon a per annum calculation shall be computed on the basis
        of a
        360-day year and actual days elapsed.

       

      All
        interest payable by Borrower under the Credit shall be due and payable on
        the
        fifth (5th)
        day of
        each calendar month during the term of this Agreement, and Bank may, at its
        option, elect to treat such interest and any and all Bank Expenses as advances
        under the Credit, which amounts shall thereupon constitute Obligations and
        shall
        thereafter accrue interest at the rate applicable to the Credit under the
        terms
        of this Agreement and the Loan Term Sheet.

       

      2.4. In
        the
        event that the Prime Rate published is, from time to time hereafter, changed,
        adjustment in the Rate shall be made and based on the Prime Rate in effect
        on
        the date of such change. The Rate, as adjusted, shall apply to the Credit
        owed
        until the Prime Rate is adjusted again. All interest payable by Borrower
        under
        the Credit shall be due and payable on the fifth (5th)
        day of
        each calendar month during the term of this Agreement, and Bank may, at its
        option, elect to treat such interest and any and all Bank Expenses as advances
        under the Credit, which amounts shall thereupon constitute Obligations and
        shall
        thereafter accrue interest at the rate applicable to the Credit under the
        terms
        of this Agreement.

       

      2.5. Bank
        or
        Bank's designee may, at any time following an Event of Default, notify customers
        or account debtors of Borrower that the Receivables have been assigned to
        Bank,
        that Bank has a security interest therein, collect them directly, and charge
        the
        collection costs and expenses to Borrower's account, but, unless and until
        Bank
        does so or gives Borrower other written instructions, Borrower shall collect
        all
        Receivables for Bank, receive in trust all payments thereon as Bank's trustee
        and immediately deliver said payments to Bank in their original form as received
        from the account debtor. The receipt of any check or other item of payment
        by
        Bank shall not be considered a payment on account until such check or other
        item
        of payment is honored when presented for payment, in which event said check
        or
        other item of payment shall be deemed to have been paid to Bank in accordance
        with Bank's rules and regulations relating to credits to deposit accounts
        or, in
        Bank's discretion, two (2) calendar days after the date Bank actually receives
        possession of such check or other item of payment. 

       

      2.6. Notwithstanding
        the absolute and irrevocable assignment to Bank of the Receivables, Bank
        hereby
        grants permission to Borrower to collect and retain the Receivable as they
        become due and payable; however, such permission to Borrower shall be
        automatically revoked upon the occurrence of any Event of Default, and Lender
        shall have the right to notify customers or account debtors of Borrower that
        the
        Receivables have been assigned to Bank, that Bank has a security interest
        therein, collect them directly, and charge the collection costs and expenses
        to
        Borrower’s account, but, unless and until Bank does so or gives Borrower other
        written instructions, Borrower shall collect all Receivables for Bank, receive
        in trust all payments thereon as Bank’s trustee and immediately deliver said
        payments to Bank in their original form as received from the account debtor.
        The
        receipt of any check or other item of payment by Bank shall not be considered
        a
        payment on account until such check or other item of payment is honored when
        presented for payment, in which event said check or other item of payment
        shall
        be deemed to have been paid to Bank in accordance with Bank’s rules and
        regulations relating to credits to deposit accounts or, in Bank’s discretion,
        two (2) calendar days after the date Bank actually receives possession of
        such
        check or other item of payment.

       

      2.7. Bank
        may
        exercise its rights hereunder, without notice to Borrower, and irrespective
        of
        whether notice of default has been delivered to Borrower, and without regard
        to
        the adequacy of the Collateral for the indebtedness secured hereby, either
        personally or by attorney or agent, without bringing any action or proceeding,
        or by receiver appointed by the Court, to take, receive and collect all or
        any
        part of the said Receivables, and after paying such costs of collection,
        including attorney’s fees, as in its judgment it may deem proper, to apply the
        balance upon the entire indebtedness owed Bank by Borrower.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      It
        is
        expressly understood and agreed by Borrower that Bank shall have no liability
        to
        Borrower or any other person for Bank’s failure or inability to collect
        Receivables.

       

      2.8. Bank
        shall retain its security interest in all Collateral until all Obligations
        have
        been fully repaid. Returns and allowances, if any, as between Borrower and
        Borrower’s customers, will be on the same basis and in accordance with the usual
        customary practices of Borrower, as they exist at this time. Borrower shall
        promptly notify Bank of all returns and recoveries and promptly notify Bank
        of
        all disputes and claims. After an Event of Default, unless Bank shall otherwise
        agree in writing, no discount, credit or allowance shall be granted by Borrower
        to any account debtor and no return of merchandise shall be accepted by Borrower
        without Bank’s written consent. Bank may, after an Event of Default, settle or
        adjust disputes and claims directly with account debtors for amounts and
        upon
        terms which Bank considers advisable, and in such cases, Bank will credit
        in
        reduction of the Obligations only the net amounts received by Bank in payment
        of
        such disputed Receivables, after deducting all Bank Expenses incurred or
        expended in connection therewith.

       

      2.9. Bank
        shall render monthly statements of the Credit owing by Borrower to Bank,
        including statements of all principal, interest, fees and Bank Expenses owing,
        and such statements shall be conclusively presumed to be correct and accurate
        and constitute an account stated between Borrower and Bank unless, within
        thirty
        (30) days after receipt thereof by Borrower, Borrower shall deliver to Bank,
        by
        registered or certified mail, at Bank’s place of business indicated hereinabove,
        written objection thereto specifying the error or errors, if any, contained
        in
        any such statement. No failure by Bank to render any such monthly statements
        shall be deemed to impair or otherwise affect the Credit.

       

      2.10. Term
        Loan.
        If
        Borrower executes a Term Promissory Note, all amounts due and owning under
        said
        Term Promissory Note shall be part of the Obligations hereunder and shall
        be
        secured by the Collateral.

       

       

      
        	
                3.

              	
                LETTER
                  OF CREDIT AND BANKER’S ACCEPTANCE
                  FACILITIES

              

      

       

      3.1. If
        the
        Loan Term Sheet provides for a Letter of Credit facility, upon the request
        of
        Borrower, made at any time and from time to time during the term hereof,
        subject
        to the Maximum Credit Limit and Maximum Sublimit set forth in the Loan Term
        Sheet, and so long as no Event of Default has occurred, and Borrower is in
        full,
        faithful and timely compliance with each and all the covenants, conditions,
        warranties and representations contained in this Agreement and/or any other
        agreement between Bank and Borrower, Bank, on a revolving basis will issue
        Letters of Credit, create and discount banker’s acceptances for Borrower’s
        account if and as provided for in the Loan Term Sheet; provided, however,
        in no
        event shall Bank be obligated to issue Letters of Credit and create or discount
        banker’s acceptances whenever the total of undrawn Letters of Credit and/or
        banker’s acceptances exceed the Maximum Sublimits provided in the Loan Term
        Sheet.

       

      If,
        at
        any time and for any reason, the total of the undrawn amount of all Letters
        of
        Credit or the total of all outstanding banker’s acceptances exceeds the Maximum
        Sublimit provided in the Loan Term Sheet (“L/C Over Line” or “B/A Over Line”),
        Borrower shall immediately pay to Bank, in cash, the amount of such L/C and/or
        B/A Over Line. Bank may, in its sole discretion, elect to treat an L/C and/or
        B/A Over Line as an advance under the Credit.

      

      3.2. Each
        Commercial Letter of Credit issued under Section 3.1 shall (i) be issued
        pursuant to the terms and conditions on this Agreement and of a Bank standard
        form Application for Irrevocable Documentary Credit executed by Borrower;
        (ii)
        expire on or before ninety (90) days after the date such letter of credit
        is
        issued, but not later than the termination of this Agreement; (iii) require
        drafts payable at sight; and (iv) be otherwise in form and substance and
        in
        favor of beneficiaries satisfactory to Bank. In the event of any inconsistency
        between the Terms of this Agreement and the terms of such Application for
        Irrevocable Documentary Credit, the terms of such Application for Irrevocable
        Documentary Credit shall control.

       

      3.3. Borrower
        shall pay to Bank Commercial Letter of Credit fees as defined in the Loan
        Term
        Sheet.

       

      3.4. Each
        Standby Letter of Credit issued under Section 3.1 shall be issued pursuant
        to
        the terms and conditions as contained in the Loan Term Sheet and on a Bank
        standard form Application for Standby Letter of Credit and Agreement (Standby
        Letter of Credit) executed by Borrower and be in form and substance and in
        favor
        of beneficiaries satisfactory to Bank.

       

      3.5. Borrower
        shall pay to Bank Standby Letter of Credit fees as defined in the Loan Term
        Sheet. 

       

      3.6. In
        the
        event of any inconsistency between the terms of this Agreement, the Loan
        Term
        Sheet and the terms of Borrower’s Application for Standby Letter of Credit and
        Agreement (Standby Letter of Credit), the terms of such Application for Standby
        Letter of Credit and Agreement (Standby Letter of Credit) shall
        control.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      3.7. All
        advances made, letters of credit issued, banker’s acceptances created or
        discounted and other financial accommodations extended by Bank to or for
        the
        account or benefit of Borrower under this Section 3, hereof shall be added
        to
        and deemed part of the Obligations when made issued, created and/or
        extended.

       

      3.8. If
        the
        Loan Term Sheet provides for a Banker’s Acceptances facility, the creation of
        banker’s acceptances shall be pursuant to the terms and conditions hereof and
        the Loan Term Sheet, and such other documents as Bank deems necessary in
        order
        to verify that Bank’s creation thereof is in compliance with all applicable
        laws, regulations and administrative orders, and Borrower agrees to execute
        and
        deliver all such documents to Bank. Bank shall not be obligated to create
        any
        banker’s acceptance that is not eligible for discount by a Federal Reserve Bank,
        or which, if created, would become a liability subject to reserve requirements
        under any regulation of the Board of Governors of the Federal Reserve System,
        or
        would cause the Bank to violate any lending limit imposed upon Bank by law,
        regulation or administrative order.

       

      3.9. Discount
        of Acceptances. If the Loan Term Sheet provides for the discount of Banker’s
        Acceptances, Bank agrees to discount any acceptance that is created and
        presented to it for discount at a rate quoted by Bank at the time the acceptance
        is presented to Bank for discount and for a similar dollar amount and a similar
        maturity as the draft being presented to Bank by Borrower for acceptance
        (the
“Acceptance Discount Rate”). On the date any such acceptance is presented for
        discount, Bank shall: (a) cause the aggregate discounted amount (less any
        commission then payable by Borrower to Bank under this Agreement) to be made
        available to Borrower by crediting such amount to Borrower’s demand deposit
        account maintained with Bank, unless the acceptance is created by a beneficiary
        under a Letter of Credit, in which event Bank will cause the amount to be
        paid
        to such beneficiary and will notify Borrower as to the creation of the
        acceptance; and (b) advise Borrower of the Acceptance Discount Rate at which
        Bank discounted such acceptance. Bank shall have the right, in its sole
        discretion, to sell, rediscount, hold, or otherwise deal with or dispose
        of any
        such acceptance discounted by it.

       

      3.10. The
        commission for each banker’s acceptance issued hereunder shall be at the rate
        disclosed in the Loan Term Sheet and shall be payable at the time of the
        issuance of the banker’s acceptance.

       

      3.11. Unpaid
        Acceptances. In the event Borrower fails to repay Bank the principal amount
        of
        any acceptance at maturity, without limiting the rights of the Bank under
        this
        Agreement or waiving any Event of Default caused thereby, the principal amount
        of such acceptance shall bear interest (from the date the acceptance matured
        until the date Bank is paid in full) at the default rate provided in the
        Loan
        Term Sheet. Borrower hereby promises to pay and shall pay Bank, on demand
        the
        unpaid amount of principal together with interest thereon.

       

      3.12. All
        advances made, letters of credit issued, banker’s acceptances and other
        financial accommodations extended by Bank to or for the account or benefit
        of
        Borrower under this Section 3, hereof shall be added to and deemed part of
        the
        Obligations when made issued, created and/or extended.

       

       

      
        	
                4.

              	
                TERM

              

      

       

      4.1. This
        Agreement shall remain in full force and effect until the Maturity Date as
        detailed in the Loan Term Sheet. Notwithstanding the foregoing, upon the
        occurrence of an Event of Default, Bank may terminate its obligations under
        this
        Agreement without notice. On the date of termination, all Obligations owed
        by
        Borrower to Bank shall become immediately due and payable without notice
        or
        demand and shall be repaid to Bank in cash or by a wire transfer of immediately
        available funds. Notwithstanding termination, until all Obligations have
        been
        fully repaid, Bank shall retain its security interest in all existing collateral
        and collateral arising thereafter, and Borrower shall continue to perform
        all
        Obligations.

       

      4.2. After
        termination and when Bank has received payment in full of all Obligations
        and
        upon the execution and delivery by Borrower to Bank of a general release
        in
        favor of Bank, Bank shall execute a termination of all security agreements
        and
        security interests given by Borrower to Bank.

       

       

      
        	
                5.

              	
                CREATION
                  OF SECURITY INTEREST

              

      

       

      5.1. Borrower
        hereby grants to Bank a continuing security interest in senior position in
        all
        presently existing and hereafter arising Collateral in order to secure prompt
        repayment of any and all Obligations owed by Borrower to Bank and in order
        to
        secure prompt performance by Borrower of each and all of Borrower’s covenants
        and obligations under this Agreement and otherwise created. Bank’s security
        interest in the Collateral shall attach to all Collateral without further
        act on
        the part of Bank or Borrower. Nevertheless, Borrower hereby authorizes Bank
        to
        file and/or record a financing statement with the appropriate governmental
        agency. In the event that any Collateral, including proceeds, is evidenced
        by or
        consists of a letter of credit, advice of credit, instrument, money, negotiable
        documents, chattel paper, or similar property (collectively, “Negotiable
        Collateral”), Borrower shall, immediately upon receipt thereof, endorse and
        assign such Negotiable Collateral over to Bank and deliver actual physical
        possession of the Negotiable Collateral to Bank. 

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      5.2. From
        time
        to time, and at Bank’s request, Borrower shall provide Bank with agings and
        schedules describing all Receivables created or acquired by Borrower and
        shall
        execute and deliver written assignments of such Receivables to Bank, whether
        or
        not Bank makes advances against such Receivables; provided, however, that
        Borrower’s failure to execute and deliver such schedules and/or assignments
        shall not affect or limit Bank’s security interest and other rights in and to
        the Receivables. Together with each schedule, Borrower shall, if requested
        by
        Bank, furnish Bank with copies of Borrower’s sales journals or invoices,
        customers’ purchase orders, or the equivalent, and original shipping or delivery
        receipts for all merchandise sold, and Borrower warrants the genuineness
        thereof. Absent a request, Borrower shall maintain all such documents as
        custodian for Bank.

       

      5.3. Upon
        Bank’s request, Borrower will hold the Inventory in trust for Bank; store the
        same in a warehouse in Bank’s name; deliver to Bank documents of title
        representing the Inventory; or evidence Bank’s security interest in some other
        manner acceptable to Bank. Until the occurrence of an Event of Default Borrower
        may, subject to the provisions hereof and consistent herewith, sell the
        Inventory, but only in the ordinary course of Borrower’s business. A sale of
        Inventory in Borrower’s ordinary course of business does not include an exchange
        or a transfer in partial or total satisfaction of a debt owing by Borrower,
        nor
        does it include an exchange for less than a present fair
        consideration.

       

      5.4. Borrower
        shall execute and deliver to Bank, concurrent with Borrower’s execution of this
        Agreement and the Loan Term Sheet, and at any time or times hereafter at
        the
        request of Bank, all financing statements, continuation of financing statements,
        fixture filings, security agreements, chattel mortgages, assignments,
        endorsements or certificates of title, affidavits, reports, notices, schedules
        of accounts, letters of authority and all other documents that Bank may
        reasonably request, in form, satisfactory to Bank, to perfect and maintain
        perfected Bank’s security interest in the Collateral and in order to fully
        consummate all of the transactions contemplated under this Agreement. Borrower
        hereby irrevocably makes, constitutes and appoints Bank (and any of Bank’s
        officers, employees or agents designated by Bank) as Borrower’s true and lawful
        attorney-in-fact with power to sign the name of Borrower on any of the
        above-described documents or on any other similar documents which, in Bank’s
        judgment, need to be executed, recorded, and/or filed in order to perfect
        or
        continue perfected Bank’s security interest in the Collateral.

       

      Bank
        (through any of its officers, employees or agents) shall have the right,
        at any
        time or times hereafter, during Borrower’s usual business hours, or during the
        usual business hours of any third party having control over the records of
        Borrower, to inspect and verify Borrower’s Books in order to verify the amount
        or condition of, or any other matter relating to, the Collateral and Borrower’s
        financial condition. In addition, Borrower hereby appoints Bank (and any
        of
        Bank’s officers, employees or agents designated by Bank) as Borrower’s
        attorney-in-fact, with power: to endorse Borrower’s name on any checks, notes,
        acceptances, money orders, drafts or other forms of payment or security that
        may
        come into Bank’s possession; to sign Borrower’s name on any invoice or bill of
        lading relating to any Collateral, on drafts, against account debtors, on
        schedules and assignments of Receivables, on verifications of Receivables
        and on
        notices to account debtors; and upon the occurrence of any Event of Default
        which shall not have been waived by Bank, to establish a lock box arrangement
        and/or to notify the post office authorities to change the address for delivery
        of Borrower’s mail to an address designated by Bank, to receive and open all
        mail addressed to Borrower, and to retain all mail relating to the Collateral
        and forward all other mail to Borrower; and to send, whether in writing or
        by
        telephone, requests for verification of Collateral and to do all things
        necessary to carry out this Agreement. Borrower ratifies and approves all
        acts
        of the attorney-in-fact and releases and holds harmless Bank and its
        attorney-in-fact from any liability for any acts or omissions or for any
        error
        of judgment or mistake of fact or law made in good faith. The appointment
        of
        Bank as Borrower’s attorney-in-fact, and each and every one of Bank’s rights and
        powers, being coupled with an interest, are durable and
        irrevocable.

       

      
        	
                6.

              	
                CONDITIONS
                  PRECEDENT

              

      

       

      As
        conditions precedent to the making of the loans and the extension of the
        financial accommodations hereunder, Borrower shall execute, or cause to be
        executed, and deliver to Bank, in form and substance satisfactory to Bank
        and
        its counsel, the following:

       

      
        
          (a)
            This
            Agreement, the Loan Term Sheet and other documents required by
            Bank;

        

      

       

      (b) Financing
        statements (Form UCC-1) in form satisfactory to Bank for filing and recording
        with the appropriate government authorities;

       

      (c) A
        certificate of good standing showing that Borrower is in good standing under
        the
        laws of the state of its incorporation and indicating that Borrower has
        qualified to transact business and is in good standing in any other state
        in
        which it conducts business;

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      (d) UCC
        searches, tax lien and litigation searches, fictitious business name statement
        filings, insurance certificates, notices or other similar documents which
        Bank
        may require and in such form as Bank may require, in order to reflect, perfect
        or protect Bank’s first priority security interest in the Collateral and in
        order to fully consummate all of the transactions contemplated under this
        Agreement.

       

       

      
        	
                7.

              	
                WARRANTIES,
                  REPRESENTATIONS AND
                  COVENANTS

              

      

       

      In
        order
        to induce Bank to enter into this Agreement and to make the loans and extensions
        of credit contemplated hereunder, Borrower warrants, represents and agrees
        that
        until all of the Obligations are fully paid and performed:

       

      7.1. Borrower
        has good and marketable title to the Collateral. Bank has and shall continue
        to
        have a first priority perfected security interest in and to the Collateral.
        The
        Collateral shall at all times remain free and clear of all liens, encumbrances
        and security interests (expect those already in existence).

       

      7.2. All
        accounts are and will, at all times pertinent hereto, be bona fide existing
        obligations created by the sale and delivery of merchandise or the rendition
        of
        services to account debtors in the ordinary course of business, free of all
        liens, claims, encumbrances and security interests (except as held by Bank
        and
        except as may be consented to, in writing, by Bank) and are unconditionally
        owed
        to Borrower without defenses, disputes, offsets, counterclaims, rights of
        return
        or cancellation, and Borrower shall have received no notice of actual or
        imminent bankruptcy or insolvency of any account debtor at the time an account
        due from such account debtor is assigned to Bank.

       

      7.3. Borrower
        covenants and agrees that Borrower shall keep the Inventory only at the address
        provided in the Loan Term Sheet. In addition, Borrower covenants and agrees
        that:

       

      (a) All
        Inventory is now and at all times hereafter shall be of good and merchantable
        quality, free from defects;

       

      (b) As
        provided in the Loan Term Sheet or at Bank’s request, Borrower shall, from time
        to time hereafter, execute and deliver to Bank designations of Inventory,
        in
        form acceptable to Bank, specifying Borrower’s cost and the wholesale market
        value of Borrower’s raw materials, work in process, finished goods, and further
        specifying any other category which Bank may request, as well as such other
        matters and information relating to the Inventory as Bank may
        request;

       

      (c) All
        of
        the Inventory is and shall remain free from all liens, claims, encumbrances,
        and
        purchase money or other security interests (except as held by Bank and except
        as
        may be consented to, in writing, by Bank);

       

      (d) Borrower
        does now keep and hereafter at all times shall keep correct and accurate
        records
        itemizing and describing the kind, type, quality and quantity of the Inventory,
        and the cost therefor, all of which records shall be available upon demand
        to
        any of Bank’s officers, agents and employees for inspection and copying;
        and

       

      (e) Bank
        shall have the right, during Borrower’s usual business hours, to inspect and
        examine the Inventory and to check and test the same as to quality, quantity,
        value and condition.

       

      7.4. Borrower
        will not, without Bank’s prior written consent:

       

      (a) Sell,
        lease, or otherwise dispose of, move, relocate, or transfer, whether by sale
        or
        otherwise, any of Borrower’s assets, provided, however, that Borrower may sell
        Inventory in the ordinary course of Borrower’s business consistent with the
        provisions of Section 5.3 hereinabove;

       

      (b) Change
        Borrower’s name, business structure, or identity, or add any new fictitious
        name;

       

      (c) Acquire,
        merge or consolidate with or into any other business organization;

       

      (d) Enter
        into any transaction not in the normal course of Borrower’s business as
        presently conducted;

       

      (e) Guaranty
        or otherwise become in any way liable with respect to the obligations of
        any
        third party except by endorsement of instruments or items of payment for
        deposit
        to the general account of Borrower or which are transmitted or turned over
        to
        Bank;

       

      (f) Make
        any
        change in Borrower’s financial structure or in any of Borrower’s business
        objective, purposes, or operations, which could adversely affect the ability
        of
        Borrower to repay the Obligations;

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      (g) Incur
        any
        debts outside the ordinary course of Borrower’s business, except for renewals or
        extensions of existing debts;

       

      (h) Make
        any
        advance or loan to any other person or entity including those to any officer,
        director, employee or shareholder or any indebtedness for borrowed money
        except
        in the ordinary course of business as presently conducted;

       

      (i) Prepay
        any existing indebtedness owing to any third party;

       

      (j) Suspend
        or go out of business;

       

      (k) Make
        any
        plant or fixed capital expenditure, or any commitment therefor, or purchase,
        finance or lease any real or personal property or replacement equipment in
        any
        fiscal year, in excess of one hundred thousand and no cents dollars
        ($100,000.00); 

       

      (l) Grant
        any
        security interests in or permit a lien, claim or encumbrance upon all or
        any
        portion of Borrower’s assets, except in favor of or agreed to by Bank;
        and

       

      (m) Transfer
        or suffer the transfer of effective ownership or control of
        Borrower.

       

      7.5. Borrower’s
        sole place of business or chief executive office is located at the address
        set
        forth in the Loan Term Sheet and Borrower covenants and agrees that Borrower
        will not, during the term of this Agreement, without prior written notification
        to Bank, relocate said sole place of business or chief executive
        office.

       

      7.6. Borrower
        is and shall at all times hereafter be a duly organized and existing legal
        entity and qualified and licensed to do business, and in good standing, in
        any
        state in which it conducts its business.

       

      7.7. Borrower
        has the right and power and is duly authorized to enter into this
        Agreement.

       

      7.8. The
        execution by Borrower of this Agreement shall not constitute a breach of
        any
        provision contained in Borrower’s Articles of Incorporation or
        bylaws.

       

      7.9. Borrower
        will not, without Bank’s prior written consent, make any distribution or declare
        or pay any dividends (in cash or stock) on, or purchase, acquire, redeem
        or
        retire any of its capital stock, of any class, whether now or hereafter
        outstanding, except as detailed in the Loan Term Sheet.

       

      7.10. The
        execution of and performance by Borrower of all of the terms and provisions
        contained in this Agreement shall not result in a breach of or constitute
        an
        event of default under any agreement to which Borrower is now or hereafter
        becomes a party.

       

      7.11. Borrower
        shall promptly notify Bank in writing of Borrower’s acquisition by purchase,
        lease or otherwise of any after-acquired tangible property, with the exception
        of purchases of Inventory in the ordinary course of business.

       

      7.12. All
        assessments and taxes, whether real, personal or otherwise, due or payable
        by,
        or imposed, levied or assessed against, Borrower or any of Borrower’s property
        have been paid, and shall hereafter be paid in full, before delinquency.
        Borrower shall make due and timely payment or deposit of all federal, state
        and
        local taxes, assessment or contributions required of Borrower by law, and
        will
        execute and deliver to Bank, on demand, appropriate certificates attesting
        to
        the payment or deposit thereof. Borrower will make timely payment or deposit
        of
        all F.I.C.A. payments and withholding taxes required by Borrower by applicable
        laws, and will, upon request, furnish Bank with proof satisfactory to Bank
        that
        Borrower has made such payments or deposits. If Borrower fails to pay any
        such
        assessment, tax, contribution, or make such deposit, or furnish the required
        proof, Bank may, in Bank’s sole and absolute discretion and without notice to
        Borrower, (a) make payment of the same or any part thereof, or (b) set up
        such
        reserves in Borrower’s account as Bank deems necessary to satisfy the liability
        therefore, or both. Bank may conclusively rely on the usual statements of
        the
        amount owing or other official statements issued by the appropriate governmental
        agency. Each amount paid or deposited by Bank shall constitute Bank Expenses
        and
        an advance to Borrower. Nothing herein contained shall preclude Borrower
        from
        contesting, in good faith and by appropriate proceedings, the imposition
        of any
        assessments and taxes and to withhold payment of such contested amounts pending
        the resolution of such proceedings.

       

      7.13. There
        are
        not at present, any action or proceeding pending by or against Borrower or
        any
        guarantor of Borrower before any court or administrative agency, and Borrower
        has no knowledge of any pending, threatened or imminent litigation, governmental
        investigations or claims, complaints, actions or prosecutions involving Borrower
        or any guarantor of Borrower, except for ongoing collection matters and except
        as heretofore disclosed, in writing, to Bank.

       

      7.14. Borrower
        represents and warrants to Bank that:

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (a) The
        Borrower is not in violation of or subject to any existing, pending, or
        threatened investigation by any governmental authority under any law, statute,
        ordinance, or regulation pertaining to health, industrial hygiene, or the
        environment (collectively referred to as “Environmental Laws”), including
        without limitation, the Comprehensive Environmental Response, Compensation,
        and
        Liability Act of 1980 (‘CERCLA”) as amended, 42 U.S.C. Section 9601 et seq., the
        Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. Sections 6901
        et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801
        et
        seq., the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 et
        seq.,
        the Clear Air Act, 42 U.S.C. Sections 7401 et seq., the Toxic Substances
        Control
        Act, 15 U.S.C. Sections 2601 et seq., the Refuse Act, 33 U.S.C. Sections
        407 et
        seq., the Emergency Planning and Community Right-To-Know Act, 42 U.S.C. Sections
        11001 et seq., the provisions of the California Health and Safety Code
§§25100,
        et
        seq., §§25220,
        et
        seq., §§25249.5
        et seq., §§25280,
        et
        seq., the Carpenter-Presely-Tanner Hazardous Substance Account Act, Health
        and
        Safety Code, §§25300,
        et
        seq., the California Expedited Remedial Action Reform Act of 1994, Health
        and
        Safety Code, §§25396
        et
        seq., and the Porter-Cologne Water Quality Control Act, Water Code §§13000,
        et
        seq.;

       

      (b) Borrower
        has not and is not required by any Environmental Law to obtain any permits
        or
        license to conduct business;

       

      (c) No
        investigation, administrative order, consent order and agreement, litigation
        or
        settlement with respect to Hazardous Substances or Hazardous Substances
        contamination is proposed, threatened, anticipated or in existence with respect
        to the Borrower;

       

      (d) Borrower
        has not received any notice from any governmental authority with respect
        to any
        violation of any Environmental Laws;

       

      (e) The
        use
        which Borrower makes and intends to make of the Collateral will not result
        in
        the disposal or release of any Hazardous Substances; and

       

      (f) Borrower
        will not generate, manufacture, transport, store, release, discharge, or
        dispose
        of any hazardous Substance and Borrower shall not cause any violation of
        any
        Environmental Laws.

       

      The
        term
“Hazardous Substance” shall include: (i) those substances included within the
        definitions of “hazardous substances,”“hazardous materials,”“toxic substances,”
        or “solid waste” in CERCLA, RCRA, and the Hazardous Materials Transportation
        Act, 49 U.S.C. Section 1801, et seq.,
        and in
        the regulations promulgated pursuant to said laws; (ii) those substances
        defined
        as “hazardous wastes” in Section 25117 of the California Health & Safety
        Code, and in the regulations promulgated pursuant to said laws; (iii) those
        substances defined as “hazardous substances listed in Section 2929.5 of the
        California Civil Code; (iv) those substances listed in the United States
        Department of Transportation Table (49 CFR 172.101 and amendments thereto);
        (v)
        those substances defined as “medical wastes” in the Medical Waste Management
        Act, Chapter 6.1 of the California Health & Safety Code; (vi) asbestos
        containing materials; (vii) polychlorinated biphenyl; (viii) underground
        storage
        tanks, whether empty, filled or partially filled with any substance; and
        (ix)
        such other substances, materials and wastes which are or become regulated
        under
        applicable local, state or federal law, or which are classified as hazardous
        or
        toxic under federal, state, or local laws or regulations or which, even if
        not
        so regulated, are known to pose a hazard to the health and safety of the
        occupants of the Property or of property adjacent to the Property.

       

      Borrower
        shall give prompt written notice to Lender of:

       

      
        	 	
                (1)

              	
                any
                  proceeding or inquiry by any governmental authority (including,
                  without
                  limitation, the California State Department of Health Services)
                  with
                  respect to the violation of any Environmental Law by Borrower;
                  and

              

      

       

      
        	 	
                (2)

              	
                all
                  claims made or threatened by any third party against Borrower relating
                  to
                  any loss or injury resulting from any Hazardous
                  Substance.

              

      

       

      Bank
        shall have the right, at its option, to join and participate in, as a party
        if
        it so elects, any legal proceedings or actions initiated by or against Borrower
        in connection with any Environmental Law.

       

      Borrower
        shall indemnify and hold harmless Bank, its directors, officers, employees,
        agents, successors and assigns from and against, any loss, damages, cost,
        expense or liability directly or indirectly arising out of or attributable
        to
        the use, generation, manufacture, production, storage, release, threatened
        release, discharge, disposal, or presence of a Hazardous Substance on, under
        or
        about the Borrower’s business property, or any order, consent decree or
        settlement relating to the cleanup of a Hazardous Substance, or any claims
        of
        loss, damage, liability, expense or injury relating to or arising from, directly
        or indirectly, any disclosure by Lender to anyone of information, whether
        true
        or not, relative to a Hazardous Substance and/or Environment Law violation,
        including without limitation, attorneys’ fees. This indemnity shall survive the
        termination of this Agreement (whether by payment of the Obligations or action
        in lieu thereof).

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      7.15. Borrower,
        at Borrower’s expense, shall keep and maintain Borrower’s assets insured against
        loss or damage by fire, theft, explosion, sprinklers and all other hazards
        and
        risks ordinarily insured against by other owners who use such properties
        in
        similar businesses in an amount not less than one hundred percent (100%)
        of the
        full insurable value thereof on a replacement cost basis, with an inflation
        guard endorsement, if available. Borrower shall also keep and maintain public
        liability and property damage insurance relating to Borrower’s ownership and use
        of the Collateral and Borrower’s other assets. All such policies of insurance
        shall be in such form, with such companies, and in such amounts as detailed
        in
        the Loan Term Sheet and as may be satisfactory to Bank. Borrower shall deliver
        to Bank copies of such policies of insurance. Copies of all renewal and
        replacement policies shall be delivered to Bank at least thirty (30) days
        before
        the expiration of the policies. All such policies of insurance (except those
        of
        public liability and property damage) shall contain an endorsement in a form
        satisfactory to Bank showing Bank as a loss payee thereof, with a waiver
        of
        warranties (Form 438-BFU), and all proceeds payable thereunder shall be payable
        to Bank and, upon receipt by Bank, shall be applied on account of the
        Obligations owing to Bank. To secure the payment of the Obligations, Borrower
        grants Bank a security interest in and to all such policies of insurance
        (except
        those of public liability and property damage) and the proceeds thereof,
        and
        Borrower shall direct all insurers under such policies of insurance to pay
        all
        proceeds thereof directly to Bank.

       

      Borrower
        hereby irrevocably appoints Bank (and any of Bank’s officers, employees or
        agents designated by Bank) as Borrower’s attorney-in-fact for the purpose of
        making, settling and adjusting claims under such policies of insurance,
        endorsing the name of Borrower on any check, draft, instrument or other item
        of
        payment for the proceeds of such policies of insurance and for making all
        determinations and decisions with respect to such policies of insurance.
        Borrower will not cancel any of such policies without Bank’s prior written
        consent. Each such insurer shall agree by endorsement upon the policy or
        policies of insurance issued by it to Borrower as required above, or by
        independent instruments furnished to Bank, that it will give Bank at least
        ten
        (10) days written notice before any such policy or policies of insurance
        shall
        be altered or canceled, and that no act or default of Borrower, or any other
        person, shall affect the right of Bank to recover under such policy or policies
        of insurance required above or to pay any premium in whole or in part relating
        hereto. Bank, without waiving or releasing any Obligations or any Event of
        Default, may, but shall have no obligation to do so, obtain and maintain
        such
        policies of insurance and pay such premiums and take any other action with
        respect to such policies which Bank deems advisable. All sums so disbursed
        by
        Bank, as well as reasonable attorneys’ fees, court costs, expenses and other
        charges relating thereto, shall constitute Bank Expenses and are payable
        on
        demand. Bank shall not by the fact of approving, disapproving, accepting,
        preventing, obtaining, or failing to notify Borrower or to obtain any insurance,
        incur any liability for or with respect to the existence of insurance, the
        amount of insurance carried, the form or legal sufficiency of insurance
        contracts, solvency of insurance companies, or payment or defense of lawsuits,
        and Borrower hereby expressly assumes full responsibility therefor and all
        liability, if any, with respect thereto.

       

      7.16. All
        financial statements and information relating to Borrower which have been
        or may
        hereafter be delivered by Borrower to Bank are true and correct and have
        been
        prepared in accordance with generally accepted accounting principles
        consistently applied, and there has been no material adverse change in the
        financial condition of Borrower since the submission of such financial
        information to Bank.

       

      7.17. Borrower
        at all times hereafter shall maintain a standard and modern system of accounting
        in accordance with generally accepted accounting principles consistently
        applied, and records pertaining to all Collateral for the obligations which
        contain information as may from time to time be requested by Bank. Borrower
        shall not modify or change Borrower’s method of accounting or enter into,
        modify, or terminate any agreement presently existing, or at any time hereafter
        entered into with any third party accounting firm and/or service bureau for
        the
        preparation and/or storage of Borrower’s accounting records without giving Bank
        ten (10) days prior written notice of any such change, and without said
        accounting firm and/or service bureau agreeing to provide to Bank information
        regarding the Collateral and Borrower’s financial condition. In this regard,
        Borrower agrees to use Borrower’s best efforts to secure a tripartite agreement,
        in Bank’s standard form, between Bank, Borrower and Borrower’s accounting firm
        and/or service bureau. Borrower agrees to permit Bank and any of Bank’s
        employees, officers or agents, upon demand, during Borrower’s usual business
        hours, or the usual business hours of third persons having control thereof,
        to
        have access to and examine all of Borrower’s Books relating to the Collateral,
        the Obligations, Borrower’s financial condition and the results of Borrower’s
        operations, and, in connection therewith, permit Bank or any of Bank’s agents,
        employees or officers to copy and make extracts therefrom. Borrower agrees
        to
        pay Bank for audits as detailed in the Loan Term Sheet.

       

      Borrower
        agrees to deliver to Bank financial information or other data as detailed
        in the
        Loan Term Sheet or any other report requested by Bank relating to the Collateral
        and the financial condition of Borrower, together with a certificate signed
        by
        an authorized employee of Borrower to the effect that all reports, statements,
        computer disc or tape files, printouts, runs, or other computer prepared
        information of any kind or nature relating to the foregoing, or documents
        delivered or caused to be delivered to Bank under this subsection, are complete,
        correct, and thoroughly present the financial condition of Borrower and that
        there exists on the date of delivery to Bank no condition or event which
        constitutes a breach or Event of Default under this Agreement. Borrower shall
        comply with any request and shall treat any written request as a continuing
        obligation until expressly modified or terminated in writing.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      All
        accounting terms and computations shall be based upon generally accepted
        accounting principles consistently applied.

       

      7.18. Borrower
        shall promptly supply and cause any guarantor to supply Bank with such other
        information, including tax returns, concerning Borrower’s and any guarantor’s
        affairs as Bank may request from time to time hereafter, and shall promptly
        notify Bank of any material adverse change in Borrower’s financial condition and
        of any condition or event which constitutes a breach of or an event which
        constitutes an Event of Default under this Agreement.

       

      7.19. Borrower
        is now and shall be at all times hereafter solvent and able to pay Borrower’s
        debts (including trade debts) as they mature.

       

      7.20. Borrower
        shall maintain financial ratios as provided in the Loan Term Sheet.

       

      7.21. Borrower
        shall immediately and without demand reimburse Bank for all sums expended
        by
        Bank, which constitute Bank Expenses, and Borrower hereby authorizes and
        approves all advances and payments by Bank for items constituting Bank
        expenses.

       

      7.22. Borrower
        shall furnish to Bank: (a) as soon as possible, but in no event later than
        thirty (30) days after Borrower knows or has reason to know that any reportable
        event with respect to any deferred compensation plan has occurred, a statement
        of the chief financial officer of Borrower setting forth the details concerning
        such reportable event and the action which Borrower proposes to take with
        respect thereto, together with a copy of the notice of such reportable event
        given to the Pension Benefit Guaranty Corporation, if a copy of such notice
        is
        available to Borrower; (b) promptly after the filling thereof with the United
        States Secretary of Labor or the Pension Benefit Guaranty Corporation, copies
        of
        each annual report with respect to each deferred compensation plan; (c) promptly
        after receipt thereof, a copy of any notice Borrower may receive from the
        Pension Benefit Guaranty Corporation or the Internal Revenue Service with
        respect to any deferred compensation plan; provided, however, this subparagraph
        shall not apply to notice of general application issued by the Pension Benefit
        Guaranty Corporation or the Internal Revenue Service; and (d) when the same
        is
        made available to participants in the deferred compensation plan, all notices
        and other forms of information from time to time disseminated to the
        participants by the administrator of the deferred compensation
        plan.

       

      7.23. Except
        for permitted investments, Borrower shall keep Borrower’s principal bank
        accounts with Bank.

       

      7.24. Borrower
        is now and shall at all times hereafter remain in compliance with all federal,
        state and municipal laws, regulations and ordinances relating to the handling,
        treatment and disposal of toxic substances, wastes and hazardous materials
        and
        shall maintain all necessary authorizations and permits.

       

      7.25. Each
        warranty, representation and agreement contained in this Agreement and the
        Loan
        Term Sheet shall be automatically deemed repeated with each financial
        accommodation and shall be conclusively presumed to have been relied on by
        Bank
        regardless of any investigation made or information possessed by Bank. The
        warranties, representations and agreements set forth herein and the Loan
        Term
        Sheet shall be cumulative and in addition to any and all other warranties,
        representations and agreements which Borrower shall give, or cause to be
        given,
        to Bank, either now or hereafter.

       

      
        	
                8.

              	
                EVENTS
                  OF DEFAULT

              

      

       

      Any
        one
        or more of the following shall constitute an Event of Default by Borrower
        under
        this Agreement:

       

      8.1. If
        Borrower fails to pay when due and payable, or when declared due and payable,
        all or any portion of the Obligations owing to Bank (whether of principal,
        interest, taxes, reimbursement of Bank Expenses, or otherwise) due pursuant
        to
        the Promissory Note, this Agreement and the Loan Term Sheet;

       

      8.2. If
        Borrower fails or neglects to perform, keep or observe any term, provision,
        condition, covenant, agreement, warranty or representation contained in the
        Promissory Note, this Agreement and the Loan Term Sheet, or any other present
        or
        future agreement between Borrower and Bank;

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      8.3. If
        any
        representation, statement, report, or certificate made or delivered by Borrower,
        or any of Borrower’s officers, employees or agents, to Bank is not true and
        correct to the best of Borrower’s knowledge;

       

      8.4. If
        there
        is a material impairment of the prospect of repayment of all or any portion
        of
        the Obligations owning to Bank or a material impairment of the value or priority
        of Banks security interests in the collateral;

       

      8.5. If
        all or
        any of Borrower’s assets are attached, seized, subjected to a writ or distress
        warrant, or are levied upon, or come into the possession of any Judicial
        Officer
        or Assignee;

       

      8.6. If
        an
        Insolvency Proceeding is commenced by or against Borrower;

       

      8.7. If
        Borrower is enjoined, restrained or in any way prevented by court order from
        continuing to conduct all or any material part of Borrower’s business
        affairs;

       

      8.8. If
        a
        notice of lien, levy or assessment is filed of record with respect to any
        or all
        of Borrower’s material assets by the Unites States of America, or any
        department, agency or instrumentality thereof, or by any state, county,
        municipal or other governmental agency, or if any taxes or debts owing at
        any
        time hereafter to any one or more of such entities becomes a lien, whether
        chosen or otherwise, upon any or all of the Borrower’s assets and or the same is
        not paid on the payment date thereof and such lien, levy or assessment shall
        not
        have been discharged by payment in full within thirty (30) days;

       

      8.9. If
        a
        judgment or other claim becomes a lien or encumbrance upon any or all of
        Borrower’s assets;

       

      8.10. If
        there
        is a default in any material agreement to which Borrower is a party with
        third
        parties resulting in a right by such third parties to accelerate the maturity
        of
        Borrower’s indebtedness;

       

      8.11. If
        Borrower makes any payment on account of indebtedness that has been subordinated
        to the Obligations that has not been authorized by Bank;

       

      8.12. If
        any
        material or intentional misrepresentation exists now or hereafter in any
        warranty or representation made to Bank by any officer or director of Borrower,
        or if any such warranty or representation is withdrawn or denied by any officer
        or director;

       

      8.13. If
        any
        party subordinating a claim to those of Bank or guarantying the Obligations,
        or
        any part thereof dies, terminates that subordination or guaranty, or becomes
        the
        subject of an Insolvency Proceeding; and

       

      8.14. If
        any
        reportable event, which the Bank determines constitutes grounds for the
        termination of any deferred compensation plan by the Pension Benefit Guaranty
        Corporation or for the appointment by the appropriate United States District
        Court of a trustee to administer any such plan, shall have occurred and be
        continuing thirty (30) days after written notice of such determination shall
        have been given to Borrower by Bank, or any such plan shall be terminated
        within
        the meaning of Title IV of the Employment Retirement Income Security Act
        (“ERISA”), or a trustee shall be appointed by the appropriate United States
        District Court to administer any such plan, or the Pension Benefit Guaranty
        Corporation shall institute proceedings to terminate any plan and in case
        of an
        event described in this Section 8.14, the aggregate amount of Borrower’s
        liability to the Pension Benefit Guaranty Corporation under Sections 4062,
        4063
        or 4064 of ERISA shall exceed five percent (5%) of Borrower’s Tangible Net
        Worth.

       

      Notwithstanding
        anything contained in this Article 8 to the contrary, Bank shall refrain
        from
        exercising its rights and remedies and an Event of Default shall thereafter
        not
        be deemed to have occurred by reason of the occurrence of any of the events
        set
        forth in Sections 8.5, 8.7 or 8.10 of this Agreement if, within ten (10)
        days
        from the date thereof, the same is released, discharged, dismissed, bonded
        against or satisfied; provided, however, if any such event has occurred,
        Bank
        shall not be obligated to extend any credit accommodations to Borrower during
        such cure period.

       

      
        	
                9.

              	
                BANK’S
                  RIGHTS AND REMEDIES

              

      

       

      9.1. Upon
        the
        occurrence of an Event of Default by Borrower under this Agreement, Bank
        may, at
        Bank’s election, without notice of such election and without demand, do any one
        or more of the following, all of which are authorized by Borrower:

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      (a) Declare
        all Obligations, whether evidenced by this Agreement, by notes, or otherwise,
        immediately due and payable;

       

      (b) Cease
        advancing money or extending credit to or for the benefit of Borrower under
        this
        Agreement, or any other agreement between Borrower and Bank;

       

      (c) Terminate
        this Agreement as to any future liability or obligation of Bank, but without
        affecting Bank’s rights and security interest in the Collateral and without
        affecting the Obligations owning by Borrower to Bank;

       

      (d) Without
        notice to or demand upon Borrower or any guarantor, make such payments and
        do
        such acts as Bank considers necessary or reasonable to protect Bank’s security
        interest in the Collateral. Borrower agrees to assemble the Collateral if
        Bank
        so requires, and to make the Collateral available to Bank as Bank may designate.
        Borrower authorizes Bank to enter the premises where the Collateral is located,
        take and maintain possession of the Collateral and the premises (at no charge
        to
        Bank), or any part thereof, and to pay, purchase, contest or compromise any
        encumbrance, charge or lien which in the opinion of Bank appears to be prior
        or
        superior to Bank’s security interest and to pay all expenses incurred in
        connection therewith;

       

      (e) Without
        constituting a retention of collateral in satisfaction of an obligation within
        the meaning of Section 9505 of the Code or an action under California Code
        of
        Civil Procedure Section 726, apply any and all amounts maintained by Borrower
        with Bank as deposit accounts (as that term is defined under Section 9105
        of the
        Code) or other accounts against the Obligations;

       

      (f) Without
        limiting Bank’s rights under any security interest, Bank is hereby granted a
        license or other right to use, without charge, Borrower’s labels, patents,
        copyrights, rights of use of any name, trade secrets, trade names, trademarks
        and advertising matter, or any property of a similar nature, as it pertains
        to
        the Collateral, in completing production of, advertising for sale and selling
        any Collateral, and Borrower’s rights under all licenses and all franchise
        agreements shall inure to Bank’s benefit, and Bank shall have the right and
        power to enter into sublicense agreements with respect to all such rights
        with
        third parties on terms acceptable to Bank;

       

      (g) Ship,
        reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
        for sale, sell or dispose of (in the manner provided for herein) the Collateral;
        and

       

      (h) Sell
        or
        dispose of the Collateral at either public or private sales, or both, by
        way of
        one or more contracts or transactions, for cash or on terms, in such manner
        and
        at such places (including Borrower’s premises) as are commercially reasonable in
        the opinion of Bank. It is not necessary that the Collateral be present at
        any
        such sale.

       

      9.2. Bank
        shall give notice of the disposition of the Collateral as follows:

       

      (a) Bank
        shall give Borrower, and each holder of a security interest in the Collateral
        who has filed with Bank a written request for notice, a notice in writing
        of the
        time and place of public sale, or, if the sale is a private sale or some
        other
        disposition other than a public sale is to be made of the Collateral, the
        time
        on or after which the private sale or other disposition is to be
        made;

       

      (b) The
        notice shall be personally delivered or mailed, postage prepaid, to Borrower
        as
        provided in Article 12 of this Agreement, at least five (5) calendar days
        before
        the date fixed for the sale, or at least five (5) calendar days before the
        date
        on or after which the private sale or other disposition is to be made, unless
        the Collateral is perishable or threatens to decline speedily in value. Notice
        to persons other than Borrower claiming an interest in the Collateral shall
        be
        sent to such addresses as they have furnished to Bank;

       

      (c) If
        the
        sale is to be a public sale, Bank shall also give notice of the time and
        place
        by publishing notice one time at least five (5) calendar days before the
        date of
        the sale in a newspaper of general circulation in the county in which the
        sale
        is to be held; and Bank may credit bid and purchase at any public sale;
        and

       

      (d) Borrower
        shall pay all reasonable and customary Bank Expenses incurred in connection
        with
        Bank’s enforcement and exercise of any of Bank’s rights and remedies as herein
        provided, whether or not suit is commenced by Bank.

       

      Any
        deficiency, which exists after disposition of the Collateral as provided
        above,
        will be paid immediately by Borrower. Any excess will be returned, without
        interest and subject to the rights of third parties, to Borrower by Bank,
        or, in
        Bank’s discretion, to any party who Bank believes, in good faith, is entitled
        to
        such excess.

       

      9.3. Bank’s
        rights and remedies under this Agreement and all other agreements shall be
        cumulative. Bank shall have all other rights and remedies not inconsistent
        herewith as provided under the Code, by law, or in equity. No exercise by
        Bank
        of one right or remedy shall be deemed an election, and no waiver by Bank
        of any
        default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank
        shall constitute a waiver, election or acquiescence by Bank.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      
        	
                10.

              	
                TAXES
                  AND EXPENSES REGARDING THE
                  COLLATERAL

              

      

       

      If
        Borrower fails to pay promptly when due, to any other person or entity, monies
        which Borrower is required to pay by reason of any provision in this Agreement,
        Bank may (after consultation with Borrower), but need not, pay the same and
        charge Borrower’s account therefor, and Borrower shall promptly reimburse Bank.
        All such sums shall become additional Obligations owning to Bank, shall bear
        interest at the Default Rate hereinabove provided, and shall be secured by
        the
        Collateral. Any payments made by Bank shall not constitute: (a) an agreement
        by
        bank to make similar payments in the future, or (b) a waiver by bank of any
        default under this Agreement. Bank need not inquire as to, or contest the
        validity of, any such expense, tax, security interest, encumbrance or lien
        and
        the receipt of the usual official notice for the payment thereof shall be
        conclusive evidence that the same was validly due and owing.

       

      
        	
                11.

              	
                WAIVER

              

      

       

      11.1. Borrower
        waives the right to direct the application of any and all payments, collections
        or proceeds at any time or times hereafter received by Bank and Borrower
        agrees
        that Bank shall have the continuing exclusive right to apply and reapply
        such
        payments, collections or proceeds to the Obligations in any manner as Bank
        may
        deem advisable, notwithstanding any entry by Bank upon Bank’s
        books.

       

      11.2. Borrower
        waives demand, protest, notice of protest, notice of default or dishonor,
        notice
        of payment and nonpayment, notice of any extension or renewal of any or all
        commercial paper, accounts, documents, instruments, chattel paper, and
        guaranties at any time held by Bank on which Borrower may in any way be
        liable.

       

      11.3. Bank
        shall not in any way or manner be liable or responsible for: (a) the safekeeping
        of the Collateral; (b) any loss or damage thereto occurring or arising in
        any
        manner or fashion from any cause; (c) any diminution in the value thereof;
        or
        (d) any act or default of any carrier, warehouseman, bailee, forwarding agency
        or other person whomsoever. All risk of loss, damage or destruction of the
        Collateral shall be borne by Borrower.

       

      11.4. Borrower
        waives the right to assert a confidential relationship, if any, Borrower
        may
        have with any and all accountants, service bureaus and/or consultants in
        connection with any information requested by Bank pursuant to or in accordance
        with this Agreement, and agrees that Bank may contact directly and accountant,
        service bureau and/or consultant in order to obtain such
        information.

       

      11.5. Borrower
        and Bank each waive any right to trial by jury in any action or proceeding
        relating to this Agreement or any transaction hereunder, or contemplated
        hereunder, or any claim (including tort or breach of duty claims) or dispute
        howsoever arising between Bank and Borrower.

       

      11.6. In
        the
        event that Bank elects to waive any rights or remedies hereunder, or compliance
        with any of the terms hereof, or delays or fails to pursue or enforce any
        term,
        such waiver, delay or failure to pursue or enforce shall only be effective
        with
        respect to that single act and shall not be construed to affect any subsequent
        transactions or Bank’s right to later pursue such rights and
        remedies.

       

      11.7. Waiver
        of Trial by Jury.
        BORROWER AND BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, BANK AGREES TO WAIVE
        THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
        UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended
        to
        be all-encompassing of any and all disputes that may be filed in any court
        and
        that relate to the subject matter of this transaction, including without
        limitation contract claims, tort claims, breach of duty claims and all other
        common law and statutory claims. Borrower and, by its acceptance of the benefits
        hereof, Bank each (i) acknowledges that this waiver is a material inducement
        for
        Borrower and Bank to enter into a business relationship, that Borrower and
        Bank
        have already relied on this waiver in entering into this Agreement or accepting
        the benefits thereof, as the case may be, and that each will continue to
        rely on
        this waiver in their related future dealings, and (ii) further warrants and
        represents that each has reviewed this waiver with its legal counsel, and
        that
        each knowingly and voluntarily waives its jury trial rights following
        consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT
        IT MAY
        NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY
        TO ANY
        SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
        In the event of litigation, this Agreement may be filed as a written consent
        to
        a trial by the court.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      
        	
                12.

              	
                NOTICES

              

      

       

      Except
        for any notice required by applicable law to be given in another manner:
        (a) all
        notices provided for in this Agreement shall be in writing unless otherwise
        provided in this Agreement; (b) each such notice to Borrower shall be given
        by
        mailing such notice by first-class mail, to Borrower’s address specified in the
        Loan Term Sheet, or to such other address as Borrower may designate by notice
        given to Bank in the manner provided herein; and (c) each such notice to
        Bank
        shall be given by mailing such notice by certified mail, return receipt
        requested, to Bank’s address specified in the Loan Term Sheet, or to such other
        address as Bank may designate by notice given to Borrower in the manner provided
        herein. All notices provided for in this Agreement shall be deemed to have
        been
        given to Borrower or Bank if given in the manner specified herein.

       

      
        	
                13.

              	
                DESTRUCTION
                  OF BORROWER’S DOCUMENTS

              

      

       

      Any
        documents, schedules, invoices or other papers delivered to Bank may be
        destroyed or otherwise disposed of by Bank six (6) months after they are
        delivered to or received by Bank, unless Borrower does request, in writing,
        the
        return of said documents, schedules, invoices or other papers and makes
        arrangements, at Borrower’s expense, for their return.

       

      
        	
                14.

              	
                CHOICE
                  OF LAW AND VENUE

              

      

       

      This
        Agreement shall be deemed to have been made in the State of California and
        the
        validity of this Agreement, its construction, interpretation and enforcement,
        and the rights of the parties hereunder and concerning the Collateral, shall
        be
        determined under, governed by and construed in accordance with the laws of
        the
        State of California. The parties agree that all actions or proceedings arising
        in connection with this Agreement shall be tried and litigated only in the
        state
        courts located in the City and County of San Francisco, State of California,
        or
        the federal courts located in the Northern District of California. Borrower
        waives any right Borrower may have to assert the doctrine of forum non
        conveniens or to object to such venue and hereby consents to any court-ordered
        relief.

       

      
        	
                15.

              	
                GENERAL
                  PROVISIONS

              

      

       

      15.1. This
        Agreement shall be binding and deemed effective when executed by Borrower
        and
        accepted and executed by Bank.

       

      15.2. This
        Agreement shall bind and inure to the benefit of the respective successors
        and
        assigns of each of the parties; provided, however, that Borrower may not
        assign
        this Agreement or any rights hereunder without Bank’s prior written consent and
        any prohibited assignment shall be absolutely void. No consent to an assignment
        by Bank shall release Borrower or any guarantor from any of their respective
        obligations to Bank. Bank may assign this Agreement and its rights and duties
        hereunder. Bank reserves the right to sell, assign, transfer, negotiate or
        grant
        participation in all or any part of, or any interest in, Bank’s rights and
        benefits hereunder. In connection therewith, Bank may disclose all documents
        and
        information which Bank now or hereafter may have relating to Borrower or
        Borrower’s business.

       

      15.3. Article
        headings and section numbers have been set forth herein for convenience only.
        Unless the contrary is compelled by the context, everything contained in
        each
        section applies equally to this entire Agreement.

       

      15.4. Neither
        this Agreement, nor any uncertainty or ambiguity herein shall be construed
        or
        resolved against Bank or Borrower, whether under any rule of construction
        or
        otherwise. On the contrary, this Agreement has been reviewed by all parties
        and
        shall be construed and interpreted according to the ordinary meaning of the
        words used so as to fairly accomplish the purposes and intentions of the
        parties
        hereto.

       

      15.5. Each
        definition contained in this Loan and Security Agreement and/or Loan Term
        Sheet
        shall apply equally to both the singular and plural form of the term defined.
        Each pronoun shall include the masculine, the feminine and neuter form,
        whichever is appropriate to the context. The words “included”, “hereby”,
“hereof”, and “hereunder” shall each be deemed to refer to this entire Loan and
        Security Agreement and not to any particular Section hereof. The word
“including” shall mean “including but not limited to”. Notwithstanding the
        foregoing, if any law is amended so as to broaden the meaning of any term
        defined in it, such broader meaning shall apply subsequent to the effective
        date
        of such amendment. Where a defined term derives its meaning from a statutory
        reference, and any reference or citation to a statute or regulation shall
        be
        deemed to include any amendments to that statute or regulation and judicial
        and
        administrative interpretations of it.

       

      15.6. The
        relationship of the parties hereto is that of creditor and debtor, and it
        is
        expressly understood and agreed that nothing contained herein or in the loan
        documents shall be interpreted or construed to make the parties partners,
        joint
        venturers, or participants in any legal relationship other than as creditor
        and
        debtor. It is further expressly understood that Bank owes no fiduciary duties
        to
        Borrower.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      15.7. Each
        provision of this Agreement shall be severable from every other provision
        of
        this Agreement for the purpose of determining the legal enforceability of
        any
        specific provision.

       

      15.8. This
        Agreement cannot be changed or terminated orally. Except as to currently
        existing Obligations owing by Borrower to Bank, all prior agreements,
        understandings, representations, warranties, and negotiations, if any, are
        merged into this Agreement.

       

      IN
        WITNESS WHEREOF, the
        undersigned has caused this agreement to be executed by its officer thereunto
        duly authorized and directed by a resolution of its Board f Directors duly
        passed and adopted by a majority of said Board at a meeting thereof duly
        called,
        noticed and held. 

      

       

      
        	
                Borrower 

                 

                Sigma
                  Designs, Inc.

                 

                 

              	Bank
	
                
                  

                

                By:
                  Kit Tsui

                Its:
                  Chief Financial Officer/Secretary

              	
                
                  

                

                Kelvin
                  Chan

                Vice
                  President & Relationship Manager

                Technology
                  Business Group

              

      

       

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      
        LOAN
          TERM SHEET NO. 2

         

        (“Basic
          Loan Information”)

         

        
          
            	
                    Date:

                     

                  	
                    August
                      12, 2005

                     

                  
	
                    Loan
                      Number:

                     

                  	
                    288-000007-0

                     

                  
	
                    Borrower:

                     

                  	
                    Sigma
                      Designs, Inc.

                     

                  
	
                    Borrower’s
                      Address:

                     

                  	
                    1221
                      California Circle

                    Milpitas,
                      CA 95035

                     

                  
	
                    Maximum
                      Credit Limit:

                     

                  	
                    The
                      Maximum Credit Limit is $15,522,592.41,
                      and consists of the following credit facilities:

                     

                    Facility
                      “A” :

                     

                    ·     
                      $522,592.41
                      Thirty-Six (36) Months Fully Amortized Equipment Term Loan.

                     

                    Facility
                      “B” consists of the following sublimits: 

                     

                    ·     
                      A
                      $15,000,000.00
                      Revolving Line of Credit sublimit for working capital financing
                      but in no
                      event 

                    greater
                      than $15,000,000.00
                      or
                      the Borrowing Base limit whichever amount is lower.

                     

                    ·     
                      A
                      $3,000,000.00
                      Revolving Line of Credit sublimit for the issuance of commercial
                      letters
                      of credit 

                    and/or
                      Standby letters of credit, but in no event greater than $3,000,000.00
                      or
                      the Borrowing Base 

                    limit
                      whichever amount is lower.

                     

                    Facility
                      “C” consists of the following sublimit: 

                     

                    ·     
                      A
                      $5,000,000.00
                      Revolving Line of Credit sublimit for working capital financing.
                      This
                      sublimit 

                    is
                      available so long as Borrower’s unrestricted cash at Bank exceeds
                      $10,000,000.00 at all 

                    times
                      and the borrowing base under Facility “B” has been fully utilized.
                      

                     

                    ·      A
                      $3,000,000.00 Revolving Line of Credit sublimit for issuance
                      of commercial
                      letters of 

                    credit
                      and/or Standby letters of credit provided that the borrowing
                      base under
                      Facility “B” has 

                    been
                      fully utilized.

                     

                    The
                      total outstanding balances under both Facilities “B” and “C” can not
                      exceed $15,000,000.00 at any one time.

                     

                  
	
                    FACILITY
                      “A”

                     

                  	
                    TERM
                      LOAN FACILITY

                     

                  
	
                    Term
                      Loan Maximum Credit:

                     

                  	
                    Five
                      Hundred Twenty Two Thousand Five Hundred Ninety-Two and 41/100
                      Dollars
                      ($522,592.41).

                     

                  
	
                    Index:

                     

                  	
                    Wall
                      Street Journal Prime Rate (currently at 6.25%). 

                     

                  
	
                    Margin:

                     

                  	
                    One-Half
                      of One Percentage Point (0.50%).

                     

                  
	
                    Rate
                      (Index plus Margin):

                     

                  	
                    Wall
                      Street Journal Prime Rate (currently at 6.25%) plus One-Half
                      of One
                      Percentage Point (0.50%) per annum, floating.

                     

                  
	
                    Loan
                      Payment Method:

                     

                  	
                    By
                      monthly invoice.

                     

                  
	
                    Payment
                      Date:

                     

                  	
                    The
                      5th day of the following month after the initial advance is
                      made.

                     

                  

          

           

          
            
              
              

            

            
              1

              
                

              

            

            
              
              

            

          

          
            
              	
                      Maturity
                        Date:

                       

                    	
                      February
                        28, 2008.
                        

                       

                    
	
                      Loan
                        Term:

                       

                    	
                      Thirty
                        Six (36) months.

                       

                    
	
                      Amortization
                        Period:

                       

                    	
                      Thirty
                        Six (36) months.

                       

                    
	
                      Default
                        Interest Rate:

                       

                    	
                      Two
                        Percentage Points (2.00%) plus Term Loan Rate.

                       

                    
	
                      Late
                        Charge Percent:

                       

                    	
                      Five
                        Percentage Points (5.00%) times the overdue payment, Minimum
                        of
                        $50.00.

                       

                    
	
                      Initial
                        Monthly Payment:

                       

                    	
                      $19,002.22
                        (Principal and Interest)

                       

                    
	
                      Collateral/Properties:

                       

                    	
                      (1) 
                        Specific
                        UCC-1 purchase
                        money security interest filing on the financed equipment.

                       

                    
	
                      FACILITY
                        “B”

                       

                    	
                      REVOLVING
                        LOAN - ABL FACILITY

                       

                    
	
                      Revolving
                        Line of Credit 

                      Maximum
                        Credit:

                       

                    	
                      Fifteen
                        Million and 00/100 Dollars ($15,000,000.00).

                    
	
                      Borrowing
                        Base Definitions:

                       

                    	
                      ·      The
                        term “Borrowing Base” is defined as the sum of the following:

                       

                             
                        (a)   80%
                        of the eligible accounts receivable. This
                        80% advance rate is subject to a collateral 

                      audit
                        and its findings must be satisfactory to Bank. The advance
                        rate can be
                        reduced as 

                      result
                        of the collateral audit as it will also review the quality
                        of the accounts
                        receivable and 

                      any
                        related dilution based on a field examination of Borrower’s
                        assets.

                       

                             
                        (b)   Credit
                        insured foreign receivables will be considered as eligible
                        accounts
                        receivable 

                      but
                        advances on qualified foreign receivables cannot exceed $4,000,000.00.
                        Advance on 

                      qualified
                        foreign receivables is subject to the satisfactory receipt
                        of the
                        Bank/Lender 

                      Policy
                        Beneficiary endorsement, naming Bank as the beneficiary in
                        the Credit
                        Insurance Policy.

                       

                      ·      All
                        receivables are eligible except for the following: 

                       

                             
                        (a)   The
                        amount of any unpaid trade invoices more than 90 days from
                        the invoice
                        date.

                       

                             
                        (b)   Accounts
                        due from one account debtor representing 25%
                        or
                        more of total receivables. 

                      Exceptions
                        may be allowed on accounts pre-approved by lender.

                       

                             
                        (c)   Cross
                        aged accounts making up 50%
                        or
                        more. Exceptions may be allowed on accounts 

                      pre-approved
                        by lender.

                       

                             
                        (d)   Foreign
                        open accounts not insured by the credit insurance.

                       

                             
                        (e)   Contra
                        accounts, inter-company accounts, consignment, promotion/demo
                        accounts,
                        

                      affiliate
                        accounts, employee accounts, and credit memo. 

                       

                             
                        (f)   Government
                        accounts. Contracts with US government will require perfection
                        under the
                        

                      Assignment
                        of Claims Act.

                       

                             
                        (g)   Customer
                        deposits, account not arising out of normal course of trade
                        or
                        business.

                       

                    
	
                      Index:

                       

                    	
                      Wall
                        Street Journal Prime Rate (currently at 6.25%). 

                       

                    
	
                      Margin:

                       

                    	
                      One-Quarter
                        of One Percentage Point (0.25%).

                       

                    
	
                      Rate
                        (Index plus Margin):

                       

                    	
                      Wall
                        Street Journal Prime Rate (currently at 6.25%) plus One-Quarter
                        of One
                        Percentage Point (0.25%) per annum, floating.

                       

                    
	
                      Loan
                        Payment Method:

                       

                    	
                      By
                        monthly invoice.

                       

                    
	
                      Payment
                        Date:

                       

                    	
                      The
                        5th day of the following month after the initial advance
                        is
                        made.

                       

                    

            

            
              
                
                

              

              
                2

                
                  

                

              

              
                
                

              

            

            
              
                	
                        Maturity
                          Date:

                         

                      	
                        August
                          _____,
                          2007.
                          

                         

                      
	
                        Default
                          Interest Rate:

                         

                      	
                        Two
                          Percentage Points (2.00%) above the Rate.

                         

                      
	
                        Late
                          Charge Percent:

                         

                      	
                        Five
                          Percentage Points (5.00%) times the overdue payment, Minimum
                          of
                          $50.00.

                         

                      
	
                        Collateral/Properties:

                         

                      	
                        (1)
                          UCC-1,
                          1st
                          position on all company assets with negative pledge on
                          Intellectual
                          Properties.

                      
	 	 
	
                        FACILITY
                          “C”

                         

                      	
                        REVOLVING
                          LOAN - NON FORMULA LINE OF CREDIT

                         

                      
	
                        Revolving
                          Line of Credit 

                        Maximum
                          Credit:

                         

                      	
                        Five
                          Million and 00/100 Dollars ($5,000,000.00).

                      
	
                        Definitions:

                         

                      	
                        The
                          full amount of the facility will be available so long as
                          Borrower’s
                          unrestricted cash at Bank exceeding $10million at all times
                          and Facility
                          “B” should be fully utilized (max out the borrowing
                          base).

                      
	
                        Index:

                         

                      	
                        Wall
                          Street Journal Prime Rate (currently at 6.25%). 

                         

                      
	
                        Margin:

                         

                      	
                        One-Quarter
                          of One Percentage Point (0.25%).

                         

                      
	
                        Rate
                          (Index plus Margin):

                         

                      	
                        Wall
                          Street Journal Prime Rate (currently at 6.25%) plus One-Quarter
                          of One
                          Percentage Point (0.25%) per annum, floating.

                         

                      
	
                        Loan
                          Payment Method:

                         

                      	
                        By
                          monthly invoice.

                         

                      
	
                        Payment
                          Date:

                         

                      	
                        The
                          5th day of the following month after the initial advance
                          is
                          made.

                         

                      
	
                        Maturity
                          Date(s):

                         

                      	
                        August
                          _____,
                          2007.

                         

                      
	
                        Default
                          Interest Rate:

                         

                      	
                        Two
                          Percentage Points (2%) above the Rate.

                         

                      
	
                        Late
                          Charge Percent:

                         

                      	
                        Five
                          Percentage Points (5.00%) times the overdue payment, Minimum
                          of
                          $50.00.

                         

                      
	
                        Collateral/Properties:

                         

                      	
                        (1)
                          UCC-1,
                          1st
                          position on all company assets with negative pledge on
                          Intellectual
                          Properties.

                      
	 	 
	 	
                        TERMS
                          COMMON TO REVOLVING LOAN - ABL FACILITY AND REVOLVING LOAN
                          - NON FORMULA
                          LINE OF CREDIT (Facilities “B”&“C”)

                      
	 	 
	
                        Renewal
                          Fees:

                         

                      	
                        All
                          fees, charges and out-of-pocket expenses incurred by Bank
                          in connection
                          with the review and renewal of this facility, including
                          but not limited to
                          Collateral audits, documentation and legal fees, are for
                          the account of
                          the Borrower.

                         

                      
	
                        Loan
                          Fees: 

                         

                      	
                        $15,000.00
                          up front to Bank. (Facility “B” and Facility “C”) plus other out-of-pocket
                          expenses. An additional $15,000.00 will be due at the end
                          of the first
                          anniversary of the proposed line.

                         

                      
	
                        Documentation
                          Transaction fees:

                         

                      	
                        Bank’s
                          standard fees as announced from time to time are to be
                          paid by the
                          Borrower and 0.40% per annum for Standby L/C issued.

                         

                      
	
                        Negative
                          Covenant:

                         

                      	
                        Without
                          the Bank’s prior written consent, no material change in management
                          is
                          allowed.

                         

                      
	
                        Subordination:

                         

                      	
                        All
                          amounts due to officers, directors, shareholders and note
                          payables due to
                          affiliates, if any, will be subordinated to Borrower’s obligations owing
                          to Bank, in form and substance that is satisfactory to
                          Bank.

                         

                      

              

               

              
                
                  
                  

                

                
                  3

                  
                    

                  

                

                
                  
                  

                

              

              
                
                  	
                          Unrestricted
                            Cash:

                           

                        	
                          “Unrestricted
                            Cash” is defined as monies on deposit with Bank that is not
                            pledged or
                            secured.

                           

                        
	
                          Restricted
                            Cash:

                           

                        	
                          “Restricted
                            Cash” is defined as monies on deposit with Bank that is pledged
                            or
                            secured.

                           

                        
	
                          Reporting
                            Requirements:

                           

                        	
                          Borrower
                            agrees to deliver the following to Bank:

                           

                          (1)  
                            Monthly
                            interim financial statements with compliance certificate
                            within 30 days
                            after month end.

                          (2)  
                            Monthly
                            Ingram Micro Sell Through Report within 30 days after
                            month
                            end.

                          (3)  
                            Monthly
                            Accounts Receivable aging, Accounts Payable aging and
                            borrowing base
                            certificate 

                          within
                            30 days after month end.

                          (4)  
                            Annual
                            CPA-Audited financial statements with compliance certificate
                            within 120
                            days after fiscal 

                          year
                            end.

                          (5)  
                            Annual
                            Field Examination.

                          (6)  
                            Annual
                            projections or budget within 30 days prior to fiscal
                            year
                            end.

                           

                        
	
                          Financial
                            Covenants:

                           

                        	
                          Borrower
                            agrees to maintain the following financial covenants
                            for all three
                            facilities unless otherwise stipulated:
                            

                           

                          (1)  
                            Minimum
                            Monthly Adjusted Quick Ratio of 2.00 to 1.00 

                           

                          -
                            Prior to the transfer of primary depository and investment
relationships
                            to
                            Bank: 

                          (Adjusted
                            Quick Ratio is defined as [Unrestricted Cash and Cash
                            Equivalent plus
                            

                          Accounts
                            Receivable] divided by Current Liabilities).

                           

                          -
                            After
                            the transfer of primary depository and investment relationships
                            to
                            Bank: 

                          (Adjusted
                            Quick Ratio is defined as [Unrestricted Cash and Cash
                            Equivalent at
                            

                          Bank
                            plus Accounts Receivable] divided by Current
                            Liabilities).

                           

                          (2)  
                            Minimum
                            Quarterly Debt Service Coverage Ratio of 2.00 to 1.00.

                           

                          (Debt
                            Service Coverage Ratio is defined as “Annualized Earnings Before
                            tax,

                          depreciation
                            and amortization on a trailing four-quarter basis divided
                            by
                            annual

                          debt
                            repayment under the proposed facility”.

                           

                          Bank
                            waives a potential DSC covenant violation for only the
                            quarter ending
                            7/31/2005.

                           

                          (3)  
                            Maximum
                            Monthly Leverage Ratio of 1.50 to 1.00 (Facility B- ABL
                            Facility)

                           

                          (Leverage
                            Ratio is defined as Total Liabilities [net of any Subordinated
                            Debts]

                          divided
                            by Tangible Net Worth ). Tangible Net Worth is Net Worth
                            plus

                          Subordinated
                            Debts minus Intangible Assets including Restricted Cash.

                           

                          (4)  
                            Quarterly
                            profitability of exceeding 1.00. (Facility B - ABL Facility)

                           

                          (One
                            quarterly loss per fiscal year up to $1,000,000.00 is
                            allowed,
                            provided

                          profitability
                            is achieved for that fiscal year. Quarterly Profitability
                            will be
                            tested

                          for
                            the reporting period after August 1, 2005).

                           

                           

                        
	
                          Insurance
                            Requirements:

                           

                        	
                          ·      Borrower
                            to purchase and maintain business insurance with business
                            personal
                            property 

                          coverage
                            and naming Bank as Lender Loss Payee.

                           

                          ·      Insurance
                            policy must be issued by carrier acceptable to Bank.

                           

                        

                

                 

                
                  
                    
                    

                  

                  
                    4

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                          Audit:

                           

                        	
                          Lender
                            reserves the right to conduct on-site examination on
                            the Borrower’s
                            account receivables and inventories, in addition to other
                            books and
                            records, at any time through Lender’s appointed auditor once
                            a year
                            at
                            Borrower’s cost.

                           

                        
	
                          Conditions
                            Precedent:

                           

                        	
                          ·      Satisfactory
                            review of collateral audit by Bank.

                           

                          ·      The
                            Company is required to transfer the primary depository
                            and investment
                            relationships 

                          to
                            Bank so long as Bank could effectively provide all banking
                            services to the
                            Company.

                          Once
                            the primary depository and investment relationship is
                            transferred to
                            Bank,

                          Borrower
                            shall maintain its primary operating and investment accounts
                            at or through
                            

                          Bank
                            including at least 85% of the Company’s domestic cash and
                            investment.

                           

                          To
                            the extent that Borrower maintains cash/investments elsewhere,
                            an Account
                            Control

                          Agreement
                            shall be executed by Bank, Borrower, and Borrower’s
                            Brokerage/other

                          financial
                            institutions in order that Bank can perfect its security
                            interest.

                           

                          ·      Receipt
                            of UCC termination from Silicon Valley Bank.

                           

                        
	
                          Collateral/Properties:

                           

                        	
                          UCC-1
                            first position filing on all of the Borrower’s with negative pledge on
                            Intellectual Properties.

                           

                        
	
                          Events
                            of Default:

                           

                        	
                          In
                            addition to the Events of Default given in the Loan and
                            Security Agreement
                            the following are also Events of Default:

                           

                          (a) Facilities
                            “A”, “B” and “C” are cross-collateralized with each other, and, should
                            Borrower’s 

                          failure
                            to comply with any of the terms and conditions of Facilities
“A”, “B” and
                            “C” of 

                          this
                            loan will constitute an Event of Default.

                           

                        
	
                          Miscellaneous:

                           

                        	
                          “Intellectual
                            Property” means all present and future (a) copyrights, copyright
                            rights,
                            copyright applications, copyright registrations and like
                            protections in
                            each work of authorship and derivative work thereof,
                            whether published or
                            unpublished, (b) trade secret rights, including all rights
                            to unpatented
                            inventions and know-how, and confidential information;
                            (c) mask work or
                            similar rights available for the protection of semiconductor
                            chips; (d)
                            patents, patent applications and like protections including
                            without
                            limitation improvements, divisions, continuations, renewals,
                            reissues,
                            extensions and continuations-in-part of the same; (e)
                            trademarks,
                            servicemarks, trade styles, and trade names, whether
                            or not any of the
                            foregoing are registered, and all applications to register
                            and
                            registrations of the same and like protections, and the
                            entire goodwill of
                            the business of Borrower connected with and symbolized
                            by any such
                            trademarks; (f) computer software and computer software
                            products; (g)
                            designs and design rights; (h) technology; (I) all claims
                            for damages by
                            way of past, present and future infringement of any of
                            the rights included
                            above; (j) all licenses or other rights to use any property
                            or rights of a
                            type described above.

                           

                           

                        

                

              

            

          

        

         

        

        
          
            
            

          

          
            5

            
              

            

          

          
            
            

          

        

         

        This
          Loan Term Sheet dated No. 2 as of August
          12, 2005
          supercedes the previous Loan Term Sheet and forms an integral part of the
          Loan
          and Security Agreement and Term Promissory Note each dated February
          8, 2005 and
          the Revolving
          Promissory Note, and
          Loan and Security Agreement ( For Facilities B & C) dated
August
          12, 2005.
          Any capitalized terms used in this Loan Term Sheet No. 2 if not defined
          herein
          shall have the meanings given to such terms in the said Loan and Security
          Agreements, Term Promissory Note and/or Revolving Promissory Note.

         

        
           

          
            	
                    Borrower 

                     

                    Sigma
                      Designs, Inc.

                     

                     

                  	
                    Bank

                     

                    United
                      Commercial Bank

                  
	
                    
                      

                    

                    By:
                      Kit Tsui

                    Its:
                      Chief Financial Officer/Secretary

                  	
                    
                      

                    

                    Kelvin
                      Chan

                    Vice
                      President & Relationship Manager

                    Technology
                      Business Group

                  

          

           

           

           

          
            
              
              

            

            
              6

              
                

              

            

            
              
              

            

          

          
            
               

              
                UNITED
                  COMMERCIAL BANK

                555
                  Montgomery Street

                San
                  Francisco, California 94111

                

                REVOLVING
                  PROMISSORY NOTE

                 

                 

                
                  	Loan No.: 	
                          288-000007-0

                          Facilities “B’ and “C”

                        	
                          August 12, 2005

                          San Francisco,
                            California

                        

                

                 

                BASIC
                  LOAN INFORMATION.
                  The
                  information set forth in the then current Loan Term Sheet executed
                  by
Sigma
                  Designs, Inc.  (“Borrower”)
                  and United
                  Commercial Bank
                  (“Bank”)
                  as such term is defined in the Loan and Security Agreement dated
                  as of
August
                  12, 2005
                  executed
                  by Borrower and Bank (sometimes referred to as the "Basic Loan
                  Information") is
                  intended to supplement and/or summarize the provisions set forth
                  in this
                  Revolving Promissory Note (the “Note”). Each reference in this Note to any of
                  the terms set forth in the then current Loan Term Sheet shall mean
                  the
                  respective information set forth next to such term as amplified,
                  construed or
                  supplemented by the particular section(s) of this Note pertaining
                  to such
                  information. In the event of a conflict between the provisions
                  of the Loan Term
                  Sheet and this Note, this Note shall control.

                

                
                  	
                          1.

                        	
                          BORROWER'S
                            PROMISE TO PAY.

                        

                

                 

                
                  	 	
                          1.1.

                        	
                          For
                            value received, the above named Borrower promises to
                            pay the Maximum
                            Credit Limit, or such lesser amount as shall be advanced
                            hereunder, plus
                            interest, to the order of United Commercial Bank or its
                            assign (the
                            "Bank"), on the Maturity Date, at 555 Montgomery Street,
                            San Francisco,
                            California, or at such other place as the holder of this
                            Note may from
                            time to time require.

                        

                

                 

                
                  	 	
                          1.2.

                        	
                          This
                            Note is secured by the Collateral and any Properties
                            listed in the Loan
                            Term Sheet and evidenced by the Loan and Security Agreement,
                            UCC-1
                            Financing Statements covering the Collateral and Deed(s)
                            of Trust covering
                            the Properties, if any.

                        

                

                 

                
                  
                    
                      
                        	2.	
                                INTERESTRATE
                                  AND PAYMENT
                                  TERMS.

                              

                      

                    

                  

                

                 

                
                  	 	
                          2.1.

                        	
                          Adjustable
                            Interest Rate.
                            The Interest Rate will be based on the Index and will
                            be adjusted
                            periodically as the Index changes. The Interest Rate
                            is a variable or
                            floating rate and shall be the sum of the Wall
                            Street Journal Prime Rate (the “Index”) and One-Quarter of One Percentage
                            Point (0.25%) (the “Margin”),
                            (The Index and Margin are collectively the Rate). The
                            interest rate
                            determined shall be adjusted from time to time on the
                            effective date of
                            any changes to the Index as stated by the Wall Street
                            Journal. If at any
                            time the index is no longer available, Bank, with notice
                            to Borrower, will
                            choose a new Index that is based on comparable
                            information.

                        

                

                 

                
                  	 	
                          2.2.

                        	
                          Computation
                            of Interest.
                            Interest shall be computed on the basis of a three hundred
                            sixty (360) day
                            year and actual days elapsed, which results in more interest
                            than if a
                            three hundred sixty-five (365) day year were
                            used.

                        

                

                 

                
                  	 	
                          2.3.

                        	
                          Payment
                            Terms.
                            Borrower shall make payments on the Loan as provided
                            in the Payment Method
                            starting on the First Payment Date and continuing on
                            the same date of each
                            succeeding Payment Period thereafter with a final payment
                            of all remaining
                            unpaid principal, interest and other sums due under this
                            Note due and
                            payable on the Maturity Date.

                        

                

                 

                
                  	 	
                          2.4.

                        	
                          Notice
                            of Changes.
                            Bank will give Borrower notice of any changes in the
                            payments as from time
                            to time necessary, but the effectiveness and date of
                            such changes shall
                            not be affected by such notice or the lack
                            thereof.

                        

                

                 

                
                  
                    
                    

                  

                  
                    1

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	 	
                          2.5.

                        	
                          Loan
                            Payments:
                            Borrower agrees to make all payments of principal and
                            interest in lawful
                            money of the United States of America free from any offset,
                            deduction, or
                            counterclaim and expressly waives all rights to compensation
                            of cross
                            demand it might otherwise have. Checks constitute payment
                            only when
                            collected. Each payment, when received, shall be applied
                            in the following
                            order: if an Event of Default exists: (1) reasonable
                            costs, fees, charges,
                            and advances paid or incurred by Bank or payable by Bank
                            and interest
                            thereon pursuant to any provision of this Note, the Loan
                            and Security
                            Agreement or any Deed of Trust or any other loan document
                            securing this
                            Note, in such order as Bank, in Bank's sole discretion,
                            elects, (2)
                            interest payable under this Note and the Loan and Security
                            Agreement, and
                            (3) principal payable under this Note and the Loan and
                            Security Agreement;
                            if no Event of Default exists: (1) interest payable under
                            this Note and
                            the Loan and Security Agreement, and (2) principal payable
                            under this Note
                            and the Loan and Security
                            Agreement.

                        

                

                 

                
                  
                    
                      	3.	
                              PREPAYMENTS.

                            

                    

                  

                

                 

                Borrower
                  has the right to prepay principal in whole or in part, without
                  fee or premium,
                  at any time. Bank will use all of the prepayments to reduce the
                  amount of
                  principal that is owed under this Note. Unless Bank otherwise agrees
                  in writing,
                  a partial prepayment will not be applied to, nor permit Borrower
                  to delay, the
                  next regularly scheduled payment due hereunder. 

                 

                
                  
                    
                      	4.	
                              LATE
                                PAYMENTS.

                            

                    

                  

                

                 

                If
                  Bank
                  has not received the full amount of any periodic payment by the
                  end of 15
                  calendar days after the date it is due, Borrower will pay a late
                  charge to Bank.
                  The amount of the late charge will be equal to the Late Charge
                  Percent times the
                  overdue payment (whether the overdue payment is an interest only
                  payment or a
                  principal and interest payment). Borrower will pay this late charge
                  only once on
                  any late payment. It is agreed that the late payment charges provided
                  for herein
                  are made for the purpose of compensating Bank for the expense and
                  damages Bank
                  will suffer as a result of the failure of Borrower to make such
                  payments when
                  due. Such expenses and damages include, but are not limited to,
                  additional costs
                  in servicing the loan, including sending out notices of delinquency,
                  computing
                  delinquent interest, making additional inspections of the Collateral
                  and any
                  Properties, segregating delinquent sums from sums not delinquent
                  on all account,
                  loan and data processing records, loss to Bank of use of the sums
                  not paid when
                  due, and the loss, difficulty, and expense suffered by Bank in
                  meeting its
                  financial commitments. Borrower agrees further that it is extremely
                  difficult
                  and impractical to ascertain the extent and monetary amount of
                  such damages;
                  therefore, it is agreed further that the late charges provided
                  for herein
                  constitute a reasonable estimate of the fair and reasonable average
                  loss and
                  damages Bank will suffer as a result of such default and that such
                  amount is
                  presumed to be the amount of damages sustained by Bank in the event
                  of default
                  in making said payments when due. In the event any payment of interest
                  is not
                  paid when due, at the option of Bank, such interest shall be added
                  to the unpaid
                  principal sum and thereafter earn interest at the rate of interest
                  herein
                  provided.

                 

                
                  	
                          5.

                        	
                          LOAN
                            CHARGES.

                        

                

                 

                If
                  a law
                  that applies to this loan and which sets maximum loan charges is
                  finally
                  interpreted so that the interest or other loan charges collected
                  or to be
                  collected in connection with this loan exceed the permitted limits,
                  then: (i)
                  any such loan charge shall be reduced by the amount necessary to
                  reduce the
                  charge to the permitted limit; and (ii) any sums already collected
                  which
                  exceeded permitted limits will be refunded. The Bank may choose
                  to make this
                  refund by reducing the principal owed under this Note or by making
                  a direct
                  payment to Borrower. If a refund reduces principal, the reduction
                  will be
                  treated as a partial prepayment but shall not give rise to any
                  prepayment
                  fee.

                 

                
                  	
                          6.

                        	
                          INTEREST
                            AFTER DEFAULT OR MATURITY.

                        

                

                 

                In
                  the
                  event any portion of the principal sum remains unpaid after the
                  Maturity Date or
                  if any event has occurred or failed to occur which, after notice,
                  passage of
                  time or both, shall constitute an Event of Default under this Note,
                  or under the
                  Loan and Security Agreement or any Deed of Trust securing this
                  Note, or under
                  any other instrument or agreement securing this Note or relating
                  to the loan
                  evidenced by this Note and the Loan and Security Agreement, or
                  the Properties
                  described in any Deeds of Trust, Borrower agrees to pay interest
                  on such
                  principal sum at the Default Interest Rate. Nothing contained in
                  this paragraph
                  shall be deemed to renew or extend the term of this Note or constitute
                  a waiver
                  or release of any right Bank may have to enforce collection of
                  this Note or its
                  security thereof.

                 

                
                  
                    
                    

                  

                  
                    2

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	
                          7.

                        	
                          EVENTS
                            OF DEFAULT.

                        

                

                 

                The
                  occurrence of any of the Events of Default provided in the Loan
                  and Security
                  Agreement and Loan Term Sheet shall, at the option of the holder
                  of this Note,
                  make all sums of interest and principal under this Note immediately
                  due and
                  payable without notice of default, presentment or demand for payment,
                  protest or
                  notice of nonpayment or dishonor, or other notices or demands of
                  any kind or
                  character.

                 

                
                  	
                          8.

                        	
                          MISCELLANEOUS.

                        

                

                 

                
                  	 	
                          8.1.

                        	
                          Giving
                            of Notices.
                            Except for any notice required by applicable law to be
                            given in another
                            manner: (a) all notices provided for in this Note shall
                            be in writing
                            unless otherwise provided in this Note or the Loan and
                            Security Agreement;
                            (b) each such notice to Borrower shall be given by mailing
                            such notice by
                            first-class mail, to Borrower’s address specified in the Loan Term Sheet,
                            or to such other address as Borrower may designate by
                            notice given to Bank
                            in the manner provided herein; and (c) each such notice
                            to Bank shall be
                            given by mailing such notice by certified mail, return
                            receipt requested,
                            to Bank’s address specified in the Loan Term Sheet, or to such
                            other
                            address as Bank may designate by notice given to Borrower
                            in the manner
                            provided herein. All notices provided for in this Note
                            and the Loan and
                            Security Agreement shall be deemed to have been given
                            to Borrower or Bank
                            if given in the manner specified
                            herein.

                        

                

                 

                
                  	 	
                          8.2.

                        	
                          Fees
                            and Costs.
                            If Bank refers this Note to any attorney for collection
                            or seeks legal
                            advice following a default under this Note or under the
                            Loan and Security
                            Agreement or any Deeds of Trust or other security agreements
                            securing this
                            Note, or if an action is instituted on this Note, or
                            if any other judicial
                            or non-judicial action is instituted by Bank or by any
                            other person and an
                            attorney is employed by Bank to appear in any such action
                            or proceeding or
                            to reclaim, sequester, protect, preserve, or enforce
                            Bank's interest in
                            the real property security or any other security for
                            this Note including,
                            but not limited to, proceedings to foreclose the loan
                            evidenced hereby,
                            proceedings under the federal Bankruptcy Code, or in
                            eminent domain, or
                            under the probate code, or in connection with any state
                            or federal tax
                            lien, or in connection with disputes regarding the proper
                            disbursement of
                            construction loan funds, the undersigned Borrower and
                            every endorser and
                            guarantor hereof and every person who assumes the obligations
                            evidenced by
                            this Note, the Loan and Security Agreement and the loan
                            documents securing
                            the same, jointly and severally promise to pay reasonable
                            attorney's fees
                            for services performed by the Bank’s attorney, including but not limited
                            to staff counsel, and all costs and expense incurred
                            incident to such
                            employment.

                        

                

                 

                
                  	 	
                          8.3.

                        	
                          Governing
                            Law.
                            This Note shall be deemed to have been made in the State
                            of California and
                            the validity of this Note, its construction, interpretation
                            and
                            enforcement, and the rights of the parties hereunder
                            and concerning the
                            Collateral and Properties, if any, shall be determined
                            under, governed by
                            and construed in accordance with the laws of the State
                            of California. The
                            parties agree that all actions or proceedings arising
                            in connection with
                            this Note shall be tried and litigated only in the state
                            courts located in
                            the City and County of San Francisco, State of California,
                            or the federal
                            courts located in the Northern District of California.
                            Borrower waives any
                            right Borrower may have to assert the doctrine of forum
                            non conveniens or
                            to object to such venue and hereby consents to any court-ordered
                            relief.

                        

                

                 

                
                  	 	
                          8.4.

                        	
                          Severability.
                            If any provision of this Note or any of the other loan
                            documents is
                            construed or interpreted by a court of competent jurisdiction
                            to be void,
                            invalid or unenforceable, such decision shall affect
                            only those provisions
                            so construed or interpreted and shall not affect the
                            remaining provisions
                            of this Note or the other loan documents.

                        

                

                 

                
                  	 	
                          8.5.

                        	
                          Number
                            and Gender; Definitions.
                            Any capitalized terms which are not defined herein but
                            are defined in the
                            Loan and Security Agreement and/or Loan Term Sheet shall
                            have the meanings
                            ascribed to them in the Loan and Security Agreement and/or
                            Loan Term
                            Sheet. Each definition contained in this Note, the Loan
                            and Security
                            Agreement or Loan Term Sheet shall apply equally to both
                            the singular and
                            plural form of the term defined. Each pronoun shall include
                            the masculine,
                            the feminine and neuter form, whichever is appropriate
                            to the context. The
                            words “included”, “hereby”, “hereof”, and “hereunder” shall each be deemed
                            to refer to this entire Note and not to any particular
                            Section hereof. The
                            word “including” shall mean “including but not limited to”.
                            Notwithstanding the foregoing, if any law is amended
                            so as to broaden the
                            meaning of any term defined in it, such broader meaning
                            shall apply
                            subsequent to the effective date of such amendment. Where
                            a defined term
                            derives its meaning from a statutory reference, and any
                            reference or
                            citation to a statute or regulation shall be deemed to
                            include any
                            amendments to that statute or regulation and judicial
                            and administrative
                            interpretations of it.

                        

                

                 

                
                  
                    
                    

                  

                  
                    3

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	 	
                          8.6.

                        	
                          Borrower
                            and Bank; No Joint Venture.
                            The relationship of the parties hereto is that of creditor
                            and debtor, and
                            it is expressly understood and agreed that nothing contained
                            herein or in
                            the loan documents shall be interpreted or construed
                            to make the parties
                            partners, joint venturers, or participants in any legal
                            relationship other
                            than as creditor and debtor. It is further expressly
                            understood that Bank
                            owes no fiduciary duties to
                            Borrower.

                        

                

                 

                
                  	 	
                          8.7.

                        	
                          Remedies.
                            No right, power, or remedy given to Bank by the terms
                            of this Note or in
                            the loan documents is intended to be exclusive of any
                            other right, power,
                            or remedy, and each and every such right, power, or remedy
                            shall be
                            cumulative and in addition to every other right, power,
                            or remedy given to
                            Bank by the terms of any of the loan documents or by
                            any statute against
                            Borrower or any other person. Every right, power, and
                            remedy of Bank shall
                            continue in full force and effect until such right, power,
                            or remedy is
                            specifically waived by an instrument in writing, executed
                            by
                            Bank.

                        

                

                 

                
                  	 	
                          8.8.

                        	
                          Headings.
                            The subject headings of the paragraphs of this Note are
                            included for
                            purposes of convenience only and shall not affect the
                            construction or
                            interpretation of any of its provisions.

                        

                

                 

                
                  	 	
                          8.9.

                        	
                          Time
                            of Essence.
                            Time is of the essence of this
                            Note.

                        

                

                 

                
                  	 	
                          8.10.

                        	
                          Joint
                            Liability.
                            The obligations of the undersigned under this Note, if
                            there is more than
                            one signing this Note as Borrower, are joint and
                            several.

                        

                

                 

                
                  	 	
                          8.11.

                        	
                          Assignment.
                            Bank or other holder of this Note may assign all of its
                            rights, title and
                            interest in this Note to any person, firm, corporation
                            or other entity
                            without the consent of Borrower. Borrower has no right
                            to assign any of
                            its rights hereunder.

                        

                

                 

                
                  	 	
                          8.12.

                        	
                          Waivers.

                        

                

                 

                
                  	 	
                          8.12.1.

                        	
                          Other
                            than as provided herein, Borrower waives the right to
                            direct the
                            application of any and all payments, collections or proceeds
                            at any time
                            or times hereafter received by Bank and Borrower agrees
                            that Bank shall
                            have the continuing exclusive right to apply and reapply
                            such payments,
                            collections or proceeds to the Obligations in any manner
                            as Bank may deem
                            advisable, notwithstanding any entry by Bank upon Bank’s
                            books.

                        

                

                 

                
                  	 	
                          8.12.2.

                        	
                          Borrower
                            waives demand, protest, notice of protest, notice of
                            default or dishonor,
                            notice of payment and nonpayment, notice of any extension
                            or renewal of
                            any or all commercial paper, accounts, documents, instruments,
                            chattel
                            paper, and guaranties at any time held by Bank on which
                            Borrower may in
                            any way be liable.

                        

                

                 

                
                  	 	
                          8.12.3.

                        	
                          In
                            the event that Bank elects to waive any rights or remedies
                            hereunder, or
                            compliance with any of the terms hereof, or delays or
                            fails to pursue or
                            enforce any term, such waiver, delay or failure to pursue
                            or enforce shall
                            only be effective with respect to that single act and
                            shall not be
                            construed to affect any subsequent transactions or Bank’s right to later
                            pursue such rights and remedies.

                        

                

                 

                
                  
                    
                    

                  

                  
                    4

                    
                      

                    

                  

                  
                    
                    

                  

                

                
                  	 	
                          8.12.4.

                        	
                          Waiver
                            of Trial by Jury.
                            BORROWER AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF,
                            BANK AGREE TO
                            WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
                            CLAIM OR CAUSE OF
                            ACTION BASED UPON OR ARISING OUT OF THIS NOTE. The scope
                            of this waiver is
                            intended to be all-encompassing of any and all disputes
                            that may be filed
                            in any court and that relate to the subject matter of
                            this transaction,
                            including without limitation contract claims, tort claims,
                            breach of duty
                            claims and all other common law and statutory claims.
                            Borrower and, by its
                            acceptance of the benefits hereof, Bank each (i) acknowledges
                            that this
                            waiver is a material inducement for Borrower and Bank
                            to enter into a
                            business relationship, that Borrower and Bank have already
                            relied on this
                            waiver in entering into this Agreement or accepting the
                            benefits thereof,
                            as the case may be, and that each will continue to rely
                            on this waiver in
                            their related future dealings, and (ii) further warrants
                            and represents
                            that each has reviewed this waiver with its legal counsel,
                            and that each
                            knowingly and voluntarily waives its jury trial rights
                            following
                            consultation with legal counsel. THIS WAIVER IS IRREVOCABLE,
                            MEANING THAT
                            IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND
                            THIS WAIVER SHALL
                            APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
                            OR MODIFICATIONS
                            TO THIS AGREEMENT. In the event of litigation, this Note
                            may be filed as a
                            written consent to a trial by the
                            court.

                        

                

                 

                
                  	
                          9.

                        	
                          REVOLVING
                            NOTE.

                        

                

                 

                During
                  the term of this Note, Borrower may borrow, repay principal amounts
                  and
                  re-borrow them so long as the outstanding principal balance does
                  not exceed the
                  amount set forth as the Maximum Credit Limit in the Loan Term Sheet
                  and so long
                  as no Event of Default has occurred under the Loan and Security
                  Agreement and
                  Loan Term Sheet and Borrower is in full, faithful and timely compliance
                  with
                  each and all the covenants, conditions, warranties and representations
                  contained
                  in the Loan and Security Agreement, Loan Term Sheet, this Note,
                  any Deeds of
                  Trust and/or any other agreement between Bank and Borrower, Bank
                  will make
                  advances, on a revolving basis, for working capital, provided,
                  however, in no
                  event shall Bank be obligated to make advances to Borrower whenever
                  the Daily
                  Balance exceeds the Maximum Credit Limit subject to the Borrowing
                  Base, if any,
                  or will be exceeded if a further advance is made pursuant to this
                  Note and the
                  Loan and Security Agreement and Loan Term Sheet.

                 

                IN
                  WITNESS WHEREOF,
                  the
                  undersigned have caused this Note to be executed by its officer
                  thereunto duly
                  authorized and directed by a resolution of its Board of Directors
                  duly passed
                  and adopted by a majority of said Board at a meeting thereof duly
                  called,
                  noticed and held. 

                 

                Borrower

                 

                Sigma
                  Designs, Inc.

                 

                 

                
                  
                    
                      

                    

                  

                  By
                    : Kit
                    Tsui

                  Its
                    :
                    Chief financial Officer/Secretary

                

                 

                 

                
                  
                    
                    

                  

                  
                    5

                    
                      

                    

                  

                  
                    
                    

                  

                

              

               

            

          

        

      

      
        NEGATIVE
          PLEDGE AGREEMENT

        

        

        This
          Negative Pledge Agreement is made as of August
          12, 2005,
          by and
          between Sigma Designs, Inc. (“Borrower”) and United Commercial Bank (“UCB” or
“Bank”).

        

        

        In
          connection with, Loan
          No.
288-000007-0:
          the Loan
          and Security Agreements, Loan Term
          Sheets No. 1 & 2,
          Revolving Promissory Note and
          other
          documents executed by Bank
          and
          Borrower
          (Collectively known as “Loan Documents”) being concurrently executed herewith
          between Borrower and Bank, Borrower agrees as follows: 

        

        
          	
                	1.	
                  Borrower
                    shall not sell, transfer, assign, mortgage, pledge, lease, grant
                    a
                    security interest in or encumber any of Borrower’s intellectual property,
                    including, without limitation, the following:

                

        

         

        
          	 	
                  a.

                	
                  Any
                    and all copyright rights, copyright applications, copyright registrations
                    and like protections in each work or authorship and derivative
                    work
                    thereof, whether published or unpublished and whether or not
                    the same also
                    constitutes a trade secret, now or hereafter existing, created,
                    acquired
                    or held;

                

        

        

        
          	 	
                  b.

                	
                  Any
                    and all trade secrets, and any and all intellectual property
                    rights in
                    computer software and computer software products now or hereafter
                    existing, created, acquired or
                    held;

                

        

        

        
          	 	
                  c.

                	
                  Any
                    and all design rights which may be available to Borrower now
                    or hereafter
                    existing, created, acquired or
                    held;

                

        

        

        
          	 	
                  d.

                	
                  All
                    patents, patent applications and like protections including,
                    without
                    limitation, improvements, divisions, continuations, renewals,
                    reissues,
                    extensions and continuations-in-part of the same, including without
                    limitation the patents and patent
                    applications;

                

        

        

        
          	 	
                  e.

                	
                  Any
                    trademark and servicemark rights, whether registered or not,
                    applications
                    to register and registrations of the same and like protections,
                    and the
                    entire goodwill of the business of Borrower connected with any
                    symbolized
                    by such trademarks, including without
                    limitation;

                

        

        

        
          	 	
                  f.

                	
                  Any
                    and all claims for damages by way of past, present and future
                    infringements of any of the rights included above, with the right,
                    but not
                    the obligation, to sue for and collect such damages for said
                    use or
                    infringement of the intellectual property rights identified above;
                    

                

        

        

        
          	 	
                  g.

                	
                  All
                    licenses or other rights to use any of the Copyrights, Patent
                    or
                    Trademarks, and all license fees and royalties arising from such
                    use to
                    the extent permitted by such license or rights; and
                    

                

        

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        
          	 	
                  h.

                	
                  All
                    amendments, extensions, renewals and extensions of any of the
                    Copyrights,
                    Trademarks or Patents; and 

                

        

        

        
          	 	
                  i.

                	
                  All
                    proceeds and products of the foregoing, including without limitation
                    all
                    payments under insurance or any indemnity or warranty payable
                    in respect
                    of any of the foregoing;

                

        

        

        
          	 	
                  2.

                	
                  It
                    shall be an event of default under the Loan Documents between
                    Borrower and
                    Bank if there is a breach of any term of this Negative Pledge
                    Agreement.
                    

                

        

        

        
          	 	
                  3.

                	
                  Capitalized
                    terms used but not otherwise defined herein shall have the same
                    meaning as
                    in the Loan Documents. 

                

        

        

        

        BORROWER:

        

        SIGMA
          DESIGNS, INC.

        

        By:
          ____________________________

        

        Name:
          __________________________

        

        Title:
          ___________________________

        

        

        

        Bank:

        

        UNITED
          COMMERCIAL BANK

        

        By:
          ___________________________

        

        Name:
          _________________________

        

        Title:
          __________________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}]]