Document:

Appendix A to the Indenture, Definitions

 Exhibit 4.2 
  

APPENDIX A 
  
 DEFINITIONS 
  
 Accepted Master Servicing Practices: With respect to any Mortgage Loan, as applicable, those customary mortgage master servicing practices of prudent mortgage servicing institutions that master service mortgage loans of the same type
and quality as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located, to the extent applicable to the Master Servicer (except in its capacity as successor to the Servicer). 
  
 Accepted Servicing Practices: With respect to any Mortgage Loan, as
applicable, those customary mortgage servicing practices of prudent mortgage servicing institutions that service mortgage loans of the same type and quality as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located,
as provided in the Servicing Agreement to the extent applicable to the Servicer or the Subservicer. 
  
 Account: The Payment Account and the Custodial Account as the context may require. 
  
 Accrual Period: For any Class of Notes, the period from and including the preceding Payment Date (or, in the case of
the first Payment Date, from and including the Closing Date) to and including the day prior to the current Payment Date. 
  
 Accrued Note Interest: With respect to any Payment Date and each Class of Notes, interest accrued during the related Accrual Period at the
then-applicable Note Rate on the related Note Principal Balance thereof immediately prior to such Payment Date; provided, however, that for any class of Subordinate Notes, such amount shall be reduced by the amount, if any, specified in
clause (a) of the definition of Deferred Interest for such Class for such Payment Date. The Accrued Note Interest on the Notes shall be calculated on the basis of a 360-day year and the actual number of days in the related accrual period.

  
 Administration Agreement: The Administration Agreement,
dated as of July 1, 2005, among the Issuer, the Depositor, the Owner Trustee and the Securities Administrator, as administrator. 
  
 Advance: A Monthly Advance or a Servicing Advance. 
  
 Affiliate: With respect to any Person, any other Person controlling, controlled by or under common control with such Person. For purposes of this
definition, “control” means the power to direct the management and policies of a Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise and “controlling” and
“controlled” shall have meanings correlative to the foregoing. 
  
 Agreements: The Sale and Servicing Agreement, the Servicing Agreement, the Subservicing Agreement, the Indenture, the Trust Agreement, the Administration Agreement, the Mortgage Loan Purchase Agreement and the
Custodial Agreement. 
  

 Applicable Credit Rating: For any long-term deposit or security, a credit rating of AAA in the
case of S&P, AAA in the case of Fitch, or Aaa in the case of Moody’s. For any short-term deposit or security, a rating of A-l+ in the case of S&P, F1+ in the case of Fitch, or P-1 in the case of Moody’s. 
  
 Appraised Value: The appraised value of the related mortgaged property
at the time of origination of such Mortgage Loan. 
  
 Assignment of Mortgage: An assignment of Mortgage, notice of transfer or equivalent instrument, in recordable form, which is sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect
of record the sale of the Mortgage, which assignment, notice of transfer or equivalent instrument may be in the form of one or more blanket assignments covering Mortgages secured by Mortgaged Properties located in the same county, if permitted by
law. 
  
 Authorized Newspaper: A newspaper of general
circulation in the Borough of Manhattan, The City of New York, printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays. 
  
 Authorized Officer: With respect to the Issuer, any officer of the
Owner Trustee or the Depositor who is authorized to act for the Owner Trustee or the Depositor in matters relating to the Issuer and who is identified on the list of Authorized Officers delivered by the Owner Trustee and the Depositor to the
Indenture Trustee and Securities Administrator on the Closing Date (as such list may be modified or supplemented from time to time thereafter). 
  
 Available Funds Rate: With respect to any Payment Date, a per-annum rate equal to the product of (a) the quotient of (i) 360 divided by (ii) the
actual number of days in the Accrual Period, multiplied by (b) the quotient of (i) (A) the Interest Funds for such Payment Date, minus (B) any amounts paid by the Trust pursuant to the Swap Agreement on such Payment Date (other than Swap Termination
Payments triggered by a Swap Provider Trigger Event), divided by (ii) the aggregate Note Balance as of the first day of the related Accrual Period. 
  
 Average Loss Severity Percentage: With respect to any Payment Date, the percentage equivalent of a fraction, the numerator of which is the sum of
the Loss Severity Percentages for each Mortgage Loan which had a Realized Loss and the denominator of which is the number of Mortgage Loans which had Realized Losses. 
  
 Bankruptcy Code: The United States Bankruptcy Code, as amended as codified in 11 U.S.C. §§ 101-1330.

  
 Bankruptcy Loss: With respect to any Mortgage Loan, any
Deficient Valuation or Debt Service Reduction related to such Mortgage Loan as reported by the Servicer to the Master Servicer. 
  
 Basic Documents: The Trust Agreement, the Certificate of Trust, the Indenture, the Sale and Servicing Agreement, the Administration Agreement, the
Servicing Agreement, the Subservicing Agreement, the Mortgage Loan Purchase Agreement, the Swap Agreement, the 

  

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Custodial Agreement and the other documents and certificates delivered in connection with any of the above. 
  
 Basic Principal Payment Amount: With respect to any Payment Date, the
excess, if any, of (a) the Principal Funds for such Payment Date over (b) the Overcollateralization Release Amount. 
  
 Basis Risk Shortfall: With respect to any Class of Notes, on each Payment Date where clause (c) of the definition of “Note Rate” is less
than clauses (a) or (b) of the definition of “Note Rate,” the excess, if any, of (x) the aggregate Accrued Note Interest thereon for such Payment Date calculated pursuant to the lesser of clauses (a) or (b) of the definition of Note Rate
over (y) Accrued Note Interest on such Class, computed at the related Available Funds Rate. 
  
 Basis Risk Shortfall Carry-Forward Amount: With respect to each Class of Notes and any Payment Date, as determined separately for each such Class of Notes, an amount equal to the aggregate amount of Basis Risk
Shortfall for such Notes on such Payment Date, plus any unpaid Basis Risk Shortfall for such Class of Notes from prior Payment Dates, plus interest thereon at the related Note Rate (without regard to the Available Funds Rate) for such Payment Date,
to the extent previously unreimbursed by the Net Monthly Excess Cashflow or from payments received under the Corridor Agreement. 
  
 Beneficial Owner: With respect to any Note, the Person who is the beneficial owner of such Note as reflected on the books of the Depository or on
the books of a Person maintaining an account with such Depository (directly as a Depository Participant or indirectly through a Depository Participant, in accordance with the rules of such Depository). 
  
 Book-Entry Notes: Each Class of Notes for so long as they are issued,
maintained and transferred at DTC. 
  
 Business Day: Any
day other than (a) a Saturday or a Sunday, or (b) a day on which the New York Stock Exchange or Federal Reserve is closed or on which banking institutions in the jurisdiction in which the Indenture Trustee, the Master Servicer, the Servicer, the
Subservicer or the Securities Administrator is located are authorized or obligated by law or executive order to be closed. 
  
 Certificate Distribution Account: The account or accounts created and maintained pursuant to Section 3.09(c) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account. 
  
 Certificate Paying Agent: The certificate paying agent appointed pursuant to Section 3.09 of the Trust Agreement, which shall initially be the Securities Administrator. 
  
 Certificate Percentage Interest: With respect to each Certificate, the Certificate Percentage Interest stated on the
face thereof. 
  
 Certificate Register: The register
maintained by the Certificate Registrar in which the Certificate Registrar shall provide for the registration of Certificates and of transfers and exchanges of Certificates. 
  

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 Certificate Registrar: Initially, the Securities Administrator, in its capacity as Certificate
Registrar, or any successor to the Securities Administrator in such capacity pursuant to the Trust Agreement. 
  
 Certificate of Trust: The Certificate of Trust filed for the Trust pursuant to Section 3810(a) of the Statutory Trust Statute. 
  
 Certificates or Owner Trust Certificates: The People’s
Choice Home Loan Securities Trust Series 2005-3, Owner Trust Certificates, Series 2005-3, evidencing the beneficial ownership interest in the Trust and executed by the Owner Trustee in substantially the form set forth in Exhibit A to the Trust
Agreement. 
  
 Certificateholder or Holder: The
Person in whose name a Certificate is registered in the Certificate Register. Owners of Certificates that have been pledged in good faith may be regarded as Holders if the pledgee establishes to the satisfaction of the Securities Administrator or
the Owner Trustee, as the case may be, the pledgee’s right so to act with respect to such Certificates and that the pledgee is not the Issuer, any other obligor upon the Certificates or any Affiliate of any of the foregoing Persons. 

 
 Class: Any of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class
2A2, Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8, Class M9, Class M10 or Class M11 Notes. 
  
 Class 1A Notes: The Class 1A1, Class 1A2 and Class 1A3 Notes. 
  
 Class 2A Notes: The Class 2A1 and Class 2A2 Notes. 
  
 Class A Notes: Any of the Class 1A1, Class 1A2, Class 1A3, Class 2A1 and Class 2A2 Notes in the form attached as
Exhibit A-1 to the Indenture. 
  
 Class A Principal Allocation
Fraction: For any Payment Date and each Class of Class A Notes, a fraction, (x) the numerator of which is the Principal Funds with respect to the Mortgage Loans in the related Loan Group to be distributed on that Payment Date, and (y) the
denominator of which is the Principal Funds for all of the Mortgage Loans to be distributed on that Payment Date. 
  
 Class M Notes: Any of the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8, Class M9, Class M10 and Class M11 Notes
in the form attached as Exhibit A-2 to the Indenture. 
  
 Class
M1 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate
Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1 and Class 2A2 Notes (after taking into account the distribution of Senior Principal Payment Amount on such Payment Date) and (ii) the Note Principal Balance of the Class M1
Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by 61.90% and (ii) the amount, if any, by 

  

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which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor.

  
 Class M2 Principal Payment Amount: For any applicable
Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2,
Class 1A3, Class 2A1, Class 2A2 and Class M1 Notes (after taking into account the distribution of Senior Principal Payment Amount and the Class M1 Principal Payment Amount on such Payment Date) and (ii) the Note Principal Balance of the Class M2
Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by 69.10% and (ii) the amount, if any, by which (x) the aggregate Stated
Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M3 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with
respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1 and Class M2 Notes (after taking into account the
distribution of Senior Principal Payment Amount and the Class M1 and Class M2 Principal Payment Amounts on such Payment Date) and (ii) the Note Principal Balance of the Class M3 Notes immediately prior to such Payment Date over (b) the lesser of (i)
the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by 73.10% and (ii) the amount, if any, by which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date
exceeds (y) the Overcollateralization Floor. 
  
 Class M4
Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate
Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2 and Class M3 Notes (after taking into account the distribution of Senior Principal Payment Amount and the Class M1, Class M2 and Class M3
Principal Payment Amounts on such Payment Date) and (ii) the Note Principal Balance of the Class M4 Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of
such Payment Date multiplied by 76.90% and (ii) the amount, if any, by which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M5 Principal Payment Amount: For any applicable Payment Date on
or after the Stepdown Date as long as a Trigger Event has not occurred with respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class
2A1, Class 2A2, Class M1, Class M2, Class M3 and Class M4 Notes (after taking into account the distribution of Senior Principal Payment Amount and the Class M1, Class M2, Class M3 and Class M4 Principal Payment Amounts on such Payment Date) and (ii)
the Note Principal Balance of the Class M5 Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated 

  

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Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by 80.30% and (ii) the amount, if any, by which (x) the aggregate Stated
Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M6 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with
respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2, Class M3, Class M4 and Class M5 (after
taking into account the distribution of the Senior Principal Payment Amount and the Class M1, Class M2, Class M3, Class M4 and Class M5 Principal Payment Amounts on such Payment Date) and (ii) the Note Principal Balance of the Class M6 Notes
immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by approximately 83.60% and (ii) the amount, if any, by which (x) the aggregate
Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M7 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with
respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2, Class M3, Class M4, Class M5 and Class
M6 Notes (after taking into account the distribution of the Senior Principal Payment Amount and the Class M1, Class M2, Class M3, Class M4, Class M5 and Class M6 Principal Payment Amounts on such Payment Date) and (ii) the Note Principal Balance of
the Class M7 Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by approximately 86.50% and (ii) the amount, if any, by
which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M8 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with
respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2, Class M3, Class M4, Class M5, Class M6
and Class M7 Notes (after taking into account the distribution of the Senior Principal Payment Amount and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6 and Class M7 Principal Payment Amounts on such Payment Date) and (ii) the Note
Principal Balance of the Class M8 Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by approximately 89.20% and (ii) the
amount, if any, by which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M9 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger
Event has not occurred with respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, 

  

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Class M2, Class M3, Class M4, Class M5, Class M6, Class M7 and Class M8 Notes (after taking into account the distribution of the Senior Principal Payment
Amount and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7 and Class M8 Principal Payment Amounts on such Payment Date) and (ii) the Note Principal Balance of the Class M9 Notes immediately prior to such Payment Date over
(b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date approximately 91.70% and (ii) the amount, if any, by which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect
of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M10 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of
(i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8 and Class M9 Notes (after taking into account the distribution of
the Senior Principal Payment Amount and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8 and Class M9 Principal Payment Amounts on such Payment Date) and (ii) the Note Principal Balance of the Class M10 Notes
immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by approximately 93.70% and (ii) the amount, if any, by which (x) the aggregate
Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Class M11 Principal Payment Amount: For any applicable Payment Date on or after the Stepdown Date as long as a Trigger Event has not occurred with
respect to such Payment Date, an amount equal to the excess (if any) of (a) the sum of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9 and Class M10 Notes (after taking into account the distribution of the Senior Principal Payment Amount and the Class M1, Class M2, Class M3, Class M4, Class M5, .Class M6, Class M7, Class M8, Class M9 and Class M10 Notes
(after taking into account the distribution of the Senior Principal Payment Amount and the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8, Class M9 and Class M10 Principal Payment Amounts on such Payment Date) and
(ii) the Note Principal Balance of the Class M11 Notes immediately prior to such Payment Date over (b) the lesser of (i) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by approximately 94.00%
and (ii) the amount, if any, by which (x) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date exceeds (y) the Overcollateralization Floor. 
  
 Closing Date: July 1, 2005. 
  

Code: The Internal Revenue Code of 1986, as amended. 
  
 Collateral: The meaning specified in the Granting Clause of the Indenture. 
  
 Commission: The Securities and Exchange Commission. 
  

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 Company: People’s Choice Funding, Inc. 
  
 Compensating Interest: With respect to any Payment Date, any payments
made by the Master Servicer, the Servicer or the Subservicer from its own funds to cover Prepayment Interest Shortfalls, which shall be required to be paid in accordance with the Servicing Agreement or the Sale and Servicing Agreement in an amount
equal to the lesser of (a) the amount, if any, by which the aggregate Prepayment Interest Shortfalls in respect of such Payment Date exceed any aggregate Prepayment Interest Excess in respect of such Payment Date and (B) the Servicing Fee received
with respect to the related Due Period. 
  
 Compensating
Interest Payment: As defined in Section 3.23 of the Sale and Servicing Agreement. 
  
 Corporate Trust Office: With respect to the Indenture Trustee, the principal corporate trust office of the Indenture Trustee at which at any particular time its engagement under the Indenture shall be
administered, which office at the date of the execution of this instrument is located at HSBC Bank USA, National Association, 452 Fifth Avenue, New York, New York 10018, Attention: Corporate Trust. With respect to the Owner Trustee, the principal
corporate trust office of the Owner Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Trust Agreement is located at Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware, 19890, Attention: People’s Choice Home Loan Securities Trust Series 2005-3. The Corporate Trust Office of the Note Registrar, Certificate Registrar and Securities Administrator for purposes
of presentment and surrender of the Notes and the Certificates for the final payment or distribution thereon and for transfer is located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota, 55479, Attention: People’s Choice Home Loan
Securities Trust Series 2005-3, and for all other purposes is located at P.O. Box 98, Columbia, Maryland, 21046 (or, for overnight deliveries, 9062 Old Annapolis Road, Columbia, Maryland, 21045), Attention: People’s Choice Home Loan Securities
Trust Series 2005-3, or any other address that the Securities Administrator may designate from time to time by notice to the Noteholders and the Certificateholders. 
  
 Corridor Agreement: The interest rate corridor agreement between the Indenture Trustee and the Corridor Counterparty
for the benefit of the Offered Notes. 
  
 Corridor
Counterparty: Swiss Re Financial Products Corporation. 
  
 Custodial Account: As defined in the Servicing Agreement. 
  
 Custodial Agreement: The custodial agreement dated as of July 1, 2005, among the Issuer, the Indenture Trustee, the Depositor, the Master Servicer, the Servicer, the Subservicer, the Securities Administrator
and the Custodian, relating to the People’s Choice Home Loan Securities Trust Series 2005-3, Mortgage-Backed Notes, Series 2005-3. 
  
 Custodian: Wells Fargo Bank, National Association and its successors and assigns. 
  
 Cut-off Date: With respect to the Mortgage Loans, June 1, 2005. 
  

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 Cut-off Date Balance: $1,124,956,150.91. 
  
 Cut-off Date Principal Balance: With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the Cut-off Date after applying the principal portion of Monthly Payments due on or before such date, whether or not received, and without regard to any payments due after such date. 
  
 Debt Service Reduction: Any reduction of the Scheduled Payments which
a Mortgagor is obligated to pay with respect to a Mortgage Loan as a result of any proceeding under the Bankruptcy Code or any other similar state law or other proceeding. 
  
 Default: Any occurrence which is or with notice or the lapse of time or both would become an Event of Default.

  
 Deferred Interest: For each Class of Subordinate Notes
and any Payment Date, the sum of (a) the aggregate amount of interest accrued at the applicable Note Rate without regard to the Available Funds Rate during the related Accrual Period on the portion of the Principal Deficiency Amount allocated to
that Class, (b) any amounts described in clause (a) for such Class for prior Payment Dates that remain unpaid, and (c) interest accrued for the Accrual Period related to such Payment Date on the amount in clause (b) at the Note Rate applicable to
such Class without regard to the Available Funds Rate. 
  
 Deficient Valuation: With respect to any Mortgage Loan, a valuation of the Mortgaged Property by a court of competent jurisdiction in an amount less than the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the Bankruptcy Code or any other similar state law or other proceeding. 
  
 Definitive Notes: The meaning specified in Section 4.06 of the Indenture. 
  
 Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced with a Substitute Mortgage Loan. 
  
 Delinquency Rate: For any month, the fraction, expressed as a
percentage, the numerator of which is the aggregate outstanding principal balance of all Mortgage Loans 60 or more days delinquent measured pursuant to the OTS method (including all Mortgage Loans in foreclosure, Mortgage Loans subject to bankruptcy
proceedings and REO properties) as of the close of business on the last day of such month, and the denominator of which is the aggregate Stated Principal Balance of the Mortgage Loans as of the close of business on the last day of such month.

  
 Depositor: People’s Choice Home Loan Securities
Corp., a Delaware corporation, or its successor in interest. 
  
 Depository: The Depository Trust Company, the nominee of which is Cede & Co., or any successor thereto. 
  
 Depository Participant: A Person for whom, from time to time, the Depository effects book-entry transfers and pledges of securities deposited with
the Depository. 
  

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 Designated Depository Institution: A depository institution (commercial bank, federal savings
bank, mutual savings bank or savings and loan association) or trust company (which may include the Indenture Trustee), the deposits of which are fully insured by the FDIC to the extent provided by law. 
  
 Determination Date: With respect to any Payment Date, is on the
15th day of the month in which such Payment Date occurs or, if such day is not a Business Day, on the immediately
preceding Business Day. 
  
 DTC: The Depository Trust
Company, including its successors and assigns. 
  
 Due
Date: With respect to each Mortgage Loan, the first day of the month. 
  
 Due Period: With respect to any Payment Date, the period commencing on the second day of the month immediately preceding the month in which such Payment Date occurs and ending on the first day of the month in
which such Payment Date occurs. 
  
 Eligible Account: Any
of (a) a segregated account maintained with a federal or state chartered depository institution (i) the short-term obligations of which are rated A-1 or better by S&P, P-1 by Moody’s and F-1 by Fitch at the time of any deposit therein or
(ii) insured by the FDIC (to the limits established by such corporation), the uninsured deposits in which account are otherwise secured such that, as evidenced by an Opinion of Counsel (obtained by the Person requesting that the account be held
pursuant to this clause (a)) delivered to the Securities Administrator prior to the establishment of such account, the Noteholders will have a claim with respect to the funds in such account and a perfected first priority security interest against
any collateral (which shall be limited to Permitted Investments, each of which shall mature not later than the Business Day immediately preceding the Payment Date next following the date of investment in such collateral or the Payment Date if such
Permitted Investment is an obligation of the institution that maintains the Payment Account) securing such funds that is superior to claims of any other depositors or general creditors of the depository institution with which such account is
maintained, (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company with trust powers acting in its fiduciary capacity or (c) a segregated account or accounts of a depository
institution acceptable to the Rating Agencies (as evidenced in a written notice from the Rating Agencies that use of any such account as the Payment Account will not have an adverse effect on the then-current ratings assigned to the Classes of Notes
then rated by such Rating Agency). Eligible Accounts may bear interest. 
  
 ERISA: The Employee Retirement Income Security Act of 1974, as amended. 
  
 Event of Default: With respect to the Indenture, any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): 
  
 (i) a failure by the Issuer to pay (a) Accrued Note Interest on any Class of Notes or (b) the Principal Payment Amount with respect to a
Payment Date on such Payment Date which failure is not cured within 3 business days; or 
  

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 (ii) the failure by the Issuer on the Final Scheduled Payment Date to pay all Accrued
Note Interest and to reduce the Note Principal Balance of any Class of Notes to zero; or 
  
 (iii) there occurs a default in the observance or performance of any covenant or agreement of the Issuer made in the Indenture, or any
representation or warranty of the Issuer made in the Indenture or in any certificate or other writing delivered pursuant hereto or in connection herewith proving to have been incorrect in any material respect as of the time when the same shall have
been made, and such default shall continue or not be cured, or the circumstance or condition in respect of which such representation or warranty was incorrect shall not have been eliminated or otherwise cured, for a period of 60 days after there
shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of at least 25% of the aggregate Note Principal Balance of the Outstanding Notes, a written
notice specifying such default or incorrect representation or warranty and requiring it to be remedied and stating that such notice is a notice of default hereunder; or 
  
 (iv) there occurs the filing of a decree or order for relief by a court having jurisdiction in the premises
in respect of the Issuer or any substantial part of the Trust Estate in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the Trust Estate, or ordering the winding-up or liquidation of the Issuer’s affairs, and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or 
  
 (v)
there occurs the commencement by the Issuer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Issuer or for any substantial part of the
assets of the Trust Estate, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as such debts become due, or the taking of any action by the Issuer in
furtherance of any of the foregoing. 
  
 Excess Liquidation
Proceeds: To the extent that such amount is not required by law to be paid to the related Mortgagor, the amount, if any, by which Liquidation Proceeds with respect to a Liquidated Mortgage Loan exceed the sum of (a) the Outstanding Principal
Balance of such Mortgage Loan and accrued but unpaid interest at the related Mortgage Rate through the last day of the month in which the related Liquidation Date occurs, (b) related Liquidation Expenses (including Liquidation Expenses which are
payable therefrom to the Subservicer, the Servicer or the Master Servicer in accordance with the Servicing Agreement or the Sale and 

  

 -11- 

 
Servicing Agreement) and (c) unreimbursed advances by the Subservicer, the Servicer or the Master Servicer and Monthly Advances. 
  
 Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder. 
  
 Expenses:
The meaning specified in Section 7.02 of the Trust Agreement. 
  
 Extraordinary Expense: Any amounts payable or reimbursable to the Indenture Trustee pursuant to Section 6.07 of the Indenture, including indemnifications thereunder, and any other costs, expenses and liabilities that are required to
be borne by the Trust Estate in accordance with applicable law or the terms of the Indenture (including, without limitation, the cost of various opinions of and advice from counsel required to be obtained in connection with the Indenture
Trustee’s performance of its duties under the Indenture). 
  
 The Securities Administrator may make withdrawals from the Payment Account to pay the Indenture Trustee or reimburse the Indenture Trustee the amount of any Extraordinary Expenses at any time, up to a limit of $150,000 of Extraordinary
Expenses per calendar year; provided, however, that the Indenture Trustee shall not have any obligation to incur additional Extraordinary Expenses in excess of such annual limit unless it has received security or indemnity reasonably
satisfactory to it for such additional Extraordinary Expenses. The Indenture Trustee shall be held harmless and shall not be liable for any consequences to the Noteholders resulting from any failure of the Indenture Trustee to incur any
Extraordinary Expenses for which it is not assured reimbursement. 
  
 Extra Principal Payment Amount: With respect to any Payment Date, the lesser of (a) the Net Monthly Excess Cashflow for such Payment Date and (b) the excess, if any, of (i) the Overcollateralization Target Amount over (ii) the
Overcollateralized Amount on such Payment Date (after taking into account payments to the Notes of the Basic Principal Payment Amount on such Payment Date). 
  
 Fannie Mae: Fannie Mae (formerly, the Federal National Mortgage Association), or any successor thereto. 
  
 FDIC: The Federal Deposit Insurance Corporation or any successor
thereto. 
  
 Fee Agreement: The Fee Agreement dated as of
July 1, 2005, between the Owner Trustee and the Seller. 
  
 Final Certification: The final certification delivered by the Custodian pursuant to Section 2.3(c) of the Custodial Agreement in the form attached thereto as Exhibit Three. 
  
 Final Scheduled Payment Date: With respect to each Class of Notes, the
Payment Date in July 2035. 
  
 FIRREA: The Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended from time to time. 
  

 -12- 

 Fitch: Fitch, Inc. 
  
 Fixed Swap Payment: With respect to each Payment Date, a fixed amount equal to the product of (a) a fixed rate equal
to 4.104% per annum, (b) the notional amount for that Payment Date, as provided in the schedule of notional balances attached as Exhibit B to the Indenture and (c) a fraction, the numerator of which is 30 and the denominator of which is 360,
provided that the numerator is 27 for the first Payment Date. 
  
 Floating Swap Payment: With respect to each Payment Date, an amount equal to the product of (a) one-month LIBOR as determined pursuant to the interest rate Swap Agreement, (b) the notional amount for that Payment Date, as provided in
the schedule of notional balances attached as Exhibit B to the Indenture and (c) a fraction, the numerator of which is equal to the number of days in the related calculation period as provided in the Swap Agreement and the denominator of which is
360 provided that the numerator is 27 for the first Payment Date. 
  
 Freddie Mac: Freddie Mac (formerly, the Federal Home Loan Mortgage Corporation), or any successor thereto. 
  
 Grant: Pledge, bargain, sell, warrant, alienate, remise, release, convey, assign, transfer, create, and grant a lien upon and a security interest
in and right of set-off against, deposit, set over and confirm pursuant to the Indenture. A Grant of the Collateral or of any other agreement or instrument shall include all rights, powers and options (but none of the obligations) of the granting
party thereunder, including the immediate and continuing right to claim for, collect, receive and give receipt for principal and interest payments in respect of such collateral or other agreement or instrument and all other moneys payable
thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring proceedings in the name of the granting party or otherwise, and generally to do and receive anything
that the granting party is or may be entitled to do or receive thereunder or with respect thereto. 
  
 Gross Margin: As to each Mortgage Loan, the fixed percentage set forth in the related Mortgage Note and indicated on the Mortgage Loan Schedule
which percentage is added to the related Index on each Interest Adjustment Date to determine (subject to rounding, the minimum and maximum Mortgage Rate and the Periodic Rate Cap) the Mortgage Rate until the next Interest Adjustment Date.

  
 Group 2 Sequential Trigger Event: A Group 2 Sequential
Trigger Event is in effect with respect of any Payment Date prior to the Stepdown Date, if cumulative Realized Losses for such Payment Date as a percentage of the aggregate Stated Principal Balance of mortgage loans as of the Cut-off Date are
greater than 1.65%, and on or after the Stepdown Date if a Trigger Event is in effect. 
  
 Indemnified Party: The meaning specified in Section 7.02 of the Trust Agreement. 
  

 -13- 

 Indenture: The indenture dated as of July 1, 2005, among the Issuer, the Indenture Trustee and the
Securities Administrator, relating to the People’s Choice Home Loan Securities Trust Series 2005-3, Mortgage-Backed Notes, Series 2005-3. 
  
 Indenture Trustee: HSBC Bank USA, National Association, and its successors and assigns or any successor indenture trustee appointed pursuant to the
terms of the Indenture. 
  
 Independent: When used with
respect to any specified Person, the Person (a) is in fact independent of the Issuer, any other obligor on the Notes, the Seller, the Master Servicer, the Servicer, the Subservicer, the Depositor and any Affiliate of any of the foregoing Persons,
(b) does not have any direct financial interest or any material indirect financial interest in the Issuer, any such other obligor, the Seller, the Master Servicer, the Servicer, the Subservicer, the Depositor or any Affiliate of any of the foregoing
Persons and (c) is not connected with the Issuer, any such other obligor, the Seller, the Master Servicer, the Servicer, the Subservicer, the Depositor or any Affiliate of any of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions. 
  
 Independent Certificate: A certificate or opinion to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable requirements of Section 10.01 of the Indenture, made by an
independent appraiser or other expert appointed by an Issuer Request, and such opinion or certificate shall state that the signer has read the definition of “Independent” in this Indenture and that the signer is Independent within the
meaning thereof. 
  
 Index: The index, if any, specified in
a Mortgage Note by reference to which the related Mortgage Rate will be adjusted from time to time. 
  
 Initial Certification: The initial certification delivered by the Custodian pursuant to Section 2.3(a) of the Custodial Agreement in the form
attached thereto as Exhibit One. 
  
 Insurance Policy: With
respect to any Mortgage Loan, any standard hazard insurance policy, flood insurance policy or title insurance policy. 
  
 Insurance Proceeds: Amounts paid by the insurer under any Insurance Policy covering any Mortgage Loan or Mortgaged Property other than amounts
required to be paid over to the Mortgagor pursuant to law or the related Mortgage Note or Security Instrument and other than amounts used to repair or restore the Mortgaged Property or to reimburse insured expenses. 
  
 Interest Adjustment Date: With respect to a Mortgage Loan, the date,
if any, specified in the related Mortgage Note on which the Mortgage Rate is subject to adjustment. 
  
 Interest Determination Date: With respect to the first Accrual Period, the second LIBOR Business Day preceding the Closing Date, and with respect
to each Accrual Period thereafter, the second LIBOR Business Day preceding the related Payment Date on which such Accrual Period commences. 
  
 Interest Funds: For any Payment Date will equal (a) the sum of (i) all interest received or advanced by the Securities Administrator in the related
Due Period and available in 

  

 -14- 

 
the Payment Account on that Payment Date, (ii) any Net Swap Payments or Swap Termination Payment received by the Securities Administrator relating to such
Payment Date, (iii) all Compensating Interest paid with respect to Mortgage Loans that prepaid during the related Prepayment Period and (iv) the portion of any purchase price or other amount paid with respect to the Mortgage Loans allocable to
interest; net of (b) any amounts, without duplication, paid and reimbursed to the Master Servicer, the Servicer, the Subservicer, the Securities Administrator, the Custodian, the Indenture Trustee and the Owner Trustee out of funds in the Custodial
Account or the Payment Account, other than any unreimbursed Extraordinary Expenses or other expenses, costs and liabilities payable out of Net Monthly Excess Cashflow on that Payment Date. 
  
 Interim Certification: The interim certification delivered by the
Custodian pursuant to Section 2.3(b) of the Custodial Agreement in the form attached thereto as Exhibit Two. 
  
 Investment Company Act: The Investment Company Act of 1940, as amended, and any amendments thereto. 
  
 IRS: The Internal Revenue Service. 
  
 ISDA Master Agreement: 1992 ISDA Master Agreement (Multicurrency
— Cross Border). 
  
 Issuer: People’s Choice Home
Loan Securities Trust Series 2005-3, a Delaware statutory trust, or its successor in interest. 
  
 Issuer Request: A written order or request signed in the name of the Issuer by any one of its Authorized Officers and delivered to the Indenture Trustee or Securities Administrator, as applicable. 

 
 LIBOR Business Day: A day on which banks are open for dealing in
foreign currency and exchange in London and New York City. 
  
 Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation, assignment, participation, deposit arrangement, encumbrance, lien (statutory or other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the
filing of any financing statement under the UCC (other than any such financing statement filed for informational purposes only) or comparable law of any jurisdiction to evidence any of the foregoing. 
  
 Liquidated Mortgage Loan: Any defaulted Mortgage Loan as to which the
Subservicer, the Servicer or the Master Servicer has determined that all amounts it expects to recover from or on account of such Mortgage Loan have been recovered. 
  

 -15- 

 Liquidation Date: With respect to any Liquidated Mortgage Loan, the date on which the Master
Servicer, the Servicer or the Subservicer has certified that such Mortgage Loan has become a Liquidated Mortgage Loan. 
  
 Liquidation Expenses: With respect to a Mortgage Loan in liquidation, unreimbursed expenses paid or incurred by or for the account of the Master
Servicer, the Servicer or the Subservicer in connection with the liquidation of such Mortgage Loan and the related Mortgage Property, such expenses including (a) property protection expenses, (b) property sales expenses, (c) foreclosure and sale
costs, including court costs and reasonable attorneys’ fees, and (d) similar expenses reasonably paid or incurred in connection with liquidation. 
  
 Liquidation Proceeds: Amounts received in connection with the liquidation of a defaulted Mortgage Loan, whether through the sale or assignment of
such Mortgage Loan, trustee’s sale, foreclosure sale, Insurance Proceeds, condemnation proceeds or otherwise, other than amounts received following the acquisition of an REO Property pursuant to Section 4.13 of the Servicing Agreement.

  
 Loan-to-Value Ratio: With respect to any Mortgage Loan
at any given time, the percentage equivalent of a fraction, (a) the numerator of which is the then outstanding principal balance of the Mortgage Loan plus the outstanding principal balance of any Mortgage Loan senior to the Mortgage Loan and secured
by the same Mortgaged Property, and (b) the denominator of which equals (i) in the case of any Mortgage Loan that is not a refinanced, modified or converted Mortgage Loan, (A) the lesser of (x) the appraised value of the related Mortgaged Property
determined pursuant to an appraisal conducted by a Qualified Appraiser obtained at origination of the Mortgage Loan, if any, and (y) the sales price for the related Mortgaged Property or (B) if the related Mortgaged Property has been appraised by a
Qualified Appraiser subsequent to origination, the value thereof determined pursuant to such subsequent appraisal, or (ii) in the case of a refinanced, modified or converted Mortgage Loan, the lesser of (x) the appraised value of the related
Mortgaged Property determined at origination pursuant to the most recent appraisal conducted by a Qualified Appraiser at the time of origination of the Mortgage Loan or subsequent to origination or (y) the sales price of the related Mortgaged
Property or, if the Mortgage Loan is not a rate-and-term refinance Mortgage Loan and if the related Mortgaged Property was owned for a relatively short period of time prior to refinancing, modification or conversion, the sum of the sales price of
the related Mortgaged Property plus the added value of any improvements. 
  
 Loss Severity Percentage: With respect to any Payment Date, the percentage equivalent of a fraction, the numerator of which is the amount of Realized Losses incurred on a Mortgage Loan and the denominator of
which is the Stated Principal Balance of such Mortgage Loan in respect of such Payment Date, without giving effect to the reduction of its Stated Principal Balance to zero due to its liquidation. 
  
 Lost Notes: The original Mortgage Notes that have been lost, as
indicated on the Mortgage Loan Schedule. 
  

 -16- 

 Majority Certificateholder: A Holder of a 50.01% or greater Certificate Percentage Interest of the
Certificates. 
  
 Master Servicer: Wells Fargo Bank,
National Association, and its successors and assigns. 
  
 Master Servicer Certification: A written certification covering servicing of the Mortgage Loans by the Servicer and signed by an officer of the Master Servicer that complies with (a) the Sarbanes-Oxley Act of 2002, as amended from
time to time, and (b) the February 21, 2003 Statement by the Staff of the Division of Corporation Finance of the Securities and Exchange Commission Regarding Compliance by Asset-Backed Issuers with Exchange Act Rules 13a-14 and 15d-14, as in effect
from time to time; provided that if, after the Closing Date, (i) the Sarbanes-Oxley Act of 2002 is amended, (ii) the Statement referred to in clause (b) is modified or superceded by any subsequent statement, rule or regulation of the
Securities and Exchange Commission or any statement of a division thereof, or (iii) any future releases, rules and regulations are published by the Securities and Exchange Commission from time to time pursuant to the Sarbanes-Oxley Act of 2002,
which in any such case affects the form or substance of the required certification and results in the required certification being, in the reasonable judgment of the Master Servicer, materially more onerous than the form of the required
certification as of the Closing Date, the Master Servicer Certification shall be as agreed to by the Master Servicer, the Company and the Seller following a negotiation in good faith to determine how to comply with any such new requirements.

  
 Master Servicer Event of Default: Has the meaning
assigned to such term in Section 6.01 of the Sale and Servicing Agreement. 
  
 Master Servicing Compensation: For any Payment Date, any investment income on funds on deposit in the Payment Account which is payable to the Master Servicer on such Payment Date pursuant to Sections 3.14 and
4.04(d) of the Sale and Servicing Agreement. 
  
 Master
Servicing Officer: Any supervisory or management officer of the Master Servicer, involved in, or responsible for, the administration and master servicing of Mortgage Loans included in the Trust, whose name appears on a list of master servicing
officers appearing in an Officer’s Certificate furnished by the Master Servicer to the Indenture Trustee, in which certificate the Master Servicer certifies that such officers are in supervisory or management roles, as such list may be amended
from time to time. 
  
 Maximum Note Rate: With respect to
each Class of Notes, (a) for any Payment Date on which the Swap Agreement is in effect, 15.00% per annum, and (b) for any other Payment Date, 12.85% per annum. 
  

Material Defect: The meaning specified in Section 2.02(a) of the Sale and Servicing Agreement. 
  
 Maximum Lifetime Mortgage Rate: The maximum level to which a Mortgage
Rate can adjust in accordance with its terms, regardless of changes in the applicable Index. 
  

 -17- 

 MERS: Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under
the laws of the State of Delaware, or any successor thereto. 
  
 MERS® System: The system of
recording transfers of Mortgages electronically maintained by MERS. 
  
 MIN: The Mortgage Identification Number for Mortgage Loans registered with MERS on the MERS® System. 
  
 Minimum Lifetime Mortgage Rate: The minimum level to which a Mortgage Rate can adjust in accordance with its terms, regardless of changes in the applicable Index. 
  
 MOM Loan: With respect to any Mortgage Loan, MERS acting as the mortgagee of such Mortgage Loan, solely as nominee
for the originator of such Mortgage Loan and its successors and assigns, at the origination thereof, or as nominee for any subsequent assignee of the originator pursuant to an assignment of mortgage to MERS. 
  
 Monthly Advance: An advance of principal or interest required to be
made by the Servicer (net of the Servicing Fee), or the Subservicer (net of the Subservicing Fee), pursuant to Section 5.03 of the Servicing Agreement. 
  
 Monthly Payment: With respect to any Mortgage Loan (including any REO Property) and any Due Date, the payment of principal and interest due
thereon, or in the case of an Interest Only Mortgage Loan, the payment of (a) interest or (b) principal and interest, if applicable, accordance with the amortization schedule at the time applicable thereto (after adjustment, if any, for partial
Principal Prepayments and for Deficient Valuations occurring prior to such Due Date but before any adjustment to such amortization schedule by reason of any bankruptcy, other than a Deficient Valuation, or similar proceeding or any moratorium or
similar waiver or grace period). 
  
 Moody’s:
Moody’s Investors Service, Inc. 
  
 Mortgage: The
mortgage, deed of trust or other instrument reflected on the Mortgage Loan Schedule as securing a Mortgage Loan. 
  
 Mortgage File: The file containing the Mortgage Loan Documents pertaining to a particular Mortgage Loan and any additional documents required to be
added to the Mortgage File pursuant to the Sale and Servicing Agreement. 
  
 Mortgage Loan: A mortgage loan transferred and assigned to the Trust pursuant to Section 2.01 or Section 2.04 of the Sale and Servicing Agreement, as identified in the Mortgage Loan Schedule, including a
mortgage loan, the property securing which has become an REO Property. 
  
 Mortgage Loan Documents: With respect to each Mortgage Loan, the documents specified in Section 2.01(b)(i)-(vii) of the Sale and Servicing Agreement and any documents required to be added to such documents pursuant to the Sale and
Servicing Agreement or the Mortgage Loan Purchase Agreement. 
  

 -18- 

 Mortgage Loan Purchase Agreement: The Mortgage Loan Purchase Agreement dated as of the Cut-off
Date between the Seller and the Depositor, whereby the Mortgage Loans are being sold to the Depositor by the Seller. 
  
 Mortgage Loan Schedule: With respect to any date, the schedule of Mortgage Loans held by the Issuer on such date. The schedule of Mortgage Loans as
of the Cut-off Date is the schedule set forth in Exhibit A to the Sale and Servicing Agreement, which schedule sets forth as to each Mortgage Loan: 
  

	 	(i)	the loan number; 

  

	 	(ii)	the city, state and zip code of the Mortgaged Property; 

  

	 	(iii)	the Mortgage Rate; 

  

	 	(iv)	the Servicing Fee Rate; 

  

	 	(v)	the Net Rate; 

  

	 	(vi)	the original term to maturity; 

  

	 	(vii)	the maturity date; 

  

	 	(viii)	the stated remaining term to maturity; 

  

	 	(ix)	the original principal balance; 

  

	 	(x)	the first Payment Date; 

  

	 	(xi)	the Monthly Payment in effect as of the Cut-off Date; 

  

	 	(xii)	the Cut-off Date Principal Balance; 

  

	 	(xiii)	the Loan-to-Value Ratio at origination; 

  

	 	(xiv)	the paid-through date of the Mortgage Loan; 

  

	 	(xv)	the issuer of any Primary Mortgage Insurance Policy; 

  

	 	(xvi)	the Index and the Gross Margin; 

  

	 	(xvii)	the Maximum Lifetime Mortgage Rate; 

  

	 	(xviii)	the Minimum Lifetime Mortgage Rate; 

  

	 	(xix)	the Interest Adjustment Date frequency and Payment Date frequency; and 

  

	 	(xx)	the number of days delinquent, if any. 

  

 -19- 

 The Mortgage Loan Schedule shall also set forth the total number of Mortgage Loans, the total of each of
the amounts described under (ix) and (xii) above for all of the Mortgage Loans, the weighted average by principal balance of each of the rates described under (iii), (iv) and (v) above for all of the Mortgage Loans and the weighted average remaining
term to maturity by unpaid principal balance as of the Cut-off Date for all of the Mortgage Loans. 
  
 Mortgage Note: The originally executed note or other evidence of the indebtedness of a Mortgagor under the related Mortgage Loan. 
  
 Mortgaged Property: Land and improvements securing the indebtedness of
a Mortgagor under the related Mortgage Loan or, in the case of REO Property, such REO Property. 
  
 Mortgage Rate: The annual rate at which interest accrues from time to time on any Mortgage Loan pursuant to the related Mortgage Note, which rate
is initially equal to the “Mortgage Rate” set forth with respect thereto on the Mortgage Loan Schedule. 
  
 Mortgagor: The obligor on a Mortgage Note. 
  
 Net Liquidation Proceeds: Any Liquidation Proceeds net of unreimbursed advances by the Servicer or the Subservicer, Monthly Advances, expenses
incurred by the Servicer or the Subservicer in connection with the liquidation of such Mortgage Loan and the related Mortgaged Property, and any other amounts payable to the Servicer or the Subservicer under the Servicing Agreement. 
  
 Net Monthly Excess Cashflow: For any Payment Date, the sum of (a) any
Overcollateralization Release Amount and (b) the excess of (i) the Interest Funds for such Payment Date over (ii) the sum of the aggregate Accrued Note Interest for the Notes and, without duplication of amounts deducted pursuant to the definition of
“Interest Funds,” amounts payable to the Servicer, the Master Servicer, the Securities Administrator and the Swap Provider (other than Swap Termination Payments triggered by a Swap Provider Trigger Event). 
  
 Net Mortgage Rate: With respect to each Mortgage Loan for any Payment
Date, the then applicable Mortgage Rate thereon minus the Servicing Fee Rate, expressed as a per annum percentage of the aggregate Stated Principal Balance of the Mortgage Loans in respect of the immediately preceding Payment Date. 
  
 Net Swap Payment: With respect to each Payment Date, a Net Swap
Payment will be required to be made (a) by the Trust, to the Swap Provider, to the extent that the Fixed Swap Payment for such Payment Date exceeds the Floating Swap Payment for such Payment Date, or (b) by the Swap Provider, to the Trust, to the
extent that the Floating Swap Payment exceeds the Fixed Swap Payment for such Payment Date. 
  
 Nonrecoverable Advance: Any Servicing Advance or Monthly Advance (a) which was previously made or is proposed to be made by the Master Servicer, the Indenture Trustee solely as successor Master Servicer, the
Servicer or the Subservicer and (b) which, in the good faith judgment of the Master Servicer, the Indenture Trustee as successor Master Servicer, the Servicer or the Subservicer, as the case may be, will not or, in the case of a proposed advance

  

 -20- 

 
or Monthly Advance, would not, be ultimately recoverable by the Master Servicer, the Indenture Trustee as successor Master Servicer, the Servicer or the
Subservicer from Liquidation Proceeds, Insurance Proceeds or future payments on the Mortgage Loan for which such advance or Monthly Advance was made or is proposed to be made. 
  
 Note: A Class A Note or Class M Note. 
  
 Note Margin: With respect to the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class 2A2, Class M1, Class M2, Class M3,
Class M4, Class M5, Class M6, Class M7, Class M8, Class M9, Class M10 and Class M11 Notes, on any Payment Date prior to the Step-Up Date, 0.130%, 0.270%, 0.390%, 0.230%, 0.280%, 0.500%, 0.530%, 0.570%, 0.700%, 0.750%, 0.850%, 1.400%, 1.580%, 2.150%,
2.500% and 2.500% per annum, respectively, and on any Payment Date on and after the Step-Up Date, 0.260%, 0.540%, 0.780%, 0.460%, 0.560%, 0.7500%, 0.795%, 0.855%, 1.050%, 1.125%, 1.275%, 2.100%, 2.370%, 3.225%, 3.750% and 3.750% per annum,
respectively. 
  
 Note Owner: The Beneficial Owner of a
Book-Entry Note. 
  
 Note Principal Balance: With respect
to any Note as of any date of determination, the initial Note Principal Balance thereof reduced by the aggregate of all amounts allocable to principal previously paid with respect to such Note. 
  
 Note Rate: With respect to each Payment Date and each Class of the
Notes, a floating rate equal to the least of (a) One-Month LIBOR plus the related Note Margin, (b) the Maximum Note Rate and (c) the Available Funds Rate with respect to such Payment Date. 
  
 Note Register: The register maintained by the Note Registrar in which
the Note Registrar shall provide for the registration of Notes and of transfers and exchanges of Notes. 
  
 Note Registrar: The Securities Administrator, in its capacity as Note Registrar, or any successor to the Securities Administrator in such capacity.

  
 Noteholder or Holder: The Person in whose name a Note
is registered in the Note Register, except that, any Note registered in the name of the Depositor, the Issuer, the Indenture Trustee, the Seller, the Securities Administrator, the Master Servicer, the Servicer or the Subservicer or any Affiliate of
any of them shall be deemed not to be a holder or holders, nor shall any so owned be considered outstanding, for purposes of giving any request, demand, authorization, direction, notice, consent or waiver under the Indenture or the Trust Agreement;
provided that, in determining whether the Indenture Trustee or Securities Administrator shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes that a Responsible Officer of
the Indenture Trustee or Securities Administrator has actual knowledge to be so owned shall be so disregarded. Owners of Notes that have been pledged in good faith may be regarded as Holders if the pledgee establishes to the satisfaction of the
Securities Administrator or the Owner Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not the Issuer, any other obligor upon the Notes or any Affiliate of any of the foregoing Persons. 
  

 -21- 

 Officer’s Certificate: With respect to the Master Servicer, a certificate signed by the
President, Managing Director, a Director, a Vice President or an Assistant Vice President, of the Master Servicer and delivered to the Indenture Trustee or the Securities Administrator, as applicable. With respect to the Issuer, a certificate signed
by any Authorized Officer of the Issuer, under the circumstances described in, and otherwise complying with, the applicable requirements of Section 10.01 of the Indenture, and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in the Indenture to an Officer’s Certificate shall be to an Officer’s Certificate of any Authorized Officer of the Issuer. 
  
 One-Month LIBOR: With respect to any Accrual Period, the rate determined by the Securities Administrator on the related Interest Determination Date
on the basis of the London interbank offered rate for one-month United States dollar deposits, as such rates appear on the Telerate Screen Page 3750, as of 11:00 a.m. (London time) on such Interest Determination Date. 
  
 In the event that on any Interest Determination Date, Telerate Screen 3750
fails to indicate the London interbank offered rate for one-month United States dollar deposits, then One-Month LIBOR for the related Interest Accrual Period will be established by the Securities Administrator as follows: 
  
 (a) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations, One-Month LIBOR for the related Accrual Period shall be the arithmetic mean of such offered quotations (rounded upwards if necessary to the nearest whole multiple of 1/16%). 
  
 (b) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for the related Accrual Period shall be the higher of (i) One-Month LIBOR as determined on the previous Interest Determination Date and (ii) the Reserve Interest Rate. 
  
 The establishment of One-Month LIBOR on each Interest Determination Date by
the Securities Administrator and the Securities Administrator’s calculation of the rate of interest applicable for the related Accrual Period shall (in the absence of manifest error) be final and binding. 
  
 Opinion of Counsel: A written opinion of counsel acceptable to the
Indenture Trustee which counsel may be in-house counsel for the Depositor or the Seller if acceptable to the Indenture Trustee and the Rating Agencies or outside counsel for the Depositor, the Seller, the Issuer or the Master Servicer, as the case
may be. 
  
 Outstanding: With respect to the Notes, as of
the date of determination, all Notes theretofore executed, authenticated and delivered under this Indenture except: 
  
 (i) Notes theretofore canceled by the Note Registrar or delivered to the Securities Administrator for cancellation; and 
  
 (ii) Notes in exchange for or in lieu of which other Notes
have been executed, authenticated and delivered pursuant to the Indenture unless proof satisfactory to the 

  

 -22- 

 
Securities Administrator is presented that any such Notes are held by a holder in due course. 
  
 Outstanding Mortgage Loan: With respect to any Due Date, a Mortgage Loan which, prior to such Due Date, was not the
subject of a Principal Prepayment in full, did not become a Liquidated Mortgage Loan and was not purchased or replaced. 
  
 Outstanding Principal Balance: As of the time of any determination, the principal balance of a Mortgage Loan remaining to be paid by the Mortgagor,
or, in the case of an REO Property, the principal balance of the related Mortgage Loan remaining to be paid by the Mortgagor at the time such property was acquired by the Trust. 
  
 Overcollateralization Deficiency Amount: With respect to any Payment Date, the amount, if any, by which the
Overcollateralization Target Amount exceeds the Overcollateralized Amount on such Payment Date (after giving effect to distributions in respect of the Basic Principal Payment Amount on such Payment Date). 
  
 Overcollateralization Floor: An amount equal to approximately 0.50% of
the aggregate Cut-off Date Balance. 
  
 Overcollateralization
Release Amount: With respect to any Payment Date, the lesser of (a) the Principal Funds for such Payment Date and (b) the amount, if any, by which the Overcollateralized Amount exceeds the Overcollateralization Target Amount on such Payment Date
(after giving effect to distributions in respect of the Basic Principal Payment Amount on such Payment Date). 
  
 Overcollateralization Target Amount: With respect to any Payment Date prior to the Stepdown Date, 3.00% of the aggregate Cut-off Date Balance. With
respect to any Payment Date on or after the Stepdown Date, the greater of (a) 6.00% of the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date and (b) the Overcollateralization Floor; provided, however,
that if a Trigger Event is in effect on any Payment Date, the Overcollateralization Target Amount will be equal to the Overcollateralization Target Amount on the prior Payment Date. 
  
 Overcollateralized Amount: For any Payment Date, the amount, if any, by which (a) the aggregate Stated Principal
Balance of the Mortgage Loans in respect of such Payment Date exceeds (b) the aggregate Note Principal Balance of the Notes as of such Payment Date (after giving effect to distributions in respect of the Basic Principal Payment Amount on such
Payment Date). 
  
 Owner Trust Estate: The corpus of the
Issuer created by the Trust Agreement, which consists of items referred to in Section 3.01 of the Trust Agreement. 
  
 Owner Trustee: Wilmington Trust Company and its successors and assigns or any successor owner trustee appointed pursuant to the terms of the Trust
Agreement. 
  
 Paying Agent: Any paying agent or co-paying
agent appointed pursuant to Section 3.03 of the Indenture, which initially shall be the Securities Administrator. 
  

 -23- 

 Payment Account: The trust account or accounts created and maintained pursuant to Section 4.04 of
the Sale and Servicing Agreement, which shall be denominated “HSBC Bank USA, National Association, as Indenture Trustee f/b/o holders of People’s Choice Home Loan Securities Trust Series 2005-3, Mortgage-Backed Notes, Series
2005-3—Payment Account.” The Payment Account shall be an Eligible Account. 
  
 Payment Account Deposit Date: The Business Day prior to each Payment Date. 
  
 Payment Date: The 25th day of each month, or if such day is not a Business Day, then the next Business Day, commencing in July 2005. 
  
 Percentage Interest: With respect to any Note, the percentage obtained
by dividing the Note Principal Balance of such Note by the aggregate Note Principal Balances of all Notes of that Class. With respect to any Certificate, the percentage as stated on the face thereof. 
  
 Periodic Rate Cap: With respect to each Mortgage Loan, the maximum
adjustment that can be made to the Mortgage Rate on each Interest Adjustment Date in accordance with its terms, regardless of changes in the applicable Index. 
  

Permitted Investments: Any one or more of the following obligations or securities held in the name of the Indenture Trustee for the benefit of
the Noteholders: 
  
 (i) direct obligations of,
and obligations the timely payment of which are fully guaranteed by the United States of America or any agency or instrumentality of the United States of America the obligations of which are backed by the full faith and credit of the United States
of America; 
  
 (ii) (a) demand or time deposits,
federal funds or bankers’ acceptances issued by any depository institution or trust company incorporated under the laws of the United States of America or any state thereof (including the Indenture Trustee, Securities Administrator or the
Master Servicer or its Affiliates acting in its commercial banking capacity) and subject to supervision and examination by federal and/or state banking authorities, provided that the commercial paper and/or the short-term debt rating and/or
the long-term unsecured debt obligations of such depository institution or trust company at the time of such investment or contractual commitment providing for such investment have the Applicable Credit Rating or better from the Rating Agencies and
(b) any other demand or time deposit or certificate of deposit that is fully insured by the Federal Deposit Insurance Corporation; 
  
 (iii) repurchase obligations with respect to (a) any security described in clause (i) above or (b) any other security issued or guaranteed
by an agency or instrumentality of the United States of America, the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depository institution or trust company (acting as
principal) described in clause (ii)(a) above where the Securities Administrator holds the security therefor; 
  
 (iv) securities bearing interest or sold at a discount issued by any corporation (including the Indenture Trustee, Securities
Administrator or the Master Servicer or its 

  

 -24- 

 
Affiliates) incorporated under the laws of the United States of America or any state thereof that have the Applicable Credit Rating or better from the Rating
Agencies at the time of such investment or contractual commitment providing for such investment; provided, however, that securities issued by any particular corporation will not be Permitted Investments to the extent that investments therein
will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Trust to exceed 10% of the aggregate Outstanding Principal Balances of all the Mortgage Loans and Permitted Investments held as part of
the Trust as determined by the Master Servicer; 
  
 (v) commercial paper (including both non-interest-bearing discount obligations and interest-bearing obligations payable on demand or on a specified date not more than one year after the date of issuance thereof) having the Applicable Credit
Rating or better from the Rating Agencies at the time of such investment; 
  
 (vi) a Reinvestment Agreement issued by any bank, insurance company or other corporation or entity; 
  
 (vii) any other demand, money market or time deposit, obligation, security or investment as may be acceptable to the Rating Agencies as
evidenced in writing by the Rating Agencies to the Securities Administrator; and 
  
 (viii) any money market or common trust fund having the Applicable Credit Rating or better from the Rating Agencies, including any such
fund for which the Indenture Trustee, Securities Administrator or Master Servicer or any affiliate of the Indenture Trustee, Securities Administrator or Master Servicer acts as a manager or an advisor; provided, however, that no instrument or
security shall be a Permitted Investment if such instrument or security evidences a right to receive only interest payments with respect to the obligations underlying such instrument or if such security provides for payment of both principal and
interest with a yield to maturity in excess of 120% of the yield to maturity at par or if such instrument or security is purchased at a price greater than par as determined by the Master Servicer. 
  
 Person: Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. 
  
 Plan: Any employee benefit plan or certain other retirement plans and arrangements, including individual retirement accounts and annuities, Keogh
plans and bank collective investment funds and insurance company general or separate accounts in which such plans, accounts or arrangements are invested, that are subject to ERISA or Section 4975 of the Code. 
  
 Plan Assets: Assets of a Plan within the meaning of Department of
Labor regulation 29 C.F.R. § 2510.3-101. 
  
 Pool
Balance: With respect to any date of determination, the aggregate of the Stated Principal Balances of all Mortgage Loans as of such date. 
  

 -25- 

 Prepayment Charge: With respect to any Mortgage Loan and Servicer Remittance Date or Payment Date,
the charges or premiums, if any, due in connection with a full or partial prepayment of such Mortgage Loan during the immediately preceding Prepayment Period in accordance with the terms thereof. 
  
 Prepayment Interest Excess: With respect to any Payment Date, for each
Mortgage Loan that was the subject of a Principal Prepayment in full during the portion of the related Prepayment Period beginning on the first day of the calendar month in which such Payment Date occurs and ending on the 15th day of the calendar month in which such Payment Date occurs, an amount equal to interest (to the extent received) at the
applicable Net Mortgage Rate on the amount of such prepayment for the number of days commencing on the first day of the calendar month in which such Payment Date occurs and ending on the last date through which interest is collected from the related
mortgagor. References to Principal Prepayments include any unscheduled receipts of principal with respect to a Mortgage Loan (including as a result of a liquidation). 
  
 Prepayment Interest Shortfall: With respect to any Payment Date and any Mortgage Loan that was subject to (a) a
principal prepayment in full during the portion of the related Prepayment Period for Principal Prepayments in full beginning on the 16th day of the calendar month before the calendar month in which such Payment Date occurs and ending on the last day of such preceding calendar month or (b) a Principal Prepayment in part during the related Prepayment Period
for principal prepayments in part, an amount equal to the difference between (i) interest actually received in the related Prepayment Period as a result of such principal prepayment in full or principal prepayment in part on such Mortgage Loan and
(ii) the scheduled interest portion of the monthly payment of such Mortgage Loan, adjusted to the applicable Net Mortgage Rate. References to Principal Prepayments include any unscheduled receipts of principal with respect to a Mortgage Loan
(including as a result of a liquidation). 
  
 Prepayment
Period: With respect to any Payment Date, (a) for Principal Prepayments in full (including as a result of a liquidation), the period beginning on the 16th day of the calendar month immediately preceding the month in which such Payment Date occurs, or, in the case of the first Prepayment Period, the Cut-Off Date, and ending on the 15th day of the calendar month in which such Payment Date occurs, and (b) for Principal Prepayments in part, the calendar month
preceding the calendar month in which such Payment Date occurs. References to Principal Prepayments include any unscheduled receipts of principal with respect to a Mortgage Loan (including as a result of a liquidation). 
  
 Primary Mortgage Insurance Policy: Any primary mortgage guaranty
insurance policy issued in connection with a Mortgage Loan which provides compensation to a Mortgage Note holder in the event of default by the obligor under such Mortgage Note or the related Security Instrument, if any, or any replacement policy
therefor through the related Accrual Period for such Class relating to a Payment Date. 
  
 Principal Deficiency Amount: For any Payment Date, the excess of the aggregate Note Principal Balance of the Notes (after giving effect to payments on such Payment Date) over the aggregate Stated Principal
Balance of the Mortgage Loans in respect of such Payment Date. On any Payment Date, for the purposes of calculating Accrued Note Interest only, the total 

  

 -26- 

 
Principal Deficiency Amount shall be allocated among the classes of Subordinate Notes in reverse order of their seniority. Thus, for instance, the Principal
Deficiency Amount for any Payment Date first will be allocated to the Class M11 Notes and, to the extent the Principal Deficiency Amount for such Payment Date exceeds the aggregate Note Principal Balance of the Class M11 Notes, such Principal
Deficiency Amount shall be allocated to the Class M10 Notes, and so on. 
  
 Principal Funds: For any Payment Date and any Loan Group or the Mortgage Loans in the aggregate, as applicable, (a) the sum of (i) the principal portion of all scheduled monthly payments on the related Mortgage Loans due on the
related Due Date, to the extent received or advanced; (ii) the principal portion of all proceeds of the repurchase of a Mortgage Loan in the related Loan Group (or, in the case of a substitution, certain amounts representing a principal adjustment)
as required by the Mortgage Loan Purchase Agreement during the preceding calendar month; (iii) the principal portion of all other unscheduled collections received during the preceding calendar month in respect of the related Mortgage Loans,
including full and partial prepayments, the proceeds of any repurchase of such Mortgage Loans or redemption of the Notes by the Seller or holder of the Owner Trust Certificates, Liquidation Proceeds and Insurance Proceeds, including any amounts
recovered with respect to a Mortgage Loan subsequent to the liquidation or charge-off of such Mortgage Loan, in each case to the extent applied as recoveries of principal; net of (b) any amounts, without duplication, paid and reimbursed to the
Master Servicer, the Servicer, the Subservicer, the Securities Administrator, the Custodian, the Indenture Trustee and the Owner Trustee out of funds in the Custodial Account or the Payment Account, other than any unreimbursed Extraordinary Expenses
or other expenses, costs or liabilities payable out of Net Monthly Excess Cashflow on that Payment Date (to the extent not reimbursed from Interest Funds). 
  
 Principal Payment Amount: For any Payment Date, the Basic Principal Payment Amount plus the Extra Principal Payment Amount. 
  
 Principal Prepayment: Any payment (whether partial or full) or other
recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date to the extent that it is not accompanied by an amount as to interest representing scheduled interest due on any date or dates in any month or months
subsequent to the month of prepayment, including Insurance Proceeds and Repurchase Proceeds, excluding the principal portion of Net Liquidation Proceeds received at the time the Mortgage Loan becomes a Liquidated Mortgage Loan. 
  
 Proceeding: Any suit in equity, action at law or other judicial or
administrative proceeding. 
  
 Prospectus: The Prospectus
Supplement, dated June 29, 2005, together with the Prospectus attached thereto and dated June 10, 2005. 
  
 Purchaser: People’s Choice Home Loan Securities Corp., a Delaware corporation, and its successors and assigns. 
  
 Qualified Appraiser: An appraiser, who provides or provided an
appraisal of a Mortgaged Property, who had no interest, direct or indirect, in the Mortgaged Property or in any 

  

 -27- 

 
loan made on the security thereof, and whose compensation is or was not affected by the approval or disapproval of the related Mortgage Loan, which appraiser
and the appraisal made by such appraiser both satisfy the requirements of Title XI of FIRREA and the regulations promulgated thereunder, all as in effect on the date the Mortgage Loan was originated. 
  
 Qualified REIT Subsidiary: A direct or indirect 100% owned subsidiary
of a REIT that satisfies the requirements of Section 856(i) of the Code. 
  
 Qualified Insurer: Any insurance company duly qualified as such under the laws of the state or states in which the related Mortgaged Property or Mortgaged Properties is or are located, duly authorized and
licensed in such state or states to transact the type of insurance business in which it is engaged and approved as an insurer by the Master Servicer, so long as the claims paying ability of which is acceptable to the Rating Agencies for
mortgage-backed notes having the same rating as the Notes rated by the Rating Agencies as of the Closing Date. 
  
 Rating Agency: Any nationally recognized statistical rating organization, or its successor, that rated the Notes at the request of the Depositor at
the time of the initial issuance of the Notes. Initially, Fitch, Standard & Poor’s and Moody’s. If such organization or a successor is no longer in existence, “Rating Agency” with respect to the Notes shall be such nationally
recognized statistical rating organization, or other comparable Person, designated by the Depositor, notice of which designation shall be given to the Indenture Trustee and Master Servicer. References herein to the highest short term unsecured
rating category of a Rating Agency shall mean A-1 or better in the case of Standard & Poor’s, P-1 in the case of Moody’s and in the case of any other Rating Agency shall mean such equivalent ratings. References herein to the highest
long-term rating category of a Rating Agency shall mean “AAA” in the case of Standard & Poor’s, “Aaa” in the case of Moody’s and in the case of any other Rating Agency, such equivalent rating. 
  
 Realized Loss: Any (a) Bankruptcy Loss or (b) as to any Liquidated
Mortgage Loan, (i) the Outstanding Principal Balance of such Liquidated Mortgage Loan plus accrued and unpaid interest thereon at the Mortgage Rate through the last day of the month of such liquidation, less (ii) the related Net Liquidation Proceeds
with respect to such Mortgage Loan and the related Mortgage Property. 
  
 Record Date: With respect to any Book-Entry Notes and any Payment Date, the close of business on the Business Day immediately preceding such Payment Date. 
  
 Reference Banks: Leading banks selected by the Securities Administrator and engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (a) with an established place of business in London, (b) whose quotations appear on the Telerate Screen Page 3750 on the Interest Determination Date in question, (c) which have been designated as
such by the Securities Administrator and (d) not controlling, controlled by, or under common control with, the Company or the Seller. 
  
 Reinvestment Agreements: One or more reinvestment agreements, acceptable to the Rating Agencies, from a bank, insurance company or other
corporation or entity (including the Indenture Trustee). 
  

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 Relief Act: The Servicemembers Civil Relief Act, as amended, or any similar state law. 

 
 Relief Act Mortgage Loan: Any Mortgage Loan as to which the
Scheduled Payment thereof has been reduced due to the application of the Relief Act. 
  
 REIT: A real estate investment trust within the meaning of section 856 and 857 of the Code. 
  
 REO Property: A Mortgaged Property acquired in the name of the Indenture Trustee, for the benefit of the Noteholders, by foreclosure or
deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan. 
  
 Repurchase Price: With respect to any Mortgage Loan required to be repurchased, an amount equal to the sum of (a) 100% of the Stated Principal Balance of such Mortgage Loan in respect of the Payment Date
occurring in the month in which the repurchase takes place plus accrued but unpaid interest on such Stated Principal Balance at the related Mortgage Rate through and including the last day of the month of repurchase, (b) any unreimbursed Monthly
Advances and Servicing Advances payable to the Servicer, the Subservicer and/or the Master Servicer in respect of such Mortgage Loan and (c) any costs and damages incurred by the Trust in connection with any violation of such Mortgage Loan of any
anti-predatory lending laws. 
  
 Repurchase Proceeds: The
Repurchase Price in connection with any repurchase of a Mortgage Loan by the Seller and any cash deposit in connection with the substitution of a Mortgage Loan. 
  

Request for Release: A request for release in the form attached to the Sale and Servicing Agreement as Exhibit B and the Custodial Agreement as
Exhibit Four. 
  
 Required Insurance Policy: With respect
to any Mortgage Loan, any insurance policy which is required to be maintained from time to time under the Sale and Servicing Agreement with respect to such Mortgage Loan. 
  
 Reserve Interest Rate: With respect to any Interest Determination Date, the rate per annum that the Securities
Administrator determines to be either (a) the arithmetic mean (rounded upwards if necessary to the nearest whole multiple of 0.0625%) of the one-month United States dollar lending rates which New York City banks selected by the Securities
Administrator are quoting on the relevant Interest Determination Date to the principal London offices of leading banks in the London interbank market or (b) in the event that the Securities Administrator can determine no such arithmetic mean, the
lowest one-month United States dollar lending rate which New York City banks selected by the Securities Administrator are quoting on such Interest Determination Date to leading European banks. 
  
 Responsible Officer: With respect to the Securities Administrator, any
officer of the Securities Administrator with direct responsibility for the administration of the Indenture and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of
and familiarity with the particular subject; and with 

  

 -29- 

 
respect to the Indenture Trustee, any vice president, assistant vice president, any assistant secretary or any assistant treasurer or any other officer of
the Indenture Trustee working in its Corporate Trust Office customarily performing functions similar to those performed by any of the above designated officers who at such time shall be officers to whom, with respect to a particular matter, such
matter is referred because of such officer’s knowledge of and familiarity with the particular subject or who shall have direct responsibility for the administration of this Indenture. 
  
 Retained Notes: Those certain Classes, or portions of certain Classes,
of Notes that, at the time of their issuance, People’s Choice Financial Corporation or one of its Qualified REIT Subsidiaries acquires beneficial ownership thereof. 
  
 Rolling Three-Month Delinquency Rate: With respect to any Payment Date, the average of the Delinquency Rates for each
of the three (or one and two, in the case of the first and second Payment Dates, respectively) immediately preceding months. 
  
 Sale and Servicing Agreement: The Sale and Servicing Agreement, dated as of June 1, 2005, among the Depositor, the Issuer, the Indenture Trustee,
Wells Fargo Bank, National Association, as master servicer and securities administrator, People’s Choice Funding, Inc., as seller and company, the Servicer and the Subservicer. 
  
 Sarbanes Certifying Party: The Master Servicer. 
  
 Scheduled Payment: With respect to any Mortgage Loan and any month, the scheduled payment or payments of principal
and interest due during such month on such Mortgage Loan which either is payable by a Mortgagor in such month under the related Mortgage Note or, in the case of REO Property, would otherwise have been payable under the related Mortgage Note.

  
 Scheduled Principal: The principal portion of any
Scheduled Payment. 
  
 Securities Act: The Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder. 
  
 Securities Administrator: Wells Fargo Bank, National Association, or its successor in interest, or any successor securities administrator appointed as herein provided. 
  
 Security: Any of the Certificates or Notes. 
  
 Securityholder or Holder: Any Noteholder or a
Certificateholder. 
  
 Security Instrument: A written
instrument creating a valid first lien on a Mortgaged Property securing a Mortgage Note, which may be any applicable form of mortgage, deed of trust, deed to secure debt or security deed, including any riders or addenda thereto. 
  
 Seller: People’s Choice Funding, Inc., and its successors and
assigns. 
  

 -30- 

 Senior Enhancement Percentage: For any Payment Date, the percentage obtained by dividing (a) the
excess, if any of (i) the sum of (A) the aggregate Note Principal Balance of the Class M Notes and (A) the related Overcollateralized Amount over (ii) the total Principal Deficiency Amount, in each case after giving effect to the distribution of the
Principal Payment Amount on such Payment Date, by (b) the aggregate Stated Principal Balance of the Mortgage Loans for that Payment Date. 
  
 Senior Principal Payment Amount: For any Payment Date on or after the Stepdown Date, as long as a Trigger Event has not occurred with respect to
such Payment Date, the lesser of (a) the Principal Payment Amount, and (b) an amount equal to the excess (if any) of (i) the aggregate Note Principal Balance of the Class 1A1, Class 1A2, Class 1A3, Class 2A1 and Class 2A2 Notes immediately prior to
such Payment Date over (ii) the lesser of (A) the aggregate Stated Principal Balance of the Mortgage Loans in respect of such Payment Date multiplied by approximately 54.30% and (B) the amount, if any, by which (1) the aggregate Stated Principal
Balance of the Mortgage Loans in respect of such Payment Date exceeds (2) the Overcollateralization Floor. 
  
 Servicer: EMC Mortgage Corporation and its successors and assigns, or any successor servicer appointed pursuant to the provisions of the Servicing
Agreement. 
  
 Servicer Remittance Date: With respect to
each Mortgage Loan, the 18th day of any month, or if such 18th day is not a Business Day, the first Business Day immediately succeeding such 18th day. 
  
 Servicing Advance: As defined in the Servicing Agreement. 
  

Servicing Agreement: The Servicing Agreement, dated as of June 1, 2005 among EMC Mortgage Corporation, as Servicer, the Issuer, the Master
Servicer, the Subservicer and the Indenture Trustee. 
  
 Servicing Fee: With respect to each Mortgage Loan and for any calendar month, an amount equal to one twelfth of the product of the Servicing Fee Rate multiplied by the Stated Principal Balance of the Mortgage Loans as of the Payment
Date in the preceding calendar month. 
  
 Servicing Fee
Rate: On each Mortgage Loan, 0.50% per annum, comprised of the Servicer’s fee rate of 0.03% per annum plus the Subservicer’s fee rate of 0.47% per annum, which includes the portion thereof that the Subservicer is required to remit to
the Seller pursuant to the Subservicing Agreement. 
  
 Servicing Officer: Any supervisory or management officer of the Servicer or Subservicer, as applicable, involved in or responsible for the administration and servicing or subservicing, as the case may be, of Mortgage Loans included
in the Trust, whose name appears on a list of servicing officers appearing in an Officer’s Certificate furnished by the Servicer or Subservicer, as applicable, to the Indenture Trustee, in which certificate the Servicer certifies that such
officers are in supervisory or management roles, as such list may be amended from time to time. 
  

 -31- 

 Special Derivative Contract: Any ISDA Master Agreement, together with the related Schedule and
Confirmation, entered into by the Indenture Trustee and a Special Derivative Counterparty in accordance with Section 3.28 of the Indenture. 
  
 Special Derivative Counterparty: Any counterparty to a Special Derivative Contract as provided in Section 3.28 of the Indenture. 
  
 Standard & Poor’s: Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc., or its successor in interest. 
  
 Stated Principal Balance: With respect to any Mortgage Loan or related REO property as of any Payment Date, the principal balance thereof as of the Cut-off Date, reduced by the sum of (a) the principal portion of the scheduled
principal payments due with respect to such Mortgage Loan during each due period ending prior to such Payment Date (to the extent received or advanced), (b) all principal prepayments with respect to such Mortgage Loan received prior to or during the
related prepayment period, and all liquidation proceeds to the extent applied as recoveries of principal with respect to such Mortgage Loan, that were received by the master servicer, the servicer or the subservicer as of the close of business on
the last day of the prepayment period related to such Payment Date and (c) any realized losses on such Mortgage Loan incurred during the related prepayment period. The stated principal balance of a liquidated Mortgage Loan equals zero. 

 
 Statutory Trust Statute: Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code §§3801 et seq., as the same may be amended from time to time. 
  
 Stepdown Date: The earlier to occur of (a) the first Payment Date on which the aggregate Note Principal Balance of the Class A Notes has been reduced to zero and (b) the later to occur of (x) the Payment Date
occurring in July 2008 and (y) the first Payment Date on which the Senior Enhancement Percentage (calculated, for this purpose only, before giving effect to payments on the Notes on such Payment Date, but using the Stated Principal Balance of the
Mortgage Loans for such Payment Date) is greater than or equal to 45.70% but after giving effect to payments of principal on the Mortgage Loans. 
  
 Step-Up Date: The first Payment Date following the first month in which the aggregate Stated Principal Balance of the Mortgage Loans, and
properties acquired in respect thereof, remaining in the Trust has been reduced to less than or equal to 10% of the aggregate Cut-off Date Balance. 
  
 Subordinate Notes: The Class M Notes. 
  
 Subservicer: People’s Choice Home Loan, Inc., as the designee of People’s Choice Funding, Inc., to perform the duties of the Subservicer
pursuant to the Subservicing Agreement, and its successors in interest and permitted assigns and any other subservicer that may be appointed in the future to replace People’s Choice Home Loan, Inc. in such capacity. 
  
 Subservicing Agreement: That certain subservicing agreement, dated as
of June 1, 2005, between the Servicer and the Subservicer, as it may be amended, supplemented, restated or replaced from time to time. 
  

 -32- 

 Subservicing Fee: With respect to each Mortgage Loan and for any calendar month, an amount equal
to one twelfth of the product of the Subservicing Fee Rate multiplied by the Stated Principal Balance of the Mortgage Loans as of the Payment Date in the preceding calendar month. 
  
 Subservicing Fee Rate: With respect to any Mortgage Loan, 0.47% per annum. 
  
 Substitute Mortgage Loan: A Mortgage Loan substituted by the Seller
for a Mortgage Loan as to which a breach of one or more of the Seller’s representations and warranties made in the Mortgage Loan Purchase Agreement has occurred, which Mortgage Loan must, on the date of such substitution, (a) have a Stated
Principal Balance, after deduction of the principal portion of the scheduled monthly payment due in the month of substitution, not in excess of the Stated Principal Balance of the deleted Mortgage Loan; (b) be accruing interest at a rate no lower
than that of (and not more than 1.00% per annum higher than that of) the deleted Mortgage Loan; (c) have a Loan-to-Value Ratio no higher than that of the deleted Mortgage Loan; (d) have a remaining term to maturity no greater than one year more than
that of (and no greater than one year less than that of) the deleted Mortgage Loan; and (e) comply with each representation and warranty made by the Seller in the Mortgage Loan Purchase Agreement. 
  
 Swap Agreement: The interest rate Swap Agreement between the Indenture
Trustee and the Swap Provider for the benefit of the Notes. 
  
 Swap Provider: Bear Stearns Financial Products Inc. 
  
 Swap Provider Trigger Event: With respect to any Payment Date, (a) an Event of Default under the interest rate Swap Agreement with respect to which the Swap Provider is a Defaulting Party (as defined in the interest rate Swap
Agreement), (b) a Termination Event under the interest rate Swap Agreement with respect to which the Swap Provider is the sole Affected Party (as defined in the interest rate Swap Agreement) or (c) an Additional Termination Event under the interest
rate Swap Agreement with respect to which the Swap Provider is the sole Affected Party. 
  
 Swap Termination Payment: Any lump-sum amount calculated in accordance with the Swap Agreement in connection with an “Event of Default”, a “Termination Event” or an “Additional
Termination Event” under the Swap Agreement. 
  
 Telerate
Screen Page 3750: The display designated as page 3750 on the Telerate Service (or such other page as may replace page 3750 on that service for the purpose of displaying London interbank offered rates of major banks). 
  
 Treasury Regulations: Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific provisions of proposed or temporary regulations shall include analogous provisions of final Treasury Regulations or other successor Treasury Regulations. 
  

 -33- 

 Trigger Event: A Trigger Event is in effect with respect to any Payment Date if: 
  
 (a) the Rolling Three-Month Delinquency Rate as of the close
of business on the last day of the preceding calendar month exceeds 34.50% of the Senior Enhancement Percentage; or 
  
 (b) the cumulative amount of Realized Losses incurred on the Mortgage Loans from the Cut-off Date through the end of the calendar month
immediately preceding such Payment Date exceeds the applicable percentage set forth below of the Cut-off Date Balance: 
  

			
	 Distribution Date

	  	 Percentage

	July 2007 to June 2008	  	1.65% for the first month, plus an additional 1/12th of
1.90% for each month thereafter
		
	July 2008 to June 2009	  	3.55% for the first month, plus an additional 1/12th of
2.00% for each month thereafter.
		
	July 2009 to June 2010	  	5.55% for the first month, plus an additional 1/12th of
1.65% for each month thereafter.
		
	July 2010 to June 2011	  	7.20% for the first month, plus an additional 1/12th of
0.90% for each month thereafter.
		
	July 2011 to June 2012	  	8.10% for the first month, plus an additional 1/12th of
0.05% for each month thereafter

  
 Trust:
People’s Choice Home Loan Securities Trust Series 2005-3, created on June 27, 2005, and as amended and restated from time to time pursuant to the Trust Agreement. 
  
 Trust Agreement: The Amended and Restated Trust Agreement dated as of July 1, 2005, among the Owner Trustee, the
Depositor and Wells Fargo Bank, National Association, as securities administrator, certificate registrar and certificate paying agent, relating to the Trust. 
  
 Trust Estate: The meaning specified in the Granting Clause of the Indenture. 
  
 Trust Indenture Act or TIA: The Trust Indenture Act of 1939, as amended from time to time, as in effect on any
relevant date. 
  
 UCC: The Uniform Commercial Code, as
amended from time to time, as in effect in any specified jurisdiction. 
  

 -34- 

 Underwriters: Lehman Brothers Inc., Bear, Stearns & Co. Inc., Credit Suisse First Boston LLC
and UBS Securities LLC. 
  
 Uninsured Cause: Any cause of
damage to a Mortgaged Property or related REO Property such that the complete restoration of such Mortgaged Property or related REO Property is not fully reimbursable by the hazard insurance policies required to be maintained pursuant to the
Servicing Agreement, without regard to whether or not such policy is maintained. 
  

 -35-Securities Purchase Agreement

 Exhibit 10.1 
  
 SECURITIES PURCHASE AGREEMENT 
  

This Securities Purchase Agreement (this “Agreement”) is dated as of July 7, 2005 among North American Technologies Group, Inc., a
Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”).

  
 WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this Agreement. 
  
 NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each
Purchaser agree as follows: 
  
 ARTICLE I. 
 DEFINITIONS 
  
 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings indicated in this Section 1.1: 
  
 “Action” shall have the meaning ascribed to such term in Section 3.1(j). 
  
 “Affiliate” means any Person that, directly
or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. 
  
 “Closing” means the closing of the purchase and sale of the Securities pursuant to Section
2.1. 
  
 “Closing Date” means
the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all deliveries set forth in § 2.2 have been made. 
  
 “Commission” means the Securities and Exchange Commission. 
  
 “Common Stock” means the common stock of
the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter have been reclassified or changed into. 

 “Common Stock Equivalents” means any securities of the Company or its
Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. 
  
 “Custodial Agent” shall have the meaning set forth in the Custodial Agreement. 
  
 “Custodial Agreement” shall mean the
Custodial Agreement in substantially the form of Exhibit C hereto executed and delivered contemporaneously with this Agreement. 
  
 “Debentures” means, the 7% Convertible Debentures due, subject to the terms therein, one year from their date of
issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A. 
  
 “Disclosure Schedules” shall have the meaning ascribed to such term in Section 4.1. 
  
 “Effective Date” means the date that the
initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission. 
  
 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder. 
  
 “Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors
of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of any such securities and (c) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities. 
  
 “FW” means Feldman Weinstein LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

  
 “GAAP” shall have the
meaning ascribed to such term in Section 4.1(h). 
  

 2 

 “Intellectual Property Rights” shall have the meaning ascribed to such
term in Section 3.1(o). 
  
 “Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c). 
  
 “Liens” means a lien, charge, mortgage, security interest, encumbrance, right of first refusal, preemptive right or other
restriction, but excluding Permitted Liens. 
  
 “Market Price” shall mean the average of the each of the 10 VWAPs immediately prior to the date hereof. 
  
 “Material Adverse Effect” shall have the meaning assigned to such term in Section 4.1(b). 
  
 “Material Permits” shall have the meaning
ascribed to such term in Section 4.1(m). 
  
 “Maximum Rate” shall have the meaning ascribed to such term in Section 6.17. 
  
 “Opus” shall mean OPUS 5949 LLC, a Texas limited liability company, formerly known as TIE Investors, LLC. 
  
 “Opus Loan” means that certain loan by Opus
to TIETEK LLC, a Delaware limited liability company, TIETEK Technologies, Inc., a Texas corporation, North American Technologies Group, Inc., a Delaware corporation, in the original principal amount of $14,000,000 as evidenced by that certain
Construction Loan Agreement, dated as of February 5, 2004, as amended, supplemented, extended, refinanced or otherwise modified from time to time, and the Promissory Note and security documents executed pursuant thereto, as amended, replaced or
restated from time to time. 
  
 “Permitted Lien” means (a) Liens securing repayment of the Opus Loan and (b) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. 
  
 “Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. 
  
 “Pro Rata Share” shall mean the unconverted principal amount of the Debentures held by such
Purchaser divided by the aggregate amount of unconverted Debentures held by all of the Purchasers. 
  
 “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation
or partial proceeding, such as a deposition), whether commenced or threatened. 
  

 3 

 “Purchaser” shall have the meaning ascribed to such term in Section
5.11. 
  
 “Registration Rights
Agreement” means the Registration Rights Agreement, as amended and restated as of the date hereof, among the Company, the Purchasers and certain other investors in the Company. 
  
 “Registration Statement” means a registration statement meeting the requirements set forth
in the Registration Rights Agreement and covering the resale of the Underlying Shares by each Purchaser as provided for in the Registration Rights Agreement. 
  

“Required Approvals” shall have the meaning ascribed to such term in Section 4.1(e). 
  
 “Required Minimum” means, as of any date,
the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrants and
Debentures (including Underlying Shares issuable as payment of interest), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then
Conversion Price on the Trading Day immediately prior to the date of determination. 
  
 “Return Request” shall have the meaning ascribed to such term in Article III. 
  
 “Rule 144” means Rule 144 promulgated by
the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. 
  
 “SEC Reports” shall have the meaning
ascribed to such term in Section 4.1(h). 
  
 “Securities” means the Debentures, the Warrants, the Warrant Shares and the Underlying Shares. 
  
 “Securities Act” means the Securities Act of 1933, as amended. 
  
 “Short Sales” shall include all “short
sales” as defined in Rule 200 of Regulation SHO under the Exchange Act.  
  
 “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Debentures and Warrants purchased
hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount”, in United States Dollars and in immediately available funds. 
  
 “Subsidiary” means any subsidiary of the
Company as set forth on Schedule 4.1(a). 
  

 4 

 “Trading Day” means a day on which the Common Stock is traded on a
Trading Market. 
  
 “Trading
Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the Nasdaq National
Market or the OTC Bulletin Board. 
  
 “Transaction Documents” means this Agreement, the Debentures, the Warrants, the Registration Rights Agreement, the Custodial Agreement and any other documents or agreements executed in connection with the transactions
contemplated hereunder. 
  
 “Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion of the Debentures and upon exercise of the Warrants and issued and issuable in lieu of the cash payment of interest on the Debentures in accordance with the terms
of the Debentures. 
  
 “VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not
then listed or quoted on a Trading Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board;
(c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by
the Purchasers and reasonably acceptable to the Company. 
  
 “Warrants” means collectively the Common Stock purchase warrants, in the form of Exhibit B delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants
shall be exercisable immediately and have a term of exercise equal to 3 years. 
  
 “Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants. 
  
 ARTICLE II. 
 PURCHASE AND SALE 
  
 2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell,
and each Purchaser agrees to purchase Debentures in an amount 
  

 5 

 equal to the Subscription Amount set forth on such Purchaser’s signature page hereto. On the Closing Date: (a) each
Purchaser shall deliver to the Custodial Agent via wire transfer or a certified check of immediately available funds equal to their Subscription Amount to be held in escrow by the Custodial Agent pursuant to the terms of the Custodial Agreement (the
“Escrow Account”); (b) the Custodial Agent shall deliver $2,000,000 to the Company via wire transfer or certified check of immediately available funds; and (c) the Company shall deliver to each Purchaser their respective Debenture
and Warrants as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable on the Closing Date. 
  

	 	2.2	Deliveries. 

  

	 	a)	On the Closing Date, the Company shall deliver or cause to be delivered to the Custodial Agent with respect to each Purchaser the following: 

  

	 	(i)	this Agreement duly executed by the Company; 

  

	 	(ii)	a Debenture with a principal amount equal to such Purchaser’s Subscription Amount as set forth on such Purchaser’s signature page hereto, registered in the name of such
Purchaser; 

  

	 	(iii)	a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 25% of such Purchaser’s Subscription Amount divided by the
Market Price, with an exercise price equal to $0.24, subject to adjustment therein; 

  

	 	(iv)	an Officer’s certificate certifying that the Company has reduced the interest rate of the Opus Loan to be equal to 7% for the period of Opus’ forbearance, which
certificate to be in a form and substance reasonably satisfactory to the Purchasers; 

  

	 	(v)	an Officer’s certificate certifying that Opus has agreed to (A) extend the forbearance agreement, dated April 6, 2005 by and among Opus and the Company, until the Maturity Date
(as defined in the Debentures), and (B) receive all interest payments payable on or after Closing on all of the outstanding debt of the Company, issued by Opus, in shares of Common Stock at a price equal to (X) for interest accrued as of the Closing
Date, 100% of the average of each of the 20 VWAPs immediately prior to the Closing Date; and (Y) for all interest payments made after the Closing Date, 100% of the average of each of the 20 VWAPs immediately prior to the payment on the outstanding
debt, such certificate to be in form and substance reasonably satisfactory to the Purchasers; 

  

	 	(vi)	the Custodial Agreement duly executed by the Company; and 

  

	 	(vii)	the amended and restated Registration Rights Agreement duly executed by the Company. 

  

 6 

 b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Custodial Agent the
following: 
  

	 	(i)	this Agreement duly executed by such Purchaser; 

  

	 	(ii)	such Purchaser’s Subscription Amount by wire transfer to the account of the Custodial Agent to be held in escrow pursuant to the terms of the Custodial Agreement;

  

	 	(iii)	the Custodial Agreement duly executed by such Purchaser; and 

  

	 	(iv)	the amended and restated Registration Rights Agreement duly executed by such Purchaser. 

  

	 	2.3	Closing Conditions. 

  

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

  

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

  

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

  

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

  

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

  

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

  

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

  

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

  

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

  

	 	(viii)	trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited 

  

 7 

 duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and,
trading in securities generally as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such
magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Debentures at the Closing. 
  
 ARTICLE III. 
 FUNDING 
  
 The Company shall be permitted to draw funds from the Escrow Account no more frequently than every thirty (30) days, commencing no sooner than thirty (30) days after the Closing Date (each such date a “Funding Date”). Three
(3) days prior to any proposed Funding Date, the Company shall deliver to the Custodial Agent a certificate of the Company including a request for funds not to exceed the monthly funding caps set forth on Exhibit D, attached hereto. The
amount of the monthly funding caps shall be increased, each month, by the aggregate amount the funding caps in previous months exceeded the amount actually funded in such months. Such request shall include a resolution of a committee of
disinterested directors requesting the funds and shall provide in reasonable detail the information set forth on Exhibit E, attached hereto. After receipt of such proper request from the Company, the Custodial Agent shall be obligated (in the
absence of a veto exercised by Purchasers holding at least 66 2/3% of the principal value of the Debentures) to
provide the requested funds to the Company from the Escrow Account (not to exceed $5,000,000 in the aggregate) on the Funding Date which shall be no later than three (3) Business Days after the receipt by the Custodial Agent of the Company’s
proper request for additional proceeds. No requests for funding may be made after June 30, 2006. If at any time the Company has not requested funds from the Escrow Account for more than forty-five (45) days or at any time after a Funding Date in May
2006, any Purchaser may deliver notice to the Company, the Purchasers and the Custodial Agent requesting the return of all funds held in the Escrow Account to the Purchasers according to their respective Pro Rata Share of the funds in the Escrow
Account (a “Return Request”). The return of the funds held in the Escrow Account to the Purchasers shall be deemed a repayment of such amount under the Debentures and shall be applied to reduce amounts due and owing to the
Purchasers as follows: first, to the payment of fees and expenses including liquidated damages; second, to interest payable in cash; and third, to the outstanding principal. In the event the Company requires funds in excess of the amount set forth
on Exhibit D, the Custodial Agent shall be permitted, in the absence of a veto exercised by Purchasers holding 66 2/3% of the principal value of the Debentures, to provide the Company such funds not to exceed $500,000 in the aggregate. On each Funding Date, the Custodial Agent shall disburse the funds to the Company in accordance with the Custodial
Agreement. 
  

 8 

 ARTICLE IV. 
 REPRESENTATIONS AND WARRANTIES 
  
 4.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the disclosure schedules delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”) which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to each Purchaser. 
  
 a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 4.1(a). The Company
owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded. 
  
 b) Organization and Qualification. The Company and
each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to
own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws
or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. 
  
 c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. Except for stockholder approval of the Authorized Share Amendment, the execution and
delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or 
  

 9 

 upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 
  
 d) No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under,
result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary
is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as
could not have or reasonably be expected to result in a Material Adverse Effect. 
  
 e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents,
other than (i) filings required pursuant to Section 5.6, (ii) the filing with the Commission of the Registration Statement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Debentures and
Warrants and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iv) the filing of Preliminary and Definitive Proxy Statements with the Commission concerning the approval of the Authorized Share
Amendment; and (v) the filing with the Delaware Secretary of State of the Authorized Share Amendment (collectively, the “Required Approvals”). 
  

f) Issuance of the Securities. The Debentures and the Warrants are duly authorized and, when issued and paid for in accordance
with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. Following the
Authorized Share Effective Date, the Underlying Shares, when issued in accordance with the terms of the Transaction 
  

 10 

 Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by
the Company. Upon the Authorized Share Effective Date, the Company will reserve at least the Required Minimum of its duly authorized Common Stock for issuance of the Underlying Shares. 
  
 g) Capitalization. The capitalization of the Company is as set forth on Schedule 4.1(g). The
Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise of outstanding Common Stock Equivalents. No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, script rights to subscribe
to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such
securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or purchase securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company
is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. 
  
 h) SEC Reports; Financial Statements. As of their respective dates, the reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act or the Exchange Act (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as, the “SEC
Reports”) filed by the Company complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes 
  

 11 

 thereto and except that unaudited financial statements may not contain all footnotes required by GAAP,
and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments. 
  
 i) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in
the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for
confidential treatment of information. 
  
 j)
Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty that could reasonably be expected to result in a
Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.

  
 k) Labor Relations. No material labor
dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. 
  
 l) Compliance. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is 
  

 12 

 bound (whether or not such default or violation has been waived), (ii) is in violation of any order of
any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business
except in each case as could not have a Material Adverse Effect. 
  
 m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither
the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. 
  
 n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by
them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all
Liens. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance. 
  
 o) Patents and Trademarks. The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary and material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a
written notice that the Intellectual Property Rights used by the Company or any Subsidiary materially violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and
there is no existing infringement by another Person of any of the Intellectual Property Rights of others. 
  
 p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription
Amount. To the knowledge of the Company, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary has any knowledge that it will not be able to renew its existing insurance coverage as and when such
coverage expires. 
  
 q) Transactions With
Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and 
  

 13 

 directors), including any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on
behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company. 
  
 r) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents. 
  
 s) Private Placement. Assuming the accuracy of the
Purchasers representations and warranties set forth in Section 4.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. 
  
 t) Investment Company. The Company is not, and is not
an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. 
  
 u) Registration Rights. Other than under the
Registration Rights Agreement, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. 
  
 v) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to
Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration. 
  
 w) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. 
  

 14 

 x) Disclosure. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement and the Transaction Documents, furnished by or on behalf of the Company with respect to the representations and warranties made herein are
true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in
Section 4.2 hereof. 
  
 y) No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 4.2, neither the Company, nor to its knowledge any of its Affiliates, nor to its knowledge any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act such that the offering of Securities made hereby would be required to be registered under the Securities Act. 
  
 z) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency
which has been asserted or threatened against the Company or any Subsidiary. 
  
 aa) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company
has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act. 
  
 bb) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or
other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on
its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended except as the foregoing would not be expected to result in a
Material Adverse Effect. 
  

 15 

 cc) Seniority. As of the Closing Date, no indebtedness or other equity of the
Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying
assets covered thereby), capital lease obligations (which is senior only as to the property covered thereby) and the Opus Loan. 
  
 dd) No Disagreements with Accountants and Lawyers. There are no material disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers. 
  
 ee) Acknowledgment Regarding Purchasers’ Purchase of
Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of
their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the
Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. 
  
 ff) Accountants. The Company’s accountants are set forth on Schedule 4.1(ff) of the
Disclosure Schedule. To the knowledge of the Company, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2004 are a registered public accounting firm as required by the Securities Act. 
  
 gg) Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Section 5.14 hereof), it is understood and agreed by the Company (i) that none of the Purchasers have been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities
of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that past or future open market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that any Purchaser, and counter parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and
(iv) that each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The 
  

 16 

 Company further understands and acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined and (b) such
hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. 
  
 hh) Manipulation of Price. The Company has not, and
to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any
of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities (other than for the placement agent’s placement of the Securities), or (iii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the Company. 
  
 4.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the Closing Date to the Company as
follows: 
  
 a) Organization; Authority.
Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by
all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law. 
  
 b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring
the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or 
  

 17 

 otherwise in compliance with applicable federal and state securities laws) in violation of the Securities
Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities. 
  
 c)
Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants or converts any Debentures it will be either: (i) an “accredited
investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act. 
  
 d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment. 
  
 e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. 
  
 f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the transaction contemplated hereunder, such Purchaser has
not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any disposition, including Short Sales (but not including the location and/or reservation of borrowable shares of
Common Stock), in the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet from the Company or any other Person setting forth the material terms of the transactions contemplated
hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such
Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). 
  
 The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in this Section 4.2. 
  

 18 

 ARTICLE V. 
 OTHER AGREEMENTS OF THE PARTIES 
  

	 	5.1	Transfer Restrictions. 

  
 a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 5.1(b), the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not
require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement. 
  
 b) The Purchasers agree to the imprinting, so long as is required by this Section 5.1(b), of a legend on any of the Securities in the following form: 
  

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. 
  
 The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or 
  

 19 

 transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a
pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. 
  
 c) Certificates evidencing the Underlying Shares shall not
contain any legend (including the legend set forth in Section 5.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any
sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effective Date if required by the Company’s transfer
agent to effect the removal of the legend hereunder. If all or any portion of a Debenture or Warrant is converted or exercised (as applicable) at a time when there is an effective registration statement to cover the resale of the Underlying Shares,
or if such Underlying Shares may be sold under Rule 144(k) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations thereof) then such Underlying Shares shall be issued free
of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 5.1(c), it will, no later than ten Trading Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such tenth Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section. Certificates for Securities subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the Depository
Trust Company System. 
  
 d) In addition to such
Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and subject to Section 5.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each
Trading Day after the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for 
  

 20 

 the Company’s failure to deliver certificates representing any Securities as required by the
Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. 
  
 e) Each Purchaser, severally and not jointly with the other
Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 5.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to either
the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom. 
  
 f) Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in principal amount outstanding of the Debentures. 
  

5.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Underlying Shares
pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser
and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company. 
  
 5.3 Furnishing of Information. As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act, other than the Company’s Quarterly Report on Form 10-Q for the period ending March 31,
2005, which will be filed as soon as possible following the consent by all of the holders of the Company’s Series CC Preferred Stock to a certificate of correction to the preferred stock designation establishing such series eliminating the
mandatory redemption provisions contained therein. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 
  
 5.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the
Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market. 
  

 21 

 5.5 Conversion and Exercise Procedures. The form of Notice of Exercise included in the Warrants
and the form of Notice of Conversion included in the Debentures set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants or convert the Debentures. No additional legal opinion or other information or
instructions shall be required of the Purchasers to exercise their Warrants or convert their Debentures. The Company shall honor exercises of the Warrants and conversions of the Debentures and shall deliver Underlying Shares in accordance with the
terms, conditions and time periods set forth in the Transaction Documents. 
  
 5.6 Securities Laws Disclosure; Publicity. The Company shall issue a Current Report on Form 8-K within the time period required by law, reasonably acceptable to each Purchaser disclosing the material terms of
the transactions contemplated hereby, and shall attach the Transaction Documents thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each
Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice
of such public statement or communication. 
  
 5.7 Shareholder
Rights Plan. No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that any Purchaser is an “Acquiring Person” under any shareholder rights plan or similar plan or arrangement in effect
or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company
and the Purchasers. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended. 
  
 5.8 Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 
  
 5.9 Use of Proceeds. Except as set forth on Schedule 5.9 attached hereto, the Company shall use the net
proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and
prior practices), to redeem any Common Stock or Common Stock Equivalents or to settle any outstanding litigation. 
  

 22 

 5.10 Reimbursement. If any Purchaser becomes involved in any capacity in any Proceeding by or
against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any current stockholder), solely as a result of such Purchaser’s acquisition of the
Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers
who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors,
agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement. 
  
 5.11 Indemnification of Purchasers. Subject to the provisions of this
Section 5.11, the Company will indemnify and hold the Purchasers and their directors, officers, shareholders, members, partners, employees and agents (each, a “Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them
or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or
any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing. Any Purchaser Party shall have the right to employ separate counsel in any such action
and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii)
the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by the Purchasers in this Agreement or in the other Transaction Documents. 
  

 23 

	 	5.12	Reservation and Listing of Securities. 

  
 a) Following the Authorized Share Effective Date, the Company shall maintain a reserve from its duly authorized shares of Common Stock for
issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. 
  
 b) If, on any date, including the Closing Date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is
less than the Required Minimum on such date, then the Board of Directors of the Company shall use its best efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75th day after such date. Upon the Closing Date, the number of authorized but unissued (and otherwise unreserved) shares of Common
Stock of the Company will be less than the Required Minimum. Consequently, within 75 days of the Closing Date, or such longer period as may be necessary if the Commission reviews the Company’s Preliminary Proxy Statement filed with respect
thereto, the Company will hold a meeting of its shareholders for the purpose of approving an amendment to the Company’s certificate of incorporation which will increase the number of authorized shares of Common Stock to a number that is
sufficient for the Company to issue authorized shares of Common Stock to each holder of Common Stock Equivalents upon the exercise or Conversion thereof plus the Required Minimum (the “Authorized Share Amendment”). In addition, within two
Trading Days of the date on which the Company’s stockholders approve the Authorized Share Amendment, the Company will cause the Authorized Share Amendment to be filed with the Delaware Secretary of State (the “Authorized Share Effective
Date”). 
  
 c) The Company shall, if
applicable: (i) in the time and manner required by the Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date
of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on the Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) maintain the
listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. 
  
 5.13 Equal Treatment of Purchasers. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Debentures in amounts
which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated
separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of
Securities or otherwise. 
  

 24 

 5.14 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally and not
jointly with the other Purchasers covenants that neither it nor any Affiliates acting on its behalf or pursuant to any understanding with it will execute any Short Sales for a period ending three (3) days after the time that the transactions
contemplated by this Agreement are first publicly announced as described in Section 5.6. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company as described in Section 5.6, such Purchaser will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other Purchaser, that the Commission currently takes the position that coverage of short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is a violation of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under Section A, of the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after
the three (3) day period beginning at the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 5.6. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 
  
 ARTICLE VI. 
 MISCELLANEOUS 
  
 6.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before July 8, 2005; provided, however, that no such termination will affect the right of any party to sue for any breach by the other
party (or parties). 
  
 6.2 Fees and Expenses. At the
Closing, the Company has agreed to reimburse the Purchasers up to $68,000, for their actual, reasonable, out-of-pocket legal fees and expenses, incurred in the preparation and negotiation of the Transaction Documents. Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities. 
  

 25 

 6.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto,
contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules. 
  
 6.4 Notices. Any and
all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. 
  
 6.5 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser, or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any
manner impair the exercise of any such right. 
  
 6.6
Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 
  
 6.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser. Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Purchasers”. 
  
 6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 5.11. 
  
 6.9 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and 
  

 26 

 enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or
proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered
or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding. 
  
 6.10
Survival. The representations and warranties contained herein shall survive the Closing and the delivery, exercise and/or conversion of the Securities, as applicable for the applicable statue of limitations. 
  
 6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need
not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof. 
  
 6.12 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in
any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

  
 6.13 Rescission and Withdrawal Right. Notwithstanding
anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time 
  

 27 

 to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice
to its future actions and rights; provided, however, in the case of a rescission of a conversion of a Debenture or exercise of a Warrant, the Purchaser shall be required to return any shares of Common Stock subject to any such
rescinded conversion or exercise notice. 
  
 6.14 Replacement
of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. 
  

6.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of
the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described
in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 
  
 6.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any
Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not
been made or such enforcement or setoff had not occurred. 
  
 6.17
Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the
contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized
under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the
Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or 
  

 28 

 decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of
interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the
Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the
Company, the manner of handling such excess to be at such Purchaser’s election. 
  
 6.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the
Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FW. FW does not represent all of the Purchasers but only Midsummer. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. 
  
 6.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing
under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which
such partial liquidated damages or other amounts are due and payable shall have been canceled. 
  
 6.20 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. 
  
 (Signature Pages Follow) 
  

 29 

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

					
	NORTH AMERICAN TECHNOLOGIES GROUP, INC.	 	Address for Notice:
			
	 	 	 	 	14315 West Hardy Road
	By:	 	  

	 	Houston, Texas 77060
	Name:	 	 	 	 
	Title:	 	 	 	 
		
	With a copy to (which shall not constitute notice):	 	 
			
	 	 	 Boyer & Ketchand
 9 Greenway Plaza, Suite
3100
 Houston, Texas 77019
 Attn: John R. Boyer
 Tel: (713) 871-2025
 Fax: (713) 871-2024
	 	 

  
 [REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK 
 SIGNATURE PAGE FOR PURCHASERS FOLLOW] 

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

	
	Name of Purchaser: Sponsor Investments, LLC
	By: Herakles Investments, Inc., Managing Member
	Signature of Authorized Signatory of Purchaser:
                                        
                                        
                                    
	Name of Authorized Signatory:
                                        
                                        
                                        
                                     
 
	Title of Authorized
Signatory:                                      
                                        
                                        
                                        
    
	Email Address of Purchaser:
                                        
                                        
                                        
                        

  
 Address for Notice of Purchaser:

  
 Two Lincoln Centre 
 5420 LBJ Freeway, Suite 1450 
 Dallas, Texas
75240 
 Attn: Bruce Leadbetter 
 Tel: (972) 490-2360 
 Fax: (972) 490-2345 
  

Address for Delivery of Securities for Purchaser (if not same as above): 
  
 Subscription Amount: $2,325,000.00 
 Warrant Shares: 2,582,813.50 

EIN Number: [PROVIDED UNDER SEPARATE COVER] 

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

	
	Name of Purchaser: Toibb Investment LLC
	 By: Toibb Management LLC, Manager

	 Signature of Authorized Signatory of Purchaser:
                                        
                                        
                                        
        

	 Name of Authorized Signatory: Harris Toibb

	 Title of Authorized Signatory: Manager

	 Email Address of Purchaser:
                                        
                                        
                                        
                                    

  
 Address for Notice of Purchaser:

  
 Attn: Howard Smuckler 
 Tel: (818) 883-3098 
 Fax: (818) 883-0858

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

  
 Subscription Amount: $940,000.00 
 Warrant Shares: 1,044.234.27 
 EIN Number: [PROVIDED UNDER SEPARATE
COVER] 

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

	
	Name of Purchaser: Michael Toibb
	 Signature of Authorized Signatory of Purchaser:
                                        
                                        
                        

	 Name of Authorized Signatory: Michael Toibb

	 Title of Authorized Signatory:

	 Email Address of Purchaser: Michael@toibb.com

  
 Address for Notice of Purchaser:

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

  
 Subscription Amount: $50,000.00 
 Warrant Shares: 55,544.38 
 EIN Number: [PROVIDED UNDER SEPARATE COVER]

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

	
	Name of Purchaser: Scott M. and Cheryl L. Hergott Living Trust
	
	 Signature of Authorized Signatory of Purchaser:
                                        
                                        
                                    

	 Name of Authorized Signatory:

	 Title of Authorized Signatory:

	 Email Address of Purchaser: CSA102094@aol.com

  
 Address for Notice of Purchaser:

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

  
 Subscription Amount: $50,000.00 
 Warrant Shares: 55,544.38 
 EIN Number: [PROVIDED UNDER SEPARATE COVER]

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

	
	 Name of Purchaser: Crestview Capital Master, LLC

	 Signature of Authorized Signatory of Purchaser:
                                        
                                        
                                       
 

	 Name of Authorized Signatory: Daniel Warsh

	 Title of Authorized Signatory:
                                        
                                        
                                        
                                       
 

	 Email Address of Purchaser:
                                        
                                        
                                        
                    

  
 Address for Notice of Purchaser:

  
 95 Revere Drive, Suite A 
 Northbrook, Illinois 60062 
 Attn: Richard
Levy 
 Tel: (847) 418-8303 
 Fax:
(847) 559-5807 
  
 Address for Delivery of Securities for Purchaser (if not same
as above): 
  
 Subscription Amount: $845,000.00 
 Warrant Shares: 938,699.96 
 EIN Number: [PROVIDED UNDER SEPARATE
COVER] 

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

	
	Name of Purchaser: Midsummer Investment Ltd.
	 Signature of Authorized Signatory of Purchaser:
                                        
                                        
                                    

	 Name of Authorized Signatory: Michel A. Amsalem

	 Title of Authorized Signatory:
                                        
                                        
                                        
                                       
 

	 Email Address of Purchaser: ma@midsummercapital.com

  
 Address for Notice of Purchaser:

  
 485 Madison Avenue, 23rd floor 
 New York, New York 10022 
 Attn: Michel A.
Amsalem 
 Tel: (212) 584-2140 
 Fax: (212) 584-2142 
  
 Address for Delivery of Securities for Purchaser
(if not same as above): 
  
 Subscription Amount: $565,000.00 
 Warrant Shares:627,651.45 
 EIN Number: [PROVIDED UNDER SEPARATE COVER]

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

	
	 Name of Purchaser: Islandia, LP

	 Signature of Authorized Signatory of Purchaser:
                                        
                                        
                            

	 Name of Authorized Signatory:
                                        
                                        
                                        
                                    

	 Title of Authorized Signatory:
                                        
                                        
                                        
                                     
 

	 Email Address of Purchaser:
                                        
                                        
                                        
                

  
 Address for Notice of Purchaser:

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

  
 Subscription Amount: $225,000.00 
 Warrant Shares: 249,949.69 
 EIN Number: [PROVIDED UNDER SEPARATE
COVER]

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