Document:

Exhibit 10.1 filed 021006

    Heartland
      Financial USA, Inc.

     

    2005
      Long-Term Incentive Plan

     

    NQSO
      Award Terms

     

        The
      Participant specified below has been granted this Option by Heartland Financial
      USA, Inc., a Delaware corporation (the “Company”)
      under

    the
      terms
of
      the
      Heartland Financial USA, Inc. 2005 Long-Term Incentive Plan (the “Plan”). 
      The Option shall be subject to the following terms and 

    conditions
      (the “Option
      Terms”):

     

        Section
      1.  Terms
      of Award. 
      The
      following words and phrases relating to the grant of the Option shall have
      the
      following meanings:

                (a)  The
      “Participant”
is
      «FirstName» «LastName».

                (b)  The
      “Grant
      Date”
is
      February
      6, 2006.

                (c)  The
      number of “Covered
      Shares”
shall
      be «Shares»
      shares
      of Stock.

                (d)  The
      “Exercise
      Price”
is
      $
      21.60
 per
      share.

     

        Except
      where
      the context clearly implies to the contrary, any capitalized term in this award
      shall have the meaning ascribed to that term under the Plan.

     

        Section
      2.  Non-Qualified
      Stock Option. 
      The
      Option is not intended to constitute an “incentive stock option” as that term is
      used in Code section 422.

     

        Section
      3.  Date
      of Exercise. 
      Subject
      to the limitations of the
      Option Terms,
      each
      installment of Covered Shares of the Option (“Installment”)
      

    shall
      become vested and exercisable on and after the “Vesting
      Date”
for
      such Installment as described in the following schedule (but only if the Date
      of

    Termination
      has not occurred before the Vesting Date):

     

    
      	
              INSTALLMENT

               

            	
              VESTING
                DATE

              APPLICABLE
                TO INSTALLMENT

            
	
              1/3
                of Covered Shares

            	
              February
                6, 2009

            
	
              1/3
                of Covered Shares

            	
              February
                6, 2010

            
	
              1/3
                of Covered Shares

            	
              February
                6, 2011

            

    

     

                (a)  Notwithstanding
      the foregoing provisions of this Section
      3,
      the
      Option shall become fully exercisable upon a Date of Termination 

    (as
      defined in Section
      8(c))
      that
      occurs by reason of the Participant’s death, Disability (as defined in
Section
      8(d))
      or
      Retirement (as defined in Section
      8(e).

                (b)  Notwithstanding
      the foregoing provisions of this Section
      3,
      the
      Option shall become fully exercisable upon a Change in Control 

    that
      occurs on or before the Date of Termination.

                (c)  The
      Option may only be exercised on or after the Date of Termination only as to
      that
      portion of the Covered Shares for which it

    was
      exercisable immediately prior to the Date of Termination, or became exercisable
      on the Date of Termination.

     

        Section
      4.  Expiration. 
      The
      Option shall not be exercisable after the Company’s close of business on the
      last business day that occurs prior 

    to
      the
      Expiration Date.  The “Expiration Date” shall be the earliest to occur
      of:

                (a)  the
      ten-year anniversary of the Grant Date;

                (b)  the
      one-year anniversary of the Date of Termination if the termination of employment
      occurs due to death or Disability;

                (c)  the
      six-month anniversary of the Date of Termination if the termination of
      employment occurs for reasons other than death or 

    Disability;
      provided,
      however, that
      if
      the Participant dies during such six-month period following the Date of
      Termination, then the one-year anniversary 

    of
      the
      date of death;

                d)  the
      date
      on which the Participant engages in conduct which constitutes Cause;
      or

                (e)  the
      date
      on which the Participant, Competes with the Company or any
      Subsidiary.

     

        Section
      5.  Method
      of Option Exercise. 
      Subject
      to the Option Terms and the Plan, the Option may be exercised in whole or in
      part by filing a written notice 

    with
      the
      Secretary of the Company at its corporate headquarters prior to the Company’s
      close of business on the last business day that occurs prior to the
      Expiration

    Date. 
      Such notice shall specify the number of shares of Stock which the Participant
      elects to purchase, and shall be accompanied by payment of the Exercise Price
      

    for
      such
      shares of Stock indicated by the Participant’s election. Payment may be by cash
      or by check payable to the Company, or except as otherwise provided by

    the
      Committee before the Option is exercised: (i) all or a portion of the
      Exercise Price may be paid by the Participant by delivery of shares of Stock
      (by
      actual delivery 

    or
      by
      attestation) owned by the Participant and acceptable to the Committee having
      an
      aggregate Fair Market Value (valued as of the date of exercise) that is equal
      to

    the
      amount of cash that would otherwise be required; and (ii) the Participant
      may pay the Exercise Price by authorizing a third party to sell shares of Stock
      (or a 

    sufficient
      portion of the shares) acquired upon exercise of the Option and remit to the
      Company a sufficient portion of the sale proceeds to pay the entire Exercise
      

    Price
      and
      any tax withholding resulting from such exercise.  Except as otherwise
      provided by the Committee prior to exercise, payments made with shares of
      Stock

    in
      accordance with clause (i) above shall be limited to shares held by the
      Participant for not less than six (6) months prior to the payment date. 
The Option shall not be 

    exercisable
      if and to the extent the Company determines that such exercise would violate
      applicable state or Federal securities laws or the rules and regulations

    of
      any
      securities exchange on which the Stock is traded and shall not be exercisable
      during any blackout period established by the Company from time to
      time.

     

        Section
      6.  Withholding. 
      The
      exercise of the Option is subject to withholding of all applicable taxes. 
At the election of the Participant, and subject to such 

    rules
      and
      limitations as may be established by the Committee from time to time, such
      withholding obligations may be satisfied (i) through cash payment by the

    Participant;
      (ii) through the surrender of shares of Stock by (actual delivery or by
      attestation) which the Participant already owns (provided,
      however, that
      to
      the 

    extent
      shares described in this clause (ii) are used to satisfy more than the minimum
      statutory withholding obligation, as described below, then, except as otherwise
      

    provided
      by the Committee, payments made with shares of Stock in accordance with this
      clause (ii) shall be limited to shares held by the Participant for not less
      than

    six
      months prior to the payment date); or (iii) through the surrender of shares
      of Stock to which the Participant is otherwise entitled under the Plan;
provided,
      however, 

    that
      such
      shares under this clause (iii) may be used to satisfy not more than the
      Company’s minimum statutory withholding obligation (based on minimum statutory

    withholding
      rates for Federal and state tax purposes, including payroll taxes, that are
      applicable to such supplemental taxable income).

     

        Section
      7.  Transferability. 
      The
      Option is not transferable by the Participant other than by will or by the
      laws
      of descent and distribution, and during the 

    Participant’s
      life, may be exercised only by the Participant.  It may not be assigned,
      transferred (except as aforesaid), pledged or hypothecated by the Participant
      in

    any
      way
      whether by operation of law or otherwise, and shall not be subject to execution,
      attachment or similar process.  Any attempt at assignment, transfer, pledge

    or
      hypothecation, or other disposition of this Option contrary to the provisions
      hereof, and the levy of any attachment or similar process upon this option,
      shall 

    be
      null
      and void and without effect.

     

        Section
      8.  Definitions. 
      For
      purposes of the Option Terms, words and phrases shall be defined as
      follows:

            (a)  “Cause”
shall
      mean: (i) a
      material violation by Participant of any applicable material law or regulation
      respecting the business of 

    Company
      or Subsidiary; (ii) Participant
      being found guilty of a felony or an act of dishonesty in connection with the
      performance of his duties as an employee or officer 

    of
      the
      Company or Subsidiary, or which disqualifies Participant from serving as an
      officer or director of the Company or Subsidiary; (iii) the
      willful or negligent failure 

    of
      Participant to perform his duties hereunder in any material respect;
      (iv) Participant
      engages in one or more unsafe or unsound banking practices that have a material
      

    adverse
      effect on the Company or Subsidiary; or (v) Participant
      is removed or suspended from banking pursuant to Section 8(e) of the
      Federal Deposit Insurance Act, 

    as
      amended, or any other applicable state or federal law.

            (b)  “Compete”
      shall
      mean, except with the express prior written consent of the Company, within
      a
      period of two (2) years after the Date of Termination, 

    the
      direct or indirect competition with the business of the Company or Subsidiary,
      including the direct or indirect owning, managing, operating, controlling,
      financing 

    or
      serving as an officer, employee, director or consultant to, or by soliciting
      or
      inducing, or attempting to solicit or induce, any employee or agent of the
      Company 

    or
      Subsidiary to terminate employment and become employed by, any person, firm,
      partnership, corporation, trust or other entity which owns or operates, within
      a
      fifty 

    (50)
      mile
      radius of the office of the Company or Subsidiary in which the Participant
      is
      principally located, (i) a bank, savings and loan association, credit
      union, 

    consumer
      finance company, brokerage firm, or similar financial institution, (ii) an
      insurance business, agency or similar entity which has as a material component
      of its 

    business
      the sale or brokerage of insurance products and services similar to those
      offered by the Company or Subsidiary as of the Date of Termination, or
      (c) a fleet 

    leasing
      company, fleet management company or similar entity which provides as a material
      component of its business the products and services offered by the Company
      

    or
      a
      Subsidiary as of the Date of Termination.

            (c)  “Date
      of Termination”
shall
      mean the first day occurring on or after the Grant Date on which the Participant
      is not employed by the Company 

    or
      any
      Subsidiary, regardless of the reason for the termination of employment;
provided
      that a
      termination of employment shall not be deemed to occur by reason 

    of
      a
      transfer of the Participant between the Company and a Subsidiary or between
      two
      Subsidiaries; and further provided
      that the
      Participant’s employment shall 

    not
      be
      considered terminated while the Participant is on a leave of absence from the
      Company or a Subsidiary approved by the Participant’s employer.  If, as a
      result 

    of
      a sale
      or other transaction, the Participant’s employer ceases to be a Subsidiary (and
      the Participant’s employer is or becomes an entity that is separate from the

    Company),
      and the Participant is not, at the end of the 30-day period following the
      transaction, employed by the Company or an entity that is then a Subsidiary,
      

    then the
      date
      of the occurrence of such transaction shall be treated as the Participant’s Date
      of Termination caused by the Participant being discharged by the
      employer.

            (d)  “Disability”
shall
      mean a physical or mental disability (within the meaning of
      Section 22(e)(3) of the Code) which impairs the individual’s ability

    to
      substantially perform his or her current duties for a period of at least six
      (6)
      consecutive months, as determined by the Committee.

            (e)  “Retirement”
of
      the
      Participant means, the occurrence of the Participant’s Date of Termination on or
      after the date (i) the Participant reaches the age 

    of
      fifty-five (55) and has ten (10) years of combined service with the Company
      or
      Subsidiary (as determined by the Committee), or (ii) the Participant
      retires pursuant to 

    the
      provisions of any defined benefit retirement plan sponsored by the Company
      or
      its subsidiaries that is then applicable to the Participant, all of the
      foregoing as 

    approved
      by the Committee.

     

        Section
      9.  Heirs
      and Successors. 
      The
      Option Terms shall be binding upon, and inure to the benefit of, the Company
      and
      its successors and assigns, and 

    upon
      any
      person acquiring, whether by merger, consolidation, purchase of assets or
      otherwise, all or substantially all of the Company’s assets and business.

    If
      any
      rights of the Participant or benefits distributable to the Participant under
      this Agreement have not been exercised or distributed, respectively, at the
      time
      of the 

    Participant’s
      death, such rights shall be exercisable by the Designated Beneficiary, and
      such
      benefits shall be distributed to the Designated Beneficiary, in accordance
      

    with
      the
      provisions of this Agreement and the Plan. The “Designated
      Beneficiary”
shall
      be the beneficiary or beneficiaries designated by the Participant in a writing
      

    filed
      with the Committee in such form and at such time as the Committee shall require.
      If a deceased Participant fails to designate a beneficiary, or if the Designated
      

    Beneficiary
      does not survive the Participant, any rights that would have been exercisable
      by
      the Participant and any benefits distributable to the Participant shall
be
      

    exercised
      by or distributed to the legal representative of the estate of the Participant.
      If a deceased Participant designates a beneficiary and the Designated
      Beneficiary 

    survives
      the Participant but dies before the Designated Beneficiary’s exercise of all
      rights under this Agreement or before the complete distribution of benefits
      to
the
      

    Designated
      Beneficiary under this Agreement, then any rights that would have been
      exercisable by the Designated Beneficiary shall be exercised by the legal
      representative 

    of
      the
      estate of the Designated Beneficiary, and any benefits distributable to the
      Designated Beneficiary shall be distributed to the legal representative of
      the
      estate of 

    the
      Designated Beneficiary. 

     

        Section
      10.  Administration. 
      The
      authority to manage and control the operation and administration of the Option
      Terms shall be vested in the Committee, and
      

    the
      Committee shall have all powers with respect to the Option Terms as it has
      with
      respect to the Plan. Any interpretation of the Option Terms by the Committee
      and
      any 

    decision
      made by it with respect to the Option Terms is final and binding on all
      persons.

     

        Section
      11.  Plan
      Governs.
      Notwithstanding
      anything in the Option Terms to the contrary, the Option Terms shall be subject
      to the terms of the Plan, a copy 

    of
      which
      may be obtained by the Participant from the office of the Secretary of the
      Company; and the Option Terms is subject to all interpretations, amendments,
      rules 

    and
      regulations promulgated by the Committee from time to time pursuant to the
      Plan.

     

        Section
      12.  Not
      An Employment Contract.
      The
      Option will not confer on the Participant any right with respect to continuance
      of employment or other 

    service
      with the Company or any Subsidiary, nor will it interfere in any way with any
      right the Company or any Subsidiary would otherwise have to terminate or modify
      the 

    terms
      of
      such Participant’s employment or other service at any time.

     

        Section
      13.  No
      Rights As Shareholder. 
      The
      Participant shall not have any rights of a shareholder with respect to the
      Shares subject to the Option, until a stock 

    certificate
      has been duly issued following exercise of the Option as provided
      herein.

     

        Section
      14.  Amendment. 
      The
      Option Terms may be amended in accordance with the provisions of the Plan,
      and
      may otherwise be amended by written 

    agreement
      of the Participant and the Company without the consent of any other
      person.

     

    

    

    HEARTLAND
      FINANCIAL USA, INC.

    

    

    By:
             

    Mark
      C.
      Falb

    Chairman,
      Nominating/Compensation CommitteeExhibit 10.1

                               SECURITY AGREEMENT

                This  Security  Agreement  is made as of February 6, 2006 by and
among  LAURUS  MASTER  FUND,  LTD.,  a Cayman  Islands  corporation  ("LAURUS"),
INCENTRA SOLUTIONS,  INC. (f/k/a Front Porch Digital, Inc.) a Nevada corporation
("THE  PARENT"),  and each party  listed on EXHIBIT A attached  hereto  (each an
"ELIGIBLE SUBSIDIARY" and collectively,  the "ELIGIBLE SUBSIDIARIES") the Parent
and  each  Eligible   Subsidiary,   each  a  "Company"  and  collectively,   the
"Companies").

                                   BACKGROUND

                The Companies have requested that Laurus make advances available
to the Companies; and

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

                                    AGREEMENT
                                    ---------

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

                        1.      GENERAL   DEFINITIONS   AND   TERMS;   RULES  OF
                                CONSTRUCTION.

                (a)     GENERAL  DEFINITIONS.  Capitalized  terms  used  in this
Agreement  shall have the meanings  assigned to them in ANNEX A.

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

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

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

<PAGE>

Agreement or in the Schedules,  Addenda,  Annexes and Exhibits to this Agreement
to sections,  schedules,  disclosure schedules,  exhibits, and attachments shall
refer to the corresponding sections, schedules,  disclosure schedules, exhibits,
and  attachments of or to this  Agreement.  All references to any instruments or
agreements,  including  references  to any of this  Agreement  or the  Ancillary
Agreements shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.

                        2.      LOAN FACILITY.

                (a)     LOANS.

        Subject  to  the  terms  and  conditions  set  forth  herein  and in the
Ancillary Agreements, Laurus may make loans (the "LOANS") to Companies from time
to time during the Term which,  in the aggregate at any time  outstanding,  will
not exceed the lesser of (x) (I) the Capital Availability Amount minus (II) such
reserves as Laurus may  reasonably  in its good faith  judgment  deem proper and
necessary from time to time (the  "RESERVES") and (y) an amount equal to (I) the
Accounts  Availability  minus (II) the Reserves.  The amount derived at any time
from Section  2(a)(y)(I) minus  2(a)(y)(II) shall be referred to as the "FORMULA
AMOUNT." The  Companies  shall,  jointly and  severally,  execute and deliver to
Laurus on the Closing Date the Revolving Note  evidencing the Loan funded on the
Closing Date.  Notwithstanding  the limitations set forth above, if requested by
any Company,  Laurus retains the right to lend to such Company from time to time
such amounts in excess of such  limitations  as Laurus may determine in its sole
discretion.

                        (i)     The Companies  acknowledge  that the exercise of
Laurus' discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance  percentages used in determining  Accounts
Availability  and each of the Companies  hereby consent to any such increases or
decreases which may limit or restrict advances requested by the Companies.

                        (ii)    If any interest,  fees, costs or charges payable
to Laurus  hereunder are not paid when due, each of the Companies  shall thereby
be deemed to have requested,  and Laurus is hereby  authorized at its discretion
to make and  charge  to the  Companies'  account,  a Loan as of such  date in an
amount equal to such unpaid interest, fees, costs or charges.

                        (iii)   If any  Company  at any time fails to perform or
observe  any of the  covenants  contained  in this  Agreement  or any  Ancillary
Agreement,  Laurus may, but need not, perform or observe such covenant on behalf
and in the name,  place and stead of such  Company  (or, at Laurus'  option,  in
Laurus' name) and may, but need not, take any and all other actions which Laurus
may deem  necessary to cure or correct such  failure  (including  the payment of
taxes, the satisfaction of Liens, the performance of obligations owed to Account
Debtors,   lessors  or  other  obligors,  the  procurement  and  maintenance  of
insurance,  the  execution of  assignments,  security  agreements  and financing
statements,  and the  endorsement  of  instruments).  The  amount of all  monies
expended  and all  costs  and  expenses  (including  attorneys'  fees and  legal
expenses)  incurred  by  Laurus  in  connection  with  or  as a  result  of  the
performance  or  observance  of such  agreements or the taking of such action by
Laurus  shall be  charged to the  Companies'  account as a Loan and added to the
Obligations.  To facilitate Laurus'  performance or observance of such covenants
by each Company,  each Company hereby  irrevocably  appoints Laurus,  or Laurus'

                                       2
<PAGE>

delegate, acting alone, as such Company's attorney in fact (which appointment is
coupled with an interest) with the right (but not the duty) from time to time to
create, prepare, complete,  execute, deliver, endorse or file in the name and on
behalf of such Company any and all instruments, documents, assignments, security
agreements,   financing   statements,   applications  for  insurance  and  other
agreements and writings required to be obtained, executed, delivered or endorsed
by such  Company.

                        (iv)    Laurus  will  account to Company  Agent  monthly
with a statement  of all Loans and other  advances,  charges and  payments  made
pursuant to this Agreement,  and such account rendered by Laurus shall be deemed
final,  binding and  conclusive  unless  Laurus is notified by Company  Agent in
writing to the  contrary  within  thirty (30) days of the date each  account was
rendered specifying the item or items to which objection is made.

                        (v)     During the Term,  the  Companies  may borrow and
prepay Loans in accordance  with the terms and  conditions  hereof.

                        (vi)    If  any  Eligible  Account  is not  paid  by the
Account  Debtor  within one hundred (100) days after the date that such Eligible
Account was  invoiced or if any Account  Debtor  asserts a  deduction,  dispute,
contingency,  set-off,  or counterclaim with respect to any Eligible Account, (a
"DELINQUENT  ACCOUNT"),  the Companies shall jointly and severally (i) reimburse
Laurus for the amount of the Loans made with respect to such Delinquent  Account
plus an adjustment fee in an amount equal to one-fifth of one percent (0.20%) of
the gross face amount of such Eligible Account or (ii) immediately  replace such
Delinquent Account with an otherwise Eligible Account.

                (b)     RECEIVABLES  PURCHASE.   Following  the  occurrence  and
during the continuance of an Event of Default,  Laurus may, at its option, elect
to convert the credit  facility  contemplated  hereby to an accounts  receivable
purchase  facility.  Upon such  election by Laurus  (subsequent  notice of which
Laurus shall provide to Company Agent),  the Companies shall be deemed to hereby
have sold, assigned,  transferred,  conveyed and delivered to Laurus, and Laurus
shall be deemed to have  purchased and received from the  Companies,  all right,
title and interest of the  Companies  in and to all Accounts  which shall at any
time constitute Eligible Accounts (the "RECEIVABLES PURCHASE").  All outstanding
Loans  hereunder  shall be deemed  obligations  under such  accounts  receivable
purchase facility. The conversion to an accounts receivable purchase facility in
accordance  with the terms  hereof  shall not be deemed an exercise by Laurus of
its secured  creditor rights under Article 9 of the UCC.  Immediately  following
Laurus' request,  the Companies shall execute all such further  documentation as
may be  required  by Laurus to more  fully  set  forth the  accounts  receivable
purchase facility herein contemplated,  including,  without limitation,  Laurus'
standard  form of accounts  receivable  purchase  agreement  and account  debtor
notification  letters,  but  any  Company's  failure  to  enter  into  any  such
documentation shall not impair or affect the Receivables  Purchase in any manner
whatsoever.

                        3.      REPAYMENT OF THE LOANS.  The  Companies  (a) may
        prepay the  Obligations  from time to time in accordance  with the terms
        and provisions of the Notes (and Section 17 hereof if such prepayment is
        due  to a  termination  of  this  Agreement);  (b)  shall  repay  on the
        expiration  of the  Term (i) the then  aggregate  outstanding  principal
        balance of the Loans together with accrued and unpaid interest, fees and
        charges and; (ii) all other amounts owed

                                       3
<PAGE>

        Laurus  under  this  Agreement  and the  Ancillary  Agreements;  and (c)
        subject to Section  2(a)(ii),  shall  repay on any day on which the then
        aggregate  outstanding  principal  balance of the Loans are in excess of
        the  Formula  Amount  at such  time,  Loans in an  amount  equal to such
        excess. Any payments of principal,  interest,  fees or any other amounts
        payable  hereunder or under any Ancillary  Agreement shall be made prior
        to 12:00  noon (New York time) on the due date  thereof  in  immediately
        available funds.

                        4.      PROCEDURE  FOR  LOANS.   Company  Agent  may  by
        written  notice  request a  borrowing  of Loans prior to 12:00 noon (New
        York time) on the  Business  Day of its  request  to incur,  on the next
        Business Day, a Loan.  Together with each request for a Loan (or at such
        other  intervals as Laurus may request),  Company Agent shall deliver to
        Laurus a Borrowing  Base  Certificate  in the form of EXHIBIT B attached
        hereto,  which  shall be  certified  as true and  correct  by the  Chief
        Executive  Officer or Chief Financial  Officer of Company Agent together
        with all supporting  documentation  relating thereto. All Loans shall be
        disbursed from whichever office or other place Laurus may designate from
        time to time and shall be charged to the  Companies'  account on Laurus'
        books.  The proceeds of each Loan made by Laurus shall be made available
        to Company  Agent on the  Business  Day  following  the  Business Day so
        requested  in  accordance  with the  terms of this  Section  4 by way of
        credit to the applicable  Company's  operating  account  maintained with
        such bank as Company Agent designated to Laurus. Any and all Obligations
        due and owing  hereunder  may be charged to the  Companies'  account and
        shall constitute Loans.

                        5.      INTEREST AND PAYMENTS.

                (a)     INTEREST.

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

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

                        (iii)   Effective  upon the  occurrence  of any Event of
Default  and for so long as any  Event  of  Default  shall  be  continuing,  the
Contract Rate shall  automatically  be increased as set forth in the Notes (such
increased rate, the "DEFAULT RATE"), and all outstanding Obligations,  including
unpaid  interest,  shall continue to accrue interest from the date of such Event
of Default at the Default Rate applicable to such Obligations.

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

                                       4
<PAGE>

                        (v)     The  Companies  shall  jointly and severally pay
principal,  interest  and all  other  amounts  payable  hereunder,  or under any
Ancillary Agreement,  without any deduction whatsoever,  including any deduction
for any set-off or counterclaim.

                (b)     PAYMENTS; CERTAIN CLOSING CONDITIONS.

                        (i)     CLOSING/ANNUAL  PAYMENTS. Upon execution of this
Agreement by each Company and Laurus,  the Companies shall jointly and severally
pay to Laurus Capital  Management,  LLC a closing  payment in an amount equal to
one percent (1.00%) of the Capital  Availability  Amount.  Such payment shall be
deemed  fully  earned on the Closing  Date and shall not be subject to rebate or
proration for any reason.

                        (ii)    OVERADVANCE  PAYMENT.  Without affecting Laurus'
rights  hereunder  in the event the Loans  exceed the Formula  Amount (each such
event, an "OVERADVANCE"), all such Overadvances, other than the Overadvance made
on the date hereof , shall bear  additional  interest at a rate equal to one and
one half  percent  (1.5%) per month of the amount of such  Overadvances  for all
times such amounts  shall be in excess of the Formula  Amount.  All amounts that
are incurred  pursuant to this Section  5(b)(ii) shall be due and payable by the
Companies monthly,  in arrears, on the first business day of each calendar month
and upon expiration of the Term.

                        (iii)   FINANCIAL INFORMATION DEFAULT. Without affecting
Laurus' other rights and remedies, in the event any Company fails to deliver the
financial  information  required by Section 11 on or before the date required by
this  Agreement,  the  Companies  shall  jointly  and  severally  pay  Laurus an
aggregate  fee in the amount of $150.00 per week (or portion  thereof)  for each
such failure  until such failure is cured to Laurus'  satisfaction  or waived in
writing by Laurus.  All  amounts  that are  incurred  pursuant  to this  Section
5(b)(iii) shall be due and payable by the Companies monthly,  in arrears, on the
first business of each calendar month and upon expiration of the Term.

                        (iv)    EXPENSES.   The  Companies   shall  jointly  and
severally reimburse Laurus for its expenses (including reasonable legal fees and
expenses)  incurred in connection  with the  preparation and negotiation of this
Agreement and the Ancillary Agreements, and expenses incurred in connection with
Laurus'  due  diligence  review of each  Company  and its  Subsidiaries  and all
related matters. Amounts required to be paid under this Section 5(b)(iv) will be
paid on the Closing Date and shall be $5,000,  less any such expenses paid prior
to Closing, for such expenses referred to in this Section 5(b)(iv).

                        6.      SECURITY INTEREST.

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

                                       5
<PAGE>

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

                (c)     Each  Company  hereby  grants to Laurus an  irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement due to
an occurrence and during the  continuance of an Event of Default without payment
of royalty or other compensation to such Company) to use,  transfer,  license or
sublicense  any  Intellectual  Property  now owned,  licensed  to, or  hereafter
acquired by such Company, and wherever the same may be located, and including in
such  license  access  to all media in which  any of the  licensed  items may be
recorded or stored and to all  computer  and  automatic  machinery  software and
programs used for the compilation or printout thereof, and represents,  promises
and  agrees  that  any  such  license  or  sublicense  is not and will not be in
conflict  with  the  contractual  or  commercial  rights  of any  third  Person;
provided,  that such license will terminate on the termination of this Agreement
and the payment in full of all Obligations.

                        7.      REPRESENTATIONS,    WARRANTIES   AND   COVENANTS
        CONCERNING THE COLLATERAL.  Each Company  represents,  warrants (each of
        which such  representations and warranties shall be deemed repeated upon
        the  making of each  request  for a Loan and made as of the time of each
        and every Loan hereunder) and covenants as follows:

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

                (b)     it shall not encumber, mortgage, pledge, assign or grant
any Lien in any  Collateral  or any other assets to anyone other than Laurus and
except for Permitted  Liens.

                (c)     the  Liens  granted  pursuant  to this  Agreement,  upon
completion of the filings and other actions  listed on SCHEDULE 7(c) (which,  in
the case of all filings and other documents  referred to in said Schedule,  have
been  delivered to Laurus in duly  executed  form)  constitute  valid  perfected
security  interests in all of the  Collateral in favor of Laurus as security for
the prompt and complete payment and performance of the Obligations,  enforceable
in  accordance  with the terms hereof  against any and all of its  creditors and
purchasers  and such security  interest is prior to all other Liens in existence
on the date hereof.

                                       6
<PAGE>

                (d)     no  effective  security  agreement,  mortgage,  deed  of
trust,   financing   statement,   equivalent  security  or  Lien  instrument  or
continuation  statement covering all or any part of the Collateral is or will be
on file or of record in any public  office,  except those  relating to Permitted
Liens.

                (e)     it shall not dispose of any of the Collateral whether by
sale, lease or otherwise except for the sale of Inventory in the ordinary course
of  business  and for the  disposition  or transfer  in the  ordinary  course of
business  during any fiscal year of obsolete  and worn-out  Equipment  having an
aggregate  fair market  value of not more than  $100,000  and only to the extent
that (i) the proceeds of any such  disposition  are used to acquire  replacement
Equipment  which is subject to Laurus' first priority  security  interest or are
used to repay Loans or to pay general corporate expenses,  or (ii) following the
occurrence of an Event of Default which continues to exist the proceeds of which
are remitted to Laurus to be held as cash collateral for the Obligations.

                (f)     it shall defend the right,  title and interest of Laurus
in  and to  the  Collateral  against  the  claims  and  demands  of all  Persons
whomsoever,  and take such actions, including (i) all actions necessary to grant
Laurus "control" of any Investment Property, Deposit Accounts,  Letter-of-Credit
Rights or electronic Chattel Paper owned by it, with any agreements establishing
control to be in form and substance satisfactory to Laurus, (ii) the prompt (but
in no event  later  than  five  (5)  Business  Days  following  Laurus'  request
therefor)  delivery  to  Laurus  of all  original  Instruments,  Chattel  Paper,
negotiable  Documents  and  certificated  Stock  owned  by  it  (in  each  case,
accompanied by stock powers,  allonges or other instruments of transfer executed
in blank),  (iii)  notification  of Laurus'  interest in  Collateral  at Laurus'
request,  and (iv) the institution of litigation  against third parties as shall
be prudent in order to protect and preserve its and/or  Laurus'  respective  and
several  interests in the Collateral.

                (g)     it shall  promptly,  and in any  event  within  five (5)
Business Days after the same is acquired by it, notify Laurus of any  commercial
tort claim (as defined in the UCC) acquired by it and unless otherwise consented
by Laurus, it shall enter into a supplement to this Agreement granting to Laurus
a Lien in such commercial tort claim.

                (h)     it shall place  notations upon its Books and Records and
any of its financial statements to disclose Laurus' Lien in the Collateral.

                (i)     if  it  retains  possession  of  any  Chattel  Paper  or
Instrument  with Laurus'  consent,  upon Laurus'  request such Chattel Paper and
Instruments  shall be  marked  with the  following  legend:  "This  writing  and
obligations  evidenced or secured hereby are subject to the security interest of
Laurus Master Fund,  Ltd."  Notwithstanding  the foregoing,  upon the reasonable
request of Laurus,  such  Chattel  Paper and  Instruments  shall be delivered to
Laurus.

                (j)     it shall  perform in a  reasonable  time all other steps
requested  by Laurus to create and maintain in Laurus'  favor a valid  perfected
first Lien in all  Collateral  subject  only to  Permitted  Liens.

                (k)     it shall notify Laurus  promptly and in any event within
three (3) Business Days after  obtaining  knowledge  thereof (i) of any event or
circumstance that, to its knowledge,

                                       7
<PAGE>

would  cause  Laurus  to  consider  any  then  existing  Account  as  no  longer
constituting an Eligible Account;  (ii) of any material delay in its performance
of any of its obligations to any Account  Debtor;  (iii) of any assertion by any
Account Debtor of any material  claims,  offsets or  counterclaims;  (iv) of any
allowances,  credits and/or monies granted by it to any Account  Debtor;  (v) of
all  material  adverse  information  relating to the  financial  condition of an
Account  Debtor;  (vi) of any material  return of goods;  and (vii) of any loss,
damage or destruction of any of the  Collateral.

                (l)     all Eligible  Accounts (i) represent  complete bona fide
transactions which require no further act under any circumstances on its part to
make such Accounts payable by the Account  Debtors,  (ii) are not subject to any
present, future contingent offsets or counterclaims,  and (iii) do not represent
bill and hold sales,  consignment  sales,  guaranteed  sales,  sale or return or
other similar  understandings  or  obligations of any Affiliate or Subsidiary of
such Company.  It has not made, nor will it make, any agreement with any Account
Debtor for any extension of time for the payment of any Account,  any compromise
or settlement for less than the full amount thereof,  any release of any Account
Debtor from liability therefor,  or any deduction therefrom except a discount or
allowance  for prompt or early payment  allowed by it in the ordinary  course of
its business consistent with historical practice and as previously  disclosed to
Laurus in writing.

                (m)     it  shall  keep  and  maintain  its  Equipment  in  good
operating  condition,  except  for  ordinary  wear and tear,  and shall make all
necessary  repairs  and  replacements  thereof  so that the value and  operating
efficiency  shall at all times be maintained and preserved.  It shall not permit
any such  items to  become a  Fixture  to real  estate  or  accessions  to other
personal property.

                (n)     it shall  maintain and keep all of its Books and Records
concerning the Collateral at its executive offices listed in SCHEDULE 12(aa).

                (o)     it shall  maintain and keep the tangible  Collateral  at
the  addresses  listed in  SCHEDULE  12(bb),  provided,  that it may change such
locations  or open a new  location,  provided  that it provides  Laurus at least
thirty (30) days prior  written  notice of such changes or new location and (ii)
prior to such  change or opening of a new  location  where  Collateral  having a
value of more than $100,000 will be located,  it executes and delivers to Laurus
such  agreements  deemed  reasonably  necessary or prudent by Laurus,  including
landlord agreements, mortgagee agreements and warehouse agreements, each in form
and substance satisfactory to Laurus, to adequately protect and maintain Laurus'
security interest in such Collateral.

                (p)     SCHEDULE  7(p)  lists  all  banks  and  other  financial
institutions  at which it maintains  deposits  and/or other  accounts,  and such
Schedule  correctly  identifies the name,  address and telephone  number of each
such  depository,  the name in which the account is held, a  description  of the
purpose of the account,  and the complete account number. It shall not establish
any depository or other bank account with any financial  institution (other than
the accounts set forth on SCHEDULE 7(p)) without Laurus' prior written consent.

                                       8
<PAGE>

                        8.      PAYMENT OF ACCOUNTS.

                (a)     Each Company will irrevocably  direct all of its present
and  future  Account  Debtors  and  other  Persons  obligated  to make  payments
constituting  Collateral  to  make  such  payments  directly  to  the  lockboxes
maintained by such Company (the "LOCKBOXES") with Wells Fargo Bank or such other
financial  institution  accepted by Laurus in writing as may be selected by such
Company (the  "LOCKBOX  BANK")  pursuant to the terms of the certain  agreements
among one or more Companies,  Laurus and/or the Lockbox Bank dated as of July 5,
2005.  On or prior to the Closing  Date,  each Company shall and shall cause the
Lockbox Bank to enter into all such documentation  acceptable to Laurus pursuant
to which,  among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox
on a  daily  basis  and  deposit  all  checks  received  therein  to an  account
designated  by Laurus in writing  and (b) comply only with the  instructions  or
other  directions  of  Laurus  concerning  the  Lockbox.  All of each  Company's
invoices, account statements and other written or oral communications directing,
instructing,  demanding or  requesting  payment of any Account of any Company or
any other amount  constituting  Collateral shall  conspicuously  direct that all
payments  be made to the  Lockbox or such other  address as Laurus may direct in
writing.  If,  notwithstanding the instructions to Account Debtors,  any Company
receives any  payments,  such Company shall  immediately  remit such payments to
Laurus  in  their  original  form  with  all  necessary  endorsements.  Until so
remitted,  such  Company  shall hold all such  payments  in trust for and as the
property of Laurus and shall not  commingle  such payments with any of its other
funds or property.

                (b)     At Laurus'  election,  following  the  occurrence  of an
Event of Default which is continuing,  Laurus may notify each Company's  Account
Debtors of Laurus' security interest in the Accounts,  collect them directly and
charge the collection  costs and expenses  thereof to Company's and the Eligible
Subsidiaries joint and several account.

                        9.      COLLECTION AND MAINTENANCE OF COLLATERAL.

                (a)     Laurus may verify each  Company's  Accounts from time to
time,  but not more often than once every three (3)  months,  unless an Event of
Default has occurred and is  continuing,  utilizing an audit control  company or
any other agent of Laurus.

                (b)     Proceeds of  Accounts  received by Laurus will be deemed
received on the  Business  Day after  Laurus'  receipt of such  proceeds in good
funds in  dollars of the United  States of America to an account  designated  by
Laurus.  Any amount  received by Laurus  after 12:00 noon (New York time) on any
Business Day shall be deemed received on the next Business Day.

                (c)     As Laurus  receives  the  proceeds  of  Accounts  of any
Company, it shall (i) apply such proceeds,  as required,  to amounts outstanding
under the Notes,  and (ii) remit all such  remaining  proceeds (net of interest,
fees and other amounts then due and owing to Laurus  hereunder) to Company Agent
(for the benefit of the  applicable  Companies)  upon request (but no more often
than twice a week). Notwithstanding the foregoing,  following the occurrence and
during the continuance of an Event of Default,  Laurus,  at its option,  may (a)
apply such proceeds to the Obligations in such order as Laurus shall elect,  (b)
hold all such proceeds as cash  collateral for the  Obligations and each Company
hereby grants to Laurus a security  interest in such cash collateral  amounts as
security for the Obligations and/or (c) do any combination of the foregoing.

                                       9
<PAGE>

                        10.     INSPECTIONS AND APPRAISALS.  At all times during
        normal business hours, Laurus, and/or any agent of Laurus shall have the
        right to (a) have access to, visit, inspect,  review,  evaluate and make
        physical  verification  and appraisals of each Company's  properties and
        the  Collateral,  (b)  inspect,  audit  and copy (or take  originals  if
        necessary)  and make  extracts  from each  Company's  Books and Records,
        including  management  letters  prepared  by the  Accountants,  and  (c)
        discuss  with  each  Company's   directors,   principal  officers,   and
        independent accountants,  each Company's business, assets,  liabilities,
        financial condition,  results of operations and business prospects. Each
        Company will deliver to Laurus any  instrument  necessary  for Laurus to
        obtain  records  from any service  bureau  maintaining  records for such
        Company.  If any internally  prepared financial  information,  including
        that  required  under this  Section is  unsatisfactory  in any manner to
        Laurus, Laurus may request that the Accountants review the same.

                        11.     FINANCIAL REPORTING. Company Agent will deliver,
        or cause to be delivered,  to Laurus each of the following,  which shall
        be in form and detail acceptable to Laurus:

                (a)     As soon as  available,  and in any event  within  ninety
(90) days after the end of each fiscal year of the Parent, or within the maximum
time period for filing with the SEC allowable by law (whichever is greater) each
Company's  audited financial  statements with a report of independent  certified
public accountants of recognized  standing selected by the Parent and acceptable
to Laurus  (the  "ACCOUNTANTS"),  which  annual  financial  statements  shall be
without  qualification  and shall include each Company's balance sheet as at the
end of such fiscal year and the related  statements  of each  Company's  income,
retained  earnings and cash flows for the fiscal year then ended,  prepared,  if
Laurus so requests,  on a consolidating  and  consolidated  basis to include all
Subsidiaries  and  Affiliates  of each  Company,  all in  reasonable  detail and
prepared  in  accordance  with GAAP,  together  with (i) if and when  available,
copies  of any  management  letters  prepared  by the  Accountants;  and  (ii) a
certificate  of  the  Parent's  President,  Chief  Executive  Officer  or  Chief
Financial  Officer stating that such financial  statements have been prepared in
accordance  with GAAP and  whether  or not such  officer  has  knowledge  of the
occurrence of any Default or Event of Default  hereunder  and, if so, stating in
reasonable  detail the facts with respect thereto;

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

                                       10
<PAGE>

                (c)     Within  thirty (30) days after the end of each month (or
more  frequently  if Laurus,  in the exercise of its  reasonable  discretion  so
requests), agings of each Company's Accounts, unaudited trial balances and their
accounts payable and a calculation of each Company's Accounts, Eligible Accounts
and each Company's monthly unaudited financial  statements,  provided,  however,
that if Laurus shall  request the foregoing  information  more often than as set
forth in the immediately  preceding clause,  each Company shall have thirty (30)
days from each such request to comply with Laurus' demand; and

                (d)     Promptly  after (i) the  filing  thereof,  copies of the
Parent's most recent registration statements and annual,  quarterly,  monthly or
other regular  reports which the Parent files with the  Securities  and Exchange
Commission (the "SEC"), and (ii) the issuance thereof,  copies of such financial
statements,  reports  and  proxy  statements  as the  Parent  shall  send to its
stockholders.

                        12.     ADDITIONAL REPRESENTATIONS AND WARRANTIES.  Each
        Company  hereby  represents  and  warrants  to  Laurus as  follows:

                (a)     ORGANIZATION,  GOOD STANDING AND  QUALIFICATION.  It and
each of its  Subsidiaries  is a corporation,  partnership  or limited  liability
company,  as the case  may be,  duly  organized,  validly  existing  and in good
standing under the laws of its jurisdiction of organization.  It and each of its
Subsidiaries has the corporate, limited liability company or partnership, as the
case may be, power and  authority to own and operate its  properties  and assets
and,  insofar as it is or shall be a party  thereto,  to (i) execute and deliver
this Agreement and the Ancillary  Agreements,  (ii) to issue the Options and the
shares of Common  Stock  issuable  upon  exercise  of the  Option  (the  "OPTION
SHARES"),  and to (iii)  carry  out the  provisions  of this  Agreement  and the
Ancillary Agreements and to carry on its business as presently conducted. It and
each of its  Subsidiaries is duly qualified and is authorized to do business and
is in good standing as a foreign  corporation,  partnership or limited liability
company,  as the case  may be,  in all  jurisdictions  in which  the  nature  or
location of its activities  and of its properties  (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not had, or could not reasonably be expected to have,  individually or
in the aggregate, a Material Adverse Effect.

                (b)     SUBSIDIARIES.   Each   of  its   direct   and   indirect
Subsidiaries,  the  direct  owner of each  such  Subsidiary  and its  percentage
ownership thereof, is set forth on SCHEDULE 12(b).

                (c)     CAPITALIZATION; VOTING RIGHTS.

                        (i)     The authorized  capital stock of the Parent,  as
of the date hereof  consists of 205,000,000  shares,  of which  200,000,000  are
shares of Common Stock,  par value $.001 per share,  13,326,810  shares of which
are issued and  outstanding,  and  5,000,000 are shares of preferred  stock,  of
which  2,500,000 have been  designated as Series A, par value $.001 per share of
which  2,466,971  shares are issued and  outstanding.  The  remaining  2,500,000
shares of preferred stock have not been designated.  The authorized,  issued and
outstanding  capital  stock of each  Subsidiary  of each Company is set forth on
SCHEDULE 12(c).

                                       11
<PAGE>

                        (ii)    Except as  disclosed  on SCHEDULE  12(c),  other
than:  (i) the shares  reserved  for issuance  under the  Parent's  stock option
plans;  and (ii) shares which may be issued  pursuant to this  Agreement and the
Ancillary  Agreements,  there  are  no  outstanding  options,  warrants,  rights
(including  conversion or preemptive rights and rights of first refusal),  proxy
or stockholder  agreements,  or  arrangements  or agreements of any kind for the
purchase  or  acquisition  from the Parent of any of its  securities.  Except as
disclosed on SCHEDULE 12(c), neither the offer or issuance of the Options or the
Option Shares, nor the consummation of any transaction  contemplated hereby will
result  in a change  in the price or  number  of any  securities  of the  Parent
outstanding,  under  anti-dilution or other similar  provisions  contained in or
affecting any such securities.

                        (iii)   All  issued  and   outstanding   shares  of  the
Parent's Common Stock:  (i) have been duly authorized and validly issued and are
fully  paid and  nonassessable;  and (ii)  were  issued in  compliance  with all
applicable state and federal laws concerning the issuance of securities.

                        (iv)    The   rights,   preferences,    privileges   and
restrictions  of the  shares of the Common  Stock are as stated in the  Parent's
Certificate of Incorporation  (the "CHARTER").  The Option Shares have been duly
and validly reserved for issuance. When issued in compliance with the provisions
of this  Agreement  and the Parent's  Charter,  the  Securities  will be validly
issued,  fully  paid  and  nonassessable,  and  will  be free  of any  liens  or
encumbrances;   PROVIDED,  HOWEVER,  that  the  Securities  may  be  subject  to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.

                (d)     AUTHORIZATION;   BINDING  OBLIGATIONS.   All  corporate,
partnership or limited liability company,  as the case may be, action on its and
its  Subsidiaries'  part  (including  their  respective  officers and directors)
necessary for the authorization of this Agreement and the Ancillary  Agreements,
the performance of all of its and its  Subsidiaries'  obligations  hereunder and
under the  Ancillary  Agreements  on the Closing  Date and,  the  authorization,
issuance  and  delivery  of the Notes and the  Option  has been taken or will be
taken prior to the Closing Date.  This  Agreement and the Ancillary  Agreements,
when executed and delivered and to the extent it is a party thereto, will be its
and its Subsidiaries'  valid and binding  obligations  enforceable  against each
such Person in accordance with their terms, except:

                        (i)     as limited by applicable bankruptcy, insolvency,
reorganization,  moratorium  or  other  laws of  general  application  affecting
enforcement  of creditors'  rights;  and

                        (ii)    general  principles  of equity that restrict the
availability of equitable or legal remedies.

The  issuance  of the  Options  and the  subsequent  exercise of the Options for
Option Shares are not and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with.

                                       12
<PAGE>

                (e)     LIABILITIES.  Neither it nor any of its Subsidiaries has
any liabilities,  except current liabilities  incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.

                (f)     AGREEMENTS;  ACTION.  Except  as set  forth on  SCHEDULE
12(f) or as disclosed in any Exchange Act Filings:

                        (i)     There   are   no   agreements,   understandings,
instruments,  contracts,  proposed  transactions,  judgments,  orders,  writs or
decrees to which it or any of its Subsidiaries is a party or to its knowledge by
which it is bound which may involve:  (i) obligations  (contingent or otherwise)
of, or payments to, it or any of its  Subsidiaries  in excess of $100,000 (other
than obligations of, or payments to, it or any of its Subsidiaries  arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the  transfer or license of any patent,  copyright,  trade  secret or other
proprietary  right to or from it (other than licenses  arising from the purchase
of "off the shelf" or other standard products);  or (iii) provisions restricting
the development,  manufacture or distribution of its or any of its Subsidiaries'
products or services;  or (iv)  indemnification by it or any of its Subsidiaries
with respect to infringements of proprietary rights.

                        (ii)    Since  December  31,  2004 (the  "BALANCE  SHEET
DATE")  neither it nor any of its  Subsidiaries  has:  (i)  declared or paid any
dividends,  or authorized or made any  distribution  upon or with respect to any
class or series of its capital  stock;  (ii) other than the  Company's  debts to
Wells Fargo Bank and Alfred Curmi,  incurred any indebtedness for money borrowed
or any other liabilities (other than ordinary course  obligations)  individually
in  excess  of  $100,000  or,  in the case of  indebtedness  and/or  liabilities
individually less than $100,000,  in excess of $100,000 in the aggregate;  (iii)
made any loans or advances to any Person not in excess,  individually  or in the
aggregate,  of $100,000,  other than ordinary  advances for travel expenses;  or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its Inventory in the ordinary course of business.

                        (iii)   For the purposes of subsections  (i) and (ii) of
this Section 12(f), all indebtedness,  liabilities, agreements,  understandings,
instruments,  contracts  and  proposed  transactions  involving  the same Person
(including  Persons  it or any of its  applicable  Subsidiaries  has  reason  to
believe  are  affiliated  therewith  or with any  Subsidiary  thereof)  shall be
aggregated for the purpose of meeting the  individual  minimum dollar amounts of
such subsections.

                        (iv)    the Parent  maintains  disclosure  controls  and
procedures  ("DISCLOSURE CONTROLS") designed to ensure that information required
to be disclosed by the Parent in the reports that it files or submits  under the
Exchange Act is recorded,  processed,  summarized, and reported, within the time
periods specified in the rules and forms of the SEC.

                        (v)     The Parent makes and keeps books,  records,  and
accounts,  that,  in  reasonable  detail,  accurately  and  fairly  reflect  the
transactions and dispositions of its assets. It maintains  internal control over
financial reporting  ("FINANCIAL  REPORTING CONTROLS") designed by, or under the
supervision of, its principal executive and principal  financial  officers,  and
effected by its board of directors,  management, and other personnel, to provide
reasonable assurance

                                       13
<PAGE>

regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial  statements for external  purposes in accordance with GAAP,  including
that:

                                (1)     transactions  are executed in accordance
with management's general or specific authorization;

                                (2)     unauthorized   acquisition,    use,   or
disposition  of the  Parent's  assets  that could have a material  effect on the
financial statements are prevented or timely detected;

                                (3)     transactions  are  recorded as necessary
to permit preparation of financial  statements in accordance with GAAP, and that
its  receipts  and   expenditures   are  being  made  only  in  accordance  with
authorizations of the Parent's management and board of directors;

                                (4)     transactions  are  recorded as necessary
to maintain accountability for assets; and

                                (5)     the recorded  accountability  for assets
is compared with the existing  assets at reasonable  intervals,  and appropriate
action is taken with respect to any differences.

                        (vi)    There is no  weakness  in any of its  Disclosure
Controls or Financial Reporting Controls that is required to be disclosed in any
of the Exchange Act Filings, except as so disclosed.

                (g)     OBLIGATIONS TO RELATED  PARTIES.  Except as set forth on
SCHEDULE 12(G),  neither it nor any of its  Subsidiaries  has any obligations to
their respective officers, directors, stockholders or employees other than:

                        (i)     for payment of salary for services  rendered and
for bonus payments;

                        (ii)    reimbursement  for reasonable  expenses incurred
on its or its Subsidiaries' behalf;

                        (iii)   for  other  standard   employee   benefits  made
generally  available  to  all  employees   (including  stock  option  agreements
outstanding  under any stock option plan  approved by its and its  Subsidiaries'
Board of Directors, as applicable); and

                        (iv)    obligations  listed  in  its  and  each  of  its
Subsidiary's  financial  statements or disclosed in any of the Parent's Exchange
Act Filings.

Except as described above or set forth on SCHEDULE 12(g),  none of its officers,
directors or, to the best of its knowledge,  key employees or stockholders,  any
of its Subsidiaries or any members of their immediate families,  are indebted to
it or any of its  Subsidiaries,  individually or in the aggregate,  in excess of
$100,000  or have any direct or indirect  ownership  interest in any Person with
which it or any of its Subsidiaries is affiliated or with which it or any of its
Subsidiaries has

                                       14
<PAGE>

a business  relationship,  or any Person  which  competes  with it or any of its
Subsidiaries,  other than  passive  investments  in  publicly  traded  companies
(representing less than one percent (1%) of such company) which may compete with
it or any of its Subsidiaries.  Except as described above, none of its officers,
directors  or  stockholders,  or any  member of their  immediate  families,  is,
directly or  indirectly,  interested in any material  contract with it or any of
its Subsidiaries and no agreements,  understandings or proposed transactions are
contemplated  between it or any of its Subsidiaries and any such Person.  Except
as set forth on  SCHEDULE  12(g),  neither it nor any of its  Subsidiaries  is a
guarantor or indemnitor of any indebtedness of any other Person.

                (h)     CHANGES.   Since  the  Balance  Sheet  Date,  except  as
disclosed in any Exchange Act Filing or in any Schedule to this  Agreement or to
any of the Ancillary  Agreements,  there has not been:

                        (i)     any  change  in its or any of its  Subsidiaries'
business, assets, liabilities,  condition (financial or otherwise),  properties,
operations or prospects,  which,  individually or in the aggregate,  has had, or
could reasonably be expected to have, a Material Adverse Effect;

                        (ii)    any  resignation or termination of any of its or
its Subsidiaries' officers, key employees or groups of employees;

                        (iii)   any  material  change,  except  in the  ordinary
course of business, in its or any of its Subsidiaries' contingent obligations by
way of guaranty, endorsement, indemnity, warranty or otherwise;

                        (iv)    any damage,  destruction or loss, whether or not
covered by  insurance,  which has had, or could  reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;

                        (v)     any waiver by it or any of its Subsidiaries of a
valuable right or of a material debt owed to it;

                        (vi)    any direct or indirect material loans made by it
or  any  of its  Subsidiaries  to  any  of  its  or  any  of  its  Subsidiaries'
stockholders,  employees, officers or directors, other than advances made in the
ordinary course of business;

                        (vii)   any   material   change   in  any   compensation
arrangement or agreement with any employee, officer, director or stockholder;

                        (viii)  any  declaration  or payment of any  dividend or
other  distribution of its or any of its  Subsidiaries'  assets;

                        (ix)    any labor organization activity related to it or
any of its Subsidiaries;

                        (x)     any  debt,  obligation  or  liability  incurred,
assumed  or  guaranteed  by it or any  of its  Subsidiaries,  except  those  for
immaterial amounts and for current  liabilities  incurred in the ordinary course
of business;

                                       15
<PAGE>

                        (xi)    any  sale,   assignment   or   transfer  of  any
Intellectual Property or other intangible assets;

                        (xii)   any change in any material agreement to which it
or any of its  Subsidiaries  is a  party  or by  which  either  it or any of its
Subsidiaries is bound which, either  individually or in the aggregate,  has had,
or could  reasonably be expected to have,  individually  or in the aggregate,  a
Material Adverse Effect;

                        (xiii)  any other event or  condition  of any  character
that, either  individually or in the aggregate,  has had, or could reasonably be
expected to have,  individually or in the aggregate,  a Material Adverse Effect;
or

                        (xiv)   any  arrangement  or  commitment by it or any of
its  Subsidiaries  to do any of the acts  described  in  subsection  (i) through
(xiii) of this Section 12(h).

                (i)     TITLE TO PROPERTIES AND ASSETS;  LIENS,  ETC.  Except as
set  forth  on  SCHEDULE  12(i),  it and each of its  Subsidiaries  has good and
marketable  title to their respective  properties and assets,  and good title to
its leasehold  interests,  in each case subject to no Lien, other than Permitted
Liens.

All facilities, Equipment, Fixtures, vehicles and other properties owned, leased
or used by it or any of its  Subsidiaries  are in good  operating  condition and
repair and are  reasonably  fit and usable for the  purposes  for which they are
being  used.  Except  as  set  forth  on  SCHEDULE  12(i),  it and  each  of its
Subsidiaries  is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.

                (j)     INTELLECTUAL PROPERTY.

                        (i)     It  and  each  of  its   Subsidiaries   owns  or
possesses  sufficient  legal rights to all Intellectual  Property  necessary for
their respective  businesses as now conducted and, to its knowledge as presently
proposed  to be  conducted,  without  any known  infringement  of the  rights of
others.  There are no  outstanding  options,  licenses or agreements of any kind
relating to its or any of its Subsidiary's  Intellectual  Property, nor is it or
any of  its  Subsidiaries  bound  by or a  party  to any  options,  licenses  or
agreements  of any kind with respect to the  Intellectual  Property of any other
Person other than such licenses or agreements  arising from the purchase of "off
the shelf" or standard products.

                        (ii)    Neither  it  nor  any of  its  Subsidiaries  has
received any  communications  alleging  that it or any of its  Subsidiaries  has
violated any of the  Intellectual  Property or other  proprietary  rights of any
other Person, nor is it or any of its Subsidiaries aware of any basis therefor.

                        (iii)   Neither it nor any of its Subsidiaries  believes
it is or  will  be  necessary  to  utilize  any  inventions,  trade  secrets  or
proprietary  information of any of its employees made prior to their  employment
by it or any of its  Subsidiaries,  except  for  inventions,  trade  secrets  or
proprietary  information that have been rightfully  assigned to it or any of its
Subsidiaries.

                                       16
<PAGE>

                (k)     COMPLIANCE WITH OTHER INSTRUMENTS. Neither it nor any of
its  Subsidiaries  is in  violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or  instrument  to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause  (y),  has  had,  or  could  reasonably  be  expected  to  have,   either
individually  or in the aggregate,  a Material  Adverse  Effect.  The execution,
delivery and performance of and compliance with this Agreement and the Ancillary
Agreements  to which it is a party,  and the issuance of the Notes and the other
Securities  each  pursuant  hereto and  thereto,  will not,  with or without the
passage of time or giving of notice,  result in any such material violation,  or
be in conflict with or constitute a default under any such term or provision, or
result in the  creation  of any Lien upon any of its or any of its  Subsidiary's
properties or assets or the suspension,  revocation,  impairment,  forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to it or
any of its  Subsidiaries,  their businesses or operations or any of their assets
or properties.

                (l)     LITIGATION. Except as set forth on SCHEDULE 12(l), there
is no action,  suit,  proceeding or investigation  pending or, to its knowledge,
currently  threatened  against it or any of its Subsidiaries that prevents it or
any of its  Subsidiaries  from  entering  into this  Agreement or the  Ancillary
Agreements,  or  from  consummating  the  transactions  contemplated  hereby  or
thereby,  or which has had, or could  reasonably  be  expected  to have,  either
individually or in the aggregate,  a Material Adverse Effect, or could result in
any change in its or any of its Subsidiaries'  current equity ownership,  nor is
it aware that there is any basis to assert any of the foregoing.  Neither it nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ,  injunction,  judgment  or  decree of any  court or  government  agency or
instrumentality.  There is no action, suit, proceeding or investigation by it or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends  to  initiate.

                (m)     TAX   RETURNS   AND   PAYMENTS.   It  and  each  of  its
Subsidiaries  has  timely  filed all tax  returns  (federal,  state  and  local)
required  to be filed by it.  All  taxes  shown  to be due and  payable  on such
returns,  any assessments imposed, and all other taxes due and payable by it and
each of its  Subsidiaries  on or before the Closing Date, have been paid or will
be paid  prior  to the time  they  become  delinquent.  Except  as set  forth on
SCHEDULE 12(m),  neither it nor any of its  Subsidiaries  has been advised:

                        (i)     that  any  of its  returns,  federal,  state  or
other, have been or are being audited as of the date hereof; or

                        (ii)    of any  adjustment,  deficiency,  assessment  or
court decision in respect of its federal, state or other taxes.

Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not  adequately  provided  for.

                (n)     EMPLOYEES.  Except  as  set  forth  on  SCHEDULE  12(n),
neither it nor any of its Subsidiaries has any collective  bargaining agreements
with any of its employees.  There is no labor union organizing  activity pending
or, to its knowledge,  threatened with respect to it or any of its Subsidiaries.
Except as disclosed in the Exchange Act Filings or on SCHEDULE 12(n),

                                       17
<PAGE>

neither it nor any of its  Subsidiaries  is a party to or bound by any currently
effective material employment contract, deferred compensation arrangement, bonus
plan,  incentive  plan,  profit  sharing  plan,  retirement  agreement  or other
employee compensation plan or agreement. To its knowledge, none of its or any of
its  Subsidiaries'  employees,  nor any  consultant  with  whom it or any of its
Subsidiaries  has  contracted,  is in  violation  of any term of any  employment
contract,  proprietary  information agreement or any other agreement relating to
the right of any such  individual to be employed by, or to contract  with, it or
any of its Subsidiaries because of the nature of the business to be conducted by
it or any of its Subsidiaries;  and to its knowledge the continued employment by
it and its Subsidiaries of their present  employees,  and the performance of its
and its Subsidiaries contracts with its independent contractors, will not result
in any such violation.  Neither it nor any of its Subsidiaries is aware that any
of its or any of its  Subsidiaries'  employees is  obligated  under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or  subject  to any  judgment,  decree or order of any  court or  administrative
agency that would interfere with their duties to it or any of its  Subsidiaries.
Neither it nor any of its Subsidiaries has received any notice alleging that any
such violation has occurred.  Except for employees who have a current  effective
employment  agreement with it or any of its Subsidiaries,  none of its or any of
its Subsidiaries'  employees has been granted the right to continued  employment
by it or any of its  Subsidiaries  or to  any  material  compensation  following
termination  of  employment  with it or any of its  Subsidiaries.  Except as set
forth on SCHEDULE  12(n),  neither it nor any of its  Subsidiaries is aware that
any officer, key employee or group of employees intends to terminate his, her or
their employment with it or any of its Subsidiaries,  as applicable, nor does it
or any of its Subsidiaries  have a present intention to terminate the employment
of any officer, key employee or group of employees.

                (o)     REGISTRATION  RIGHTS  AND VOTING  RIGHTS.  Except as set
forth on SCHEDULE 12(o) and except as disclosed in Exchange Act Filings, neither
it nor any of its Subsidiaries is presently under any obligation, and neither it
nor any of its  Subsidiaries  has granted any rights,  to register any of its or
any  of  its  Subsidiaries'  presently  outstanding  securities  or  any  of its
securities  that may hereafter be issued.  Except as set forth on SCHEDULE 12(o)
and except as disclosed in Exchange Act Filings,  to its knowledge,  none of its
or any of its  Subsidiaries'  stockholders  has entered into any agreement  with
respect to its or any of its Subsidiaries' voting of equity securities.

                (p)     COMPLIANCE WITH LAWS; PERMITS. Neither it nor any of its
Subsidiaries  is in  violation  of the  Sarbanes-Oxley  Act of  2002  or any SEC
related  regulation  or rule or any  rule of the  Principal  Market  promulgated
thereunder  or  any  other  applicable  statute,  rule,  regulation,   order  or
restriction  of any domestic or foreign  government  or any  instrumentality  or
agency thereof in respect of the conduct of its business or the ownership of its
properties  which has had,  or could  reasonably  be  expected  to have,  either
individually or in the aggregate,  a Material  Adverse  Effect.  No governmental
orders,  permissions,  consents,  approvals or authorizations are required to be
obtained  and no  registrations  or  declarations  are  required  to be filed in
connection  with the execution  and delivery of this  Agreement or any Ancillary
Agreement  and the issuance of any of the  Securities,  except such as have been
duly and validly  obtained or filed, or with respect to any filings that must be
made after the Closing Date, as will be filed in a timely manner. It and each of
its Subsidiaries has all material franchises,  permits, licenses and any similar
authority  necessary  for the conduct of its business as now being  conducted by
it, the lack

                                       18
<PAGE>

of which could, either individually or in the aggregate,  reasonably be expected
to have a Material Adverse Effect.

                (q)     ENVIRONMENTAL AND SAFETY LAWS. Neither it nor any of its
Subsidiaries  is in  violation  of any  applicable  statute,  law or  regulation
relating  to the  environment  or  occupational  health and  safety,  and to its
knowledge,  no material  expenditures are or will be required in order to comply
with any such  existing  statute,  law or  regulation.  Except  as set  forth on
SCHEDULE 12(q), no Hazardous  Materials (as defined below) are used or have been
used,  stored,  or  disposed  of by it or  any of its  Subsidiaries  or,  to its
knowledge,  by any other Person on any property  owned,  leased or used by it or
any of its Subsidiaries.  For the purposes of the preceding sentence, "HAZARDOUS
MATERIALS" shall mean:

                        (i)     materials which are listed or otherwise  defined
as  "hazardous"  or "toxic" under any applicable  local,  state,  federal and/or
foreign  laws and  regulations  that  govern  the  existence  and/or  remedy  of
contamination on property, the protection of the environment from contamination,
the  control  of  hazardous  wastes,  or other  activities  involving  hazardous
substances, including building materials; and

                        (ii)    any petroleum products or nuclear materials.

                (r)     VALID   OFFERING.   Assuming   the   accuracy   of   the
representations and warranties of Laurus contained in this Agreement,  the offer
and issuance of the Securities will be exempt from the registration requirements
of the Securities Act of 1933, as amended (the "SECURITIES  ACT"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration,  permit or qualification  requirements of all applicable
state securities laws.

                (s)     FULL  DISCLOSURE.  It and each of its  Subsidiaries  has
provided  Laurus with all  information  requested by Laurus in  connection  with
Laurus'  decision to enter into this Agreement,  including all information  each
Company  and its  Subsidiaries  believe  is  reasonably  necessary  to make such
investment  decision.  Neither this Agreement,  the Ancillary Agreements nor the
exhibits and schedules hereto and thereto nor any other document delivered by it
or any of its  Subsidiaries  to Laurus or its  attorneys or agents in connection
herewith or therewith or with the transactions  contemplated  hereby or thereby,
contain  any untrue  statement  of a material  fact nor omit to state a material
fact necessary in order to make the statements  contained herein or therein,  in
light of the circumstances in which they are made, not misleading. Any financial
projections  and  other  estimates  provided  to  Laurus  by it or  any  of  its
Subsidiaries were based on its and its Subsidiaries'  experience in the industry
and on  assumptions  of fact and opinion as to future  events which it or any of
its Subsidiaries,  at the date of the issuance of such projections or estimates,
believed to be reasonable.

                (t)     INSURANCE.  It and each of its  Subsidiaries has general
commercial,  product  liability,  fire  and  casualty  insurance  policies  with
coverages which it believes are customary for companies similarly situated to it
and its Subsidiaries in the same or similar business.

                (u)     SEC  REPORTS  AND  FINANCIAL  STATEMENTS.  Except as set
forth on SCHEDULE  12(u),  it and each of its  Subsidiaries  has filed all proxy
statements, reports and other

                                       19
<PAGE>

documents required to be filed by it under the Exchange Act. The Parent has made
available to Laurus:  (i) its Annual  Report on Form 10-KSB for its fiscal years
ended December 31, 2004;  and (ii) its Quarterly  Reports on Form 10-QSB for its
fiscal  quarters ended March 31, 2005,  June 30, 2005 and September 30, 2005 and
the Form 8-K  filings  which it has made  during  its  fiscal  year 2005 to date
(collectively,  the "SEC REPORTS").  Except as set forth on SCHEDULE 12(u), each
SEC Report was, at the time of its filing,  in substantial  compliance  with the
requirements  of its  respective  form  and  none  of the SEC  Reports,  nor the
financial  statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact  required to be stated  therein or necessary
to make the statements  therein,  in light of the circumstances under which they
were made,  not  misleading.  Such  financial  statements  have been prepared in
accordance with GAAP applied on a consistent  basis during the periods  involved
(except (i) as may be otherwise  indicated in such  financial  statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include  footnotes or may be condensed)  and fairly  present in all
material  respects the financial  condition,  the results of operations and cash
flows of the Parent and its  Subsidiaries,  on a consolidated  basis, as of, and
for, the periods presented in each such SEC Report.

                (v)     LISTING.  The Parent's Common Stock is listed or quoted,
as applicable,  on the Principal  Market and satisfies all  requirements for the
continuation of such listing or quotation,  as applicable,  and the Parent shall
do all things  necessary for the  continuation of such listing or quotation,  as
applicable. The Parent has not received any notice that its Common Stock will be
delisted  from, or no longer quoted on, as applicable,  the Principal  Market or
that  its  Common  Stock  does not meet all  requirements  for such  listing  or
quotation, as applicable.

                (w)     NO  INTEGRATED  OFFERING.  Neither  it,  nor  any of its
Subsidiaries  nor any of its  Affiliates,  nor any Person acting on its or their
behalf,  has directly or indirectly  made any offers or sales of any security or
solicited any offers to buy any security  under  circumstances  that would cause
the  offering of the  Securities  pursuant to this  Agreement  or any  Ancillary
Agreement  to be  integrated  with prior  offerings  by it for  purposes  of the
Securities  Act which would prevent it from issuing the  Securities  pursuant to
Rule  506  under  the  Securities   Act,  or  any  applicable   exchange-related
stockholder  approval  provisions,  nor  will  it or any of  its  Affiliates  or
Subsidiaries  take any  action or steps  that would  cause the  offering  of the
Securities  to be  integrated  with  other  offerings.

                (x)     STOP TRANSFER.  The Securities are restricted securities
as of the date of this Agreement.  Neither it nor any of its  Subsidiaries  will
issue any stop transfer  order or other order  impeding the sale and delivery of
any of the  Securities at such time as the  Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.

                (y)     DILUTION. It specifically acknowledges that the Parent's
obligation  to issue the shares of Common Stock upon  exercise of the Options is
binding upon the Parent and enforceable regardless of the dilution such issuance
may have on the ownership interests of other shareholders of the Parent.

                                       20
<PAGE>

                (z)     PATRIOT  ACT.  It  certifies  that,  to the  best of its
knowledge, neither it nor any of its Subsidiaries has been designated, nor is or
shall be owned or controlled, by a "suspected terrorist" as defined in Executive
Order  13224.  It hereby  acknowledges  that  Laurus  seeks to  comply  with all
applicable  laws  concerning  money  laundering  and  related   activities.   In
furtherance of those efforts, it hereby represents, warrants and covenants that:
(i) none of the cash or property that it or any of its Subsidiaries  will pay or
will  contribute to Laurus has been or shall be derived from, or related to, any
activity  that  is  deemed  criminal  under  United  States  law;  and  (ii)  no
contribution  or payment  by it or any of its  Subsidiaries  to  Laurus,  to the
extent  that they are within its or any such  Subsidiary's  control  shall cause
Laurus to be in  violation  of the United  States Bank  Secrecy  Act, the United
States  International  Money Laundering Control Act of 1986 or the United States
International  Money Laundering  Abatement and  Anti-Terrorist  Financing Act of
2001.  It  shall  promptly  notify  Laurus  if  any  of  these  representations,
warranties and covenants  ceases to be true and accurate  regarding it or any of
its  Subsidiaries.  It shall  provide  Laurus  with any  additional  information
regarding  it and  each  Subsidiary  thereof  that  Laurus  deems  necessary  or
convenient  to ensure  compliance  with all  applicable  laws  concerning  money
laundering and similar activities. It understands and agrees that if at any time
it is  discovered  that any of the  foregoing  representations,  warranties  and
covenants  are  incorrect,  or  if  otherwise  required  by  applicable  law  or
regulation  related  to money  laundering  or  similar  activities,  Laurus  may
undertake  appropriate  actions  to ensure  compliance  with  applicable  law or
regulation,  including  but not  limited to  segregation  and/or  redemption  of
Laurus'  investment  in it. It  further  understands  that  Laurus  may  release
confidential  information about it and its Subsidiaries and, if applicable,  any
underlying  beneficial  owners,  to proper  authorities  if Laurus,  in its sole
discretion,  determines  that it is in the best  interests of Laurus in light of
relevant  rules and  regulations  under the laws set  forth in  subsection  (ii)
above.

                (aa)    COMPANY   NAME;   LOCATIONS  OF  OFFICES,   RECORDS  AND
COLLATERAL.  SCHEDULE  12(aa)  sets forth each  Company's  name as it appears in
official  filings in the state of its  organization,  the type of entity of each
Company, the organizational identification number issued by each Company's state
of  organization  or a  statement  that no such  number  has been  issued,  each
Company's  state of  organization,  and the  location  of each  Company's  chief
executive office, corporate offices,  warehouses,  other locations of Collateral
and locations  where records with respect to Collateral  are kept  (including in
each  case the  county  of such  locations)  and,  except  as set  forth in such
SCHEDULE  12(aa),  such locations  have not changed during the preceding  twelve
months. As of the Closing Date, during the prior five years, except as set forth
in SCHEDULE  12(aa),  no Company has been known as or conducted  business in any
other  name  (including  trade  names).  Each  Company  has  only  one  state of
organization.

                (bb)    ERISA.   Based  upon  the  Employee   Retirement  Income
Security   Act  of  1974   ("ERISA"),   and  the   regulations   and   published
interpretations  thereunder:  (i)  neither  it nor any of its  Subsidiaries  has
engaged in any Prohibited  Transactions  (as defined in Section 406 of ERISA and
Section  4975 of the  Code);  (ii) it and each of its  Subsidiaries  has met all
applicable minimum funding requirements under Section 302 of ERISA in respect of
its plans; (iii) neither it nor any of its Subsidiaries has any knowledge of any
event or occurrence which would cause the Pension Benefit  Guaranty  Corporation
to  institute  proceedings  under Title IV of ERISA to  terminate  any  employee
benefit  plan(s);  (iv) neither it nor any of its Subsidiaries has any fiduciary
responsibility for investments with respect to any plan existing for the benefit
of persons other than its or such Subsidiary's employees; and (v) neither it nor
any of its

                                       21
<PAGE>

Subsidiaries  has withdrawn,  completely or partially,  from any  multi-employer
pension  plan so as to incur  liability  under the  Multiemployer  Pension  Plan
Amendments Act of 1980.

                        13.     COVENANTS.    Each   Company,   as   applicable,
        covenants and agrees with Laurus as follows:

                (a)     STOP-ORDERS.  It shall advise Laurus,  promptly after it
receives notice of issuance by the SEC, any state  securities  commission or any
other  regulatory  authority  of any stop  order or of any order  preventing  or
suspending any offering of any securities of the Parent, or of the suspension of
the  qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.

                (b)     LISTING.   It  shall  promptly  secure  the  listing  or
quotation,  as applicable,  of the shares of Common Stock issuable upon exercise
of the Options on the  Principal  Market upon which  shares of Common  Stock are
listed or quoted,  as applicable,  (subject to official  notice of issuance) and
shall maintain such listing or quotation,  as  applicable,  so long as any other
shares of Common Stock shall be so listed or quoted,  as applicable.  The Parent
shall maintain the listing or quotation,  as applicable,  of its Common Stock on
the Principal Market, and will comply in all material respects with the Parent's
reporting,  filing  and  other  obligations  under  the  bylaws  or rules of the
National  Association  of Securities  Dealers  ("NASD") and such  exchanges,  as
applicable.

                (c)     MARKET  REGULATIONS.  It shall notify the SEC,  NASD and
applicable  state  authorities,  in accordance with their  requirements,  of the
transactions  contemplated by this Agreement, and shall take all other necessary
action and  proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.

                (d)     REPORTING  REQUIREMENTS.  It shall  timely file with the
SEC all reports  required to be filed  pursuant to the  Exchange Act and refrain
from  terminating  its status as an issuer  required by the Exchange Act to file
reports  thereunder  even  if  the  Exchange  Act or the  rules  or  regulations
thereunder would permit such termination.

                (e)     USE OF FUNDS.  It shall use the proceeds of the Loans to
repay the Loans (as such term is defined in that  certain  Security and Purchase
Agreement by and among  Laurus,  the Company,  PWI  Technologies,  Inc. and Star
Solutions of Delaware Inc. dated as of June 30, 2005), to pay applicable fees to
Purchaser, and for general working capital purposes only.

                (f)     ACCESS TO FACILITIES.  It shall, and shall cause each of
its  Subsidiaries  to, permit any  representatives  designated by Laurus (or any
successor of Laurus),  upon reasonable  notice and during normal business hours,
at  Company's  expense and  accompanied  by a  representative  of Company  Agent
(provided  that no such prior  notice  shall be required to be given and no such
representative  shall be  required  to  accompany  Laurus  in the  event  Laurus
believes  such access is  necessary  to preserve  or protect the  Collateral  or
following the occurrence and during the continuance of an Event of Default), to:

                        (i)     visit  and  inspect  any  of  its  or  any  such
Subsidiary's properties;

                                       22
<PAGE>

                        (ii)    examine its or any such  Subsidiary's  corporate
and  financial  records  (unless such  examination  is not permitted by federal,
state  or  local  law or by  contract)  and  make  copies  thereof  or  extracts
therefrom; and

                        (iii)   discuss  its or any such  Subsidiary's  affairs,
finances and accounts with its or any such Subsidiary's directors,  officers and
Accountants.

Notwithstanding  the  foregoing,  neither it nor any of its  Subsidiaries  shall
provide any  material,  non-public  information  to Laurus unless Laurus signs a
confidentiality  agreement and otherwise  complies with Regulation FD, under the
federal securities laws.

                (g)     TAXES.   It  shall,   and  shall   cause   each  of  its
Subsidiaries to, promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes,  assessments and governmental charges or
levies  imposed  upon it and its  Subsidiaries'  income,  profits,  property  or
business, as the case may be; provided,  however, that any such tax, assessment,
charge or levy need not be paid  currently  if (i) the  validity  thereof  shall
currently and diligently be contested in good faith by appropriate  proceedings,
(ii)  such tax,  assessment,  charge  or levy  shall  have no effect on the Lien
priority of Laurus in the Collateral, and (iii) if it and/or such Subsidiary, as
applicable,  shall have set aside on its and/or such Subsidiary's books adequate
reserves with respect  thereto in accordance  with GAAP; and provided,  further,
that it shall,  and shall cause each of its Subsidiaries to, pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.

                (h)     INSURANCE.  It shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. It and each of its
Subsidiaries  shall keep its assets which are of an insurable  character insured
by  financially  sound and  reputable  insurers  against loss or damage by fire,
explosion and other risks  customarily  insured  against by companies in similar
business  similarly  situated  as it  and  its  Subsidiaries;  and  it  and  its
Subsidiaries  shall maintain,  with  financially  sound and reputable  insurers,
insurance  against other hazards and risks and liability to persons and property
to the  extent  and in the  manner  which  it  and/or  such  Subsidiary  thereof
reasonably  believes is customary  for companies in similar  business  similarly
situated as it and its  Subsidiaries and to the extent available on commercially
reasonable  terms.  It and each of its  Subsidiaries  will jointly and severally
bear the full risk of loss from any loss of any nature  whatsoever  with respect
to the assets  pledged to Laurus as security for its  obligations  hereunder and
under the Ancillary Agreements.  At its own cost and expense in amounts and with
carriers reasonably  acceptable to Laurus, it and each of its Subsidiaries shall
(i) keep all their  insurable  properties  and  properties in which they have an
interest insured against the hazards of fire, flood,  sprinkler  leakage,  those
hazards covered by extended coverage  insurance and such other hazards,  and for
such  amounts,  as is customary in the case of companies  engaged in  businesses
similar to it or the respective  Subsidiary's  including  business  interruption
insurance;  (ii)  maintain a bond in such amounts as is customary in the case of
companies  engaged in businesses  similar to it and its  Subsidiaries'  insuring
against larceny,  embezzlement or other criminal  misappropriation  of insured's
officers and  employees who may either singly or jointly with others at any time
have access to its or any of its Subsidiaries assets or funds either directly or
through  governmental  authority to draw upon such funds or to direct  generally
the  disposition  of such assets;  (iii) maintain  public and product  liability
insurance against claims for

                                       23
<PAGE>

personal injury,  death or property damage suffered by others; (iv) maintain all
such worker's  compensation  or similar  insurance as may be required  under the
laws of any  state or  jurisdiction  in which it or any of its  Subsidiaries  is
engaged in business;  and (v) furnish Laurus with (x) copies of all policies and
evidence of the  maintenance  of such  policies at least thirty (30) days before
any  expiration  date,  (y)  excepting  its  and  its   Subsidiaries'   workers'
compensation policy, endorsements to such policies naming Laurus as "co-insured"
or "additional  insured" and appropriate  loss payable  endorsements in form and
substance  satisfactory to Laurus,  naming Laurus as lenders loss payee, and (z)
evidence  that as to Laurus the  insurance  coverage  shall not be  impaired  or
invalidated by any act or neglect of any Company or any of its  Subsidiaries and
the insurer will  provide  Laurus with at least thirty (30) days notice prior to
cancellation.  It shall instruct the insurance carriers that in the event of any
loss thereunder, the carriers shall make payment for such loss to Laurus and not
to any Company or any of its Subsidiaries  and Laurus jointly.  If any insurance
losses  are paid by check,  draft or other  instrument  payable  to any  Company
and/or any of its  Subsidiaries  and Laurus  jointly,  Laurus  may  endorse,  as
applicable,  such Company's and/or any of its Subsidiaries'  name thereon and do
such  other  things as Laurus  may deem  advisable  to reduce  the same to cash.
Laurus is hereby authorized to adjust and compromise claims. All loss recoveries
received by Laurus upon any such insurance may be applied to the Obligations, in
such order as Laurus in its sole  discretion  shall determine or shall otherwise
be delivered to Company Agent for the benefit of the  applicable  Company and/or
its  Subsidiaries.  Any surplus shall be paid by Laurus to Company Agent for the
benefit of the applicable Company and/or its Subsidiaries,  or applied as may be
otherwise  required by law. Any deficiency thereon shall be paid, as applicable,
by Companies and their Subsidiaries to Laurus, on demand.

                (i)     INTELLECTUAL PROPERTY. It shall, and shall cause each of
its Subsidiaries to, maintain in full force and effect its corporate  existence,
rights and  franchises  and all licenses  and other  rights to use  Intellectual
Property owned or possessed by it and  reasonably  deemed to be necessary to the
conduct of its business.

                (j)     PROPERTIES.  It  shall,  and  shall  cause  each  of its
Subsidiaries  to,  keep  its  properties  in  good  repair,  working  order  and
condition,  reasonable  wear and tear  excepted,  and from time to time make all
needful and proper repairs, renewals,  replacements,  additions and improvements
thereto; and it shall, and shall cause each of its Subsidiaries to, at all times
comply with each  provision  of all leases to which it is a party or under which
it  occupies  property  if the  breach of such  provision  could  reasonably  be
expected to have a Material Adverse Effect.

                (k)     CONFIDENTIALITY.  It shall not, and shall not permit any
of  its  Subsidiaries  to,  disclose,   and  will  not  include  in  any  public
announcement, the name of Laurus, unless expressly agreed to by Laurus or unless
and until such disclosure is required by law or applicable regulation,  and then
only to the extent of such  requirement.  Notwithstanding  the  foregoing,  each
Company and its Subsidiaries may disclose Laurus' identity and the terms of this
Agreement to its current and prospective debt and equity financing sources.

                (l)     REQUIRED  APPROVALS.  It shall not, and shall not permit
any of its  Subsidiaries  to, without the prior written  consent of Laurus,  (i)
create,  incur,  assume or suffer to exist any indebtedness  (exclusive of trade
debt)  whether  secured or  unsecured,  in excess of $100,000 in the  aggregate,
other than each Company's indebtedness to Laurus and as set forth on

                                       24
<PAGE>

SCHEDULE 13(l)(i)  attached hereto and made a part hereof;  (ii) cancel any debt
owing to it in excess of $100,000 in the  aggregate  during any 12 month period;
(iii) assume,  guarantee,  endorse or otherwise  become directly or contingently
liable in  connection  with any  obligations  of any other  Person,  except  the
endorsement of negotiable  instruments by it or its  Subsidiaries for deposit or
collection  or similar  transactions  in the ordinary  course of business;  (iv)
directly or indirectly declare,  pay or make any dividend or distribution on any
class  of its  Stock  or apply  any of its  funds,  property  or  assets  to the
purchase,  redemption  or other  retirement  of any of its or its  Subsidiaries'
Stock outstanding on the date hereof, or issue any preferred stock; (v) purchase
or hold  beneficially any Stock or other securities or evidences of indebtedness
of, make or permit to exist any loans or advances to, or make any  investment or
acquire any interest whatsoever in, any other Person,  including any partnership
or  joint  venture,  except  (x)  travel  advances,  (y)  loans  to its  and its
Subsidiaries'  officers and employees not exceeding at any one time an aggregate
of  $10,000,  and  (z)  loans  to its  existing  Subsidiaries  so  long  as such
Subsidiaries  are  designated as either a  co-borrower  hereunder or has entered
into such  guaranty and security  documentation  required by Laurus,  including,
without  limitation,  to grant to  Laurus a first  priority  perfected  security
interest  in  substantially  all of  such  Subsidiary's  assets  to  secure  the
Obligations;  (vi)  create or permit to exist  any  Subsidiary,  other  than any
Subsidiary  in existence on the date hereof and listed in SCHEDULE  12(b) unless
such new Subsidiary is a wholly-owned  Subsidiary and is designated by Laurus as
either a  co-borrower  or guarantor  hereunder  and such  Subsidiary  shall have
entered  into all such  documentation  required  by Laurus,  including,  without
limitation,  to grant to Laurus a first priority  perfected security interest in
substantially all of such Subsidiary's  assets to secure the Obligations;  (vii)
directly or indirectly, prepay any indebtedness (other than to Laurus and in the
ordinary course of business), or repurchase, redeem, retire or otherwise acquire
any  indebtedness  (other than to Laurus and in the ordinary course of business)
except to make  scheduled  payments of principal  and interest  thereof;  (viii)
enter into any merger,  consolidation or other  reorganization  with or into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to  consolidate  with or merge with it,  unless (1) such
Company is the surviving entity of such merger or consolidation, (2) no Event of
Default shall exist  immediately prior to and after giving effect to such merger
or  consolidation,  (3) such Company  shall have  provided  Laurus copies of all
documentation  relating to such  merger or  consolidation  and (4) such  Company
shall have provided  Laurus with at least thirty (30) days' prior written notice
of such  merger or  consolidation;  (ix)  materially  change  the  nature of the
business in which it is presently  engaged;  (x) become  subject to  (including,
without limitation,  by way of amendment to or modification of) any agreement or
instrument  which by its terms would (under any  circumstances)  restrict its or
any of its  Subsidiaries'  right to perform the  provisions of this Agreement or
any of the Ancillary Agreements; (xi) change its fiscal year or make any changes
in accounting  treatment and reporting practices without prior written notice to
Laurus except as required by GAAP or in the tax reporting treatment or except as
required by law; (xii) enter into any transaction with any employee, director or
Affiliate,  except in the  ordinary  course on  arms-length  terms;  (xiii) bill
Accounts under any name except the present name of such Company;  or (xiv) sell,
lease,  transfer or otherwise dispose of any of its properties or assets, or any
of the  properties  or assets of its  Subsidiaries,  except  for (1) the sale of
Inventory in the ordinary course of business and (2) the disposition or transfer
in the  ordinary  course of  business  during any fiscal  year of  obsolete  and
worn-out  Equipment  and only to the extent  that (x) the  proceeds  of any such
disposition  are used to  acquire  replacement  Equipment  which is  subject  to
Laurus' first  priority  security  interest or are used to repay Loans or to pay
general

                                       25
<PAGE>

corporate expenses, or (y) following the occurrence of an Event of Default which
continues  to exist,  the proceeds of which are remitted to Laurus to be held as
cash collateral for the Obligations.

                (m)     REISSUANCE  OF  SECURITIES.  The  Parent  shall  reissue
certificates  representing  the  Securities  without  the  legends  set forth in
Section 40 below at such time as:

                        (i)     the holder  thereof is  permitted  to dispose of
such Securities pursuant to Rule 144(k) under the Securities Act; or

                        (ii)    upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act.

The Parent  agrees to  cooperate  with  Laurus in  connection  with all  resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions  necessary to
allow  such  resales  provided  the Parent and its  counsel  receive  reasonably
requested representations from Laurus and broker, if any.

                (n)     OPINION. On the Closing Date, it shall deliver to Laurus
an opinion acceptable to Laurus from each Company's legal counsel.  Each Company
will provide,  at the  Companies'  joint and several  expense,  such other legal
opinions  in the future as are  reasonably  necessary  for the  exercise  of the
Options.

                (o)     LEGAL NAME, ETC. It shall not, without  providing Laurus
with 30 days  prior  written  notice,  change  (i) its name as it appears in the
official filings in the state of its organization, (ii) the type of legal entity
it is, (iii) its organization identification number, if any, issued by its state
of organization,  (iv) its state of organization or (v) amend its certificate of
incorporation, by-laws or other organizational document.

                (p)     COMPLIANCE  WITH LAWS.  The operation of each of its and
each of its Subsidiaries'  business is and shall continue to be in compliance in
all material respects with all applicable  federal,  state and local laws, rules
and ordinances, including to all laws, rules, regulations and orders relating to
taxes,  payment  and  withholding  of  payroll  taxes,   employer  and  employee
contributions  and similar items,  securities,  employee  retirement and welfare
benefits, employee health and safety and environmental matters.

                (q)     NOTICES.  It and each of its Subsidiaries shall promptly
inform  Laurus in  writing  of:  (i) the  commencement  of all  proceedings  and
investigations  by or  before  and/or  the  receipt  of any  notices  from,  any
governmental  or  nongovernmental  body and all actions and  proceedings  in any
court or before any arbitrator  against or in any way concerning any event which
could  reasonably  be expected to have  singly or in the  aggregate,  a Material
Adverse Effect;  (ii) any change which has had, or could  reasonably be expected
to have, a Material Adverse Effect;  (iii) any Event of Default or Default;  and
(iv) any default or any event which with the passage of time or giving of notice
or both would  constitute a default under any agreement for the payment of money
to which it or any of its  Subsidiaries  is a party or by which it or any of its
Subsidiaries or any of its or any such Subsidiary's  properties may be bound the
breach of which would have a Material Adverse Effect.

                                       26
<PAGE>

                (r)     MARGIN STOCK. It shall not permit any of the proceeds of
the Loans made  hereunder to be used  directly or  indirectly  to  "purchase" or
"carry"  "margin  stock" or to repay  indebtedness  incurred  to  "purchase"  or
"carry"  "margin  stock"  within the  respective  meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.

                (s)     OFFERING RESTRICTIONS. Except as previously disclosed in
the SEC  Reports  or in the  Exchange  Act  Filings,  or stock or stock  options
granted to its  employees or directors,  neither it nor any of its  Subsidiaries
shall,  prior to the full  repayment of the Note  (together with all accrued and
unpaid  interest  and fees related  thereto),  (x) enter into any equity line of
credit agreement or similar  agreement or (y) issue, or enter into any agreement
to issue,  any securities  with a  variable/floating  conversion  and/or pricing
feature  which  are or could be (by  conversion  or  registration)  free-trading
securities (i.e. common stock subject to a registration statement).

                (t)     AUTHORIZATION  AND  RESERVATION  OF  SHARES.  The Parent
shall at all times have authorized and reserved a sufficient number of shares of
Common  Stock to provide  for the  conversion  of the Notes and  exercise of the
Options.

                (u)     FINANCING RIGHT OF FIRST REFUSAL.

                        (i)     It  hereby  grants  to  Laurus  a right of first
refusal to provide any  Additional  Financing (as defined below) to be issued by
any Company and/or any of its Subsidiaries (the "ADDITIONAL FINANCING PARTIES"),
subject to the following terms and  conditions.  From and after the date hereof,
prior  to the  incurrence  of any  additional  indebtedness  and/or  the sale or
issuance  of any  equity  interests  of the  Additional  Financing  Parties  (an
"ADDITIONAL  FINANCING"),  Company Agent shall notify Laurus of such  Additional
Financing. In connection therewith,  Company Agent shall submit a fully executed
term  sheet (a  "PROPOSED  TERM  SHEET")  to Laurus  setting  forth  the  terms,
conditions and pricing of any such  Additional  Financing  (such financing to be
negotiated  on "arm's  length"  terms and the terms  thereof to be negotiated in
good faith)  proposed to be entered into by the  Additional  Financing  Parties.
Laurus shall have the right, but not the obligation, to deliver to Company Agent
its own proposed  term sheet (the "LAURUS TERM SHEET")  setting  forth the terms
and  conditions  upon which Laurus  would be willing to provide such  Additional
Financing  to the  Additional  Financing  Parties.  The Laurus  Term Sheet shall
contain terms no less favorable to the Additional  Financing  Parties than those
outlined  in Proposed  Term Sheet.  Laurus  shall  deliver to Company  Agent the
Laurus Term Sheet within ten Business Days of receipt of each such Proposed Term
Sheet.  If the  provisions of the Laurus Term Sheet are at least as favorable to
the Additional  Financing  Parties as the provisions of the Proposed Term Sheet,
the Additional  Financing Parties shall enter into and consummate the Additional
Financing transaction outlined in the Laurus Term Sheet.

                        (ii)    It  shall   not,   and  shall  not   permit  its
Subsidiaries  to, agree,  directly or indirectly,  to any  restriction  with any
Person which limits the ability of Laurus to consummate an Additional  Financing
with it or any of its Subsidiaries.

                        14.     FURTHER ASSURANCES. At any time and from time to
        time,  upon the  written  request of Laurus  and at the sole  expense of
        Companies,  each Company shall promptly and duly execute and deliver any
        and all such further instruments and documents

                                       27
<PAGE>

        and take such  further  action as Laurus may  request  (a) to obtain the
        full benefits of this  Agreement and the  Ancillary  Agreements,  (b) to
        protect,  preserve and maintain  Laurus'  rights in the  Collateral  and
        under this  Agreement or any Ancillary  Agreement,  and/or (c) to enable
        Laurus to exercise all or any of the rights and powers herein granted or
        any Ancillary Agreement.

                        15.     REPRESENTATIONS,  WARRANTIES  AND  COVENANTS  OF
        LAURUS. Laurus hereby represents, warrants and covenants to each Company
        as follows:

                (a)     REQUISITE POWER AND AUTHORITY.  Laurus has all necessary
power and  authority  under all  applicable  provisions  of law to  execute  and
deliver  this  Agreement  and the  Ancillary  Agreements  and to carry out their
provisions.  All  corporate  action on  Laurus'  part  required  for the  lawful
execution and delivery of this Agreement and the Ancillary  Agreements have been
or will be effectively taken prior to the Closing Date. Upon their execution and
delivery, this Agreement and the Ancillary Agreements shall be valid and binding
obligations of Laurus, enforceable in accordance with their terms, except (a) as
limited by  applicable  bankruptcy,  insolvency,  reorganization,  moratorium or
other laws of general  application  affecting  enforcement of creditors' rights,
and  (b)  as  limited  by  general   principles  of  equity  that  restrict  the
availability  of equitable and legal remedies.

                (b)     INVESTMENT REPRESENTATIONS.  Laurus understands that the
Securities  are  being  offered  pursuant  to  an  exemption  from  registration
contained  in the  Securities  Act  based in part upon  Laurus'  representations
contained in this Agreement,  including,  without limitation,  that Laurus is an
"accredited  investor"  within the meaning of Regulation D under the  Securities
Act.  Laurus  has  received  or has had full  access to all the  information  it
considers  necessary or appropriate to make an informed investment decision with
respect to the Note,  the Options and the Option Shares to be issued to it under
this Agreement.

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

                (d)     INVESTMENT  FOR OWN ACCOUNT.  The  Securities  are being
issued to Laurus for its own account for  investment  only, and not as a nominee
or agent and not with a view  towards  or for  resale in  connection  with their
distribution.

                (e)     LAURUS CAN PROTECT ITS INTEREST.  Laurus represents that
by reason of its, or of its  management's,  business and  financial  experience,
Laurus has the  capacity to evaluate the merits and risks of its  investment  in
the Notes,  and the  Securities  and to protect its own  interests in connection
with  the  transactions  contemplated  in  this  Agreement,  and  the  Ancillary
Agreements.  Further,  Laurus is aware of no publication of any advertisement in
connection with the transactions  contemplated in the Agreement or the Ancillary
Agreements.

                                       28
<PAGE>

                (f)     ACCREDITED  INVESTOR.  Laurus  represents  that it is an
accredited investor within the meaning of Regulation D under the Securities Act.

                (g)     SHORTING.  Neither  Laurus nor any of its  Affiliates or
investment  partners has, will, or will cause any Person,  to directly engage in
"short  sales"  of the  Parent's  Common  Stock  as long as the  Note  shall  be
outstanding.

                (h)     PATRIOT  ACT.  Laurus  certifies  that,  to the  best of
Laurus'  knowledge,  Laurus  has  not  been  designated,  and  is not  owned  or
controlled,  by a "suspected  terrorist"  as defined in  Executive  Order 13224.
Laurus seeks to comply with all applicable laws concerning  money laundering and
related activities.  In furtherance of those efforts,  Laurus hereby represents,
warrants and covenants  that:  (i) none of the cash or property that Laurus will
use to make the Loans has been or shall be  derived  from,  or  related  to, any
activity  that  is  deemed  criminal  under  United  States  law;  and  (ii)  no
disbursement  by Laurus to any  Company to the extent  within  Laurus'  control,
shall cause Laurus to be in violation of the United States Bank Secrecy Act, the
United States  International  Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act
of  2001.  Laurus  shall  promptly  notify  the  Company  Agent  if any of these
representations  ceases to be true and accurate regarding Laurus.  Laurus agrees
to provide the  Company any  additional  information  regarding  Laurus that the
Company deems  necessary or convenient to ensure  compliance with all applicable
laws concerning money laundering and similar activities.  Laurus understands and
agrees  that  if at  any  time  it is  discovered  that  any  of  the  foregoing
representations  are  incorrect,  or if otherwise  required by applicable law or
regulation related to money laundering similar activities,  Laurus may undertake
appropriate  actions to ensure  compliance  with  applicable  law or regulation,
including but not limited to segregation and/or redemption of Laurus' investment
in  the  Parent.   Laurus  further  understands  that  the  Parent  may  release
information about Laurus and, if applicable,  any underlying  beneficial owners,
to proper authorities if the Parent, in its sole discretion,  determines that it
is in the  best  interests  of  the  Parent  in  light  of  relevant  rules  and
regulations under the laws set forth in subsection (ii) above.

                (i)     LIMITATION    ON    ACQUISITION    OF   COMMON    STOCK.
Notwithstanding  anything  to the  contrary  contained  in this  Agreement,  any
Ancillary  Agreement,  or any document,  instrument or agreement entered into in
connection with any other transaction entered into by and between Laurus and any
Company  (and/or  Subsidiaries  or Affiliates of any Company),  Laurus shall not
acquire  stock in the  Parent  (including,  without  limitation,  pursuant  to a
contract to purchase,  by  exercising an option or warrant,  by  converting  any
other  security or  instrument,  by acquiring or  exercising  any other right to
acquire,  shares of stock or other security  convertible into shares of stock in
the Parent, or otherwise, and such options, warrants, conversion or other rights
shall not be exercisable) to the extent such stock  acquisition  would cause any
interest  (including  any  original  issue  discount)  payable by any Company to
Laurus not to  qualify  as  portfolio  interest,  within the  meaning of Section
881(c)(2)  of the  Internal  Revenue  Code of 1986,  as amended  (the "Code") by
reason of Section  881(c)(3) of the Code,  taking into account the  constructive
ownership rules under Section  871(h)(3)(C) of the Code (the "STOCK  ACQUISITION
LIMITATION").  The Stock Acquisition  Limitation shall automatically become null
and void without any notice to any Company upon the Parent's  delivery to Laurus
of a Notice of Redemption (as defined in the Note).

                                       29
<PAGE>

                (j)     LOCK-UP OF OPTION SHARES Notwithstanding anything herein
or in the Ancillary  Agreements  to the  contrary,  Laurus hereby agrees that it
shall not sell any  Option  Shares  prior to  January  31,  2007  (the  "Lock-Up
Period"). This provision shall not, however,  prevent Laurus from exercising the
Option during the Lock-Up Period.

                        16.     POWER OF ATTORNEY.  Each Company hereby appoints
        Laurus,  or any other Person whom Laurus may designate as such Company's
        attorney,  with power to: (i) endorse such Company's name on any checks,
        notes,  acceptances,  money orders,  drafts or other forms of payment or
        security that may come into Laurus' possession; (ii) sign such Company's
        name on any invoice or bill of lading  relating to any Accounts,  drafts
        against Account Debtors,  schedules and assignments of Accounts, notices
        of  assignment,   financing   statements   and  other  public   records,
        verifications of Account and notices to or from Account  Debtors;  (iii)
        verify the validity,  amount or any other matter relating to any Account
        by mail, telephone, telegraph or otherwise with Account Debtors; (iv) do
        all  things  necessary  to  carry  out  this  Agreement,  any  Ancillary
        Agreement and all related documents;  and (v) on or after the occurrence
        and  during the  continuation  of an Event of  Default,  notify the post
        office  authorities to change the address for delivery of such Company's
        mail to an  address  designated  by  Laurus,  and to  receive,  open and
        dispose of all mail  addressed  to such  Company.  Each  Company  hereby
        ratifies and approves all acts of the attorney.  Neither Laurus, nor the
        attorney  will be liable for any acts or  omissions  or for any error of
        judgment  or mistake  of fact or law,  except  for gross  negligence  or
        willful  misconduct.  This power,  being  coupled with an  interest,  is
        irrevocable  so long as Laurus  has a  security  interest  and until the
        Obligations have been fully satisfied.

                        17.     TERM OF  AGREEMENT.  Laurus'  agreement  to make
        Loans and extend financial  accommodations  under and in accordance with
        the terms of this Agreement or any Ancillary Agreement shall continue in
        full  force and  effect  until the  expiration  of the Term.  At Laurus'
        election  following the  occurrence  of an Event of Default,  Laurus may
        terminate this  Agreement.  The  termination of the Agreement  shall not
        affect any of Laurus'  rights  hereunder or any Ancillary  Agreement and
        the provisions  hereof and thereof shall continue to be fully  operative
        until all transactions entered into, rights or interests created and the
        Obligations have been irrevocably  disposed of, concluded or liquidated.
        Notwithstanding  the  foregoing,   Laurus  shall  release  its  security
        interests  at any time after  thirty (30) days  notice upon  irrevocable
        payment to it of all Obligations if each Company shall have (i) provided
        Laurus with an executed release of any and all claims which such Company
        may have or  thereafter  have under  this  Agreement  and all  Ancillary
        Agreements  and (ii) paid to Laurus  an early  payment  fee in an amount
        equal to (1) three percent (3.0%) of the Capital  Availability Amount if
        such payment occurs prior to the first  anniversary of the Closing Date,
        (2) two  percent  (2.0%)  of the  Capital  Availability  Amount  if such
        payment occurs on or after the first anniversary of the Closing Date and
        prior to the second  anniversary of the Closing Date and (3) one percent
        (1.0%) of the Capital  Availability  Amount if such  termination  occurs
        thereafter during the Term; such fee being intended to compensate Laurus
        for  its  costs  and  expenses  incurred  in  initially  approving  this
        Agreement or  extending  same.  Such early  payment fee shall be due and
        payable   jointly  and   severally  by  the  Companies  to  Laurus  upon
        termination  by  acceleration  of this  Agreement  by Laurus  due to the
        occurrence and continuance of an Event of Default.

                                       30
<PAGE>

                        18.     TERMINATION   OF  LIEN.  The  Liens  and  rights
        granted  to  Laurus  hereunder  and  any  Ancillary  Agreements  and the
        financing  statements  filed in connection  herewith or therewith  shall
        continue in full force and effect,  notwithstanding  the  termination of
        this  Agreement or the fact that any Company's  account may from time to
        time be  temporarily  in a zero or  credit  position,  until  all of the
        Obligations have been  indefeasibly  paid or performed in full after the
        termination  of this  Agreement.  Laurus  shall not be  required to send
        termination  statements to any Company,  or to file them with any filing
        office,  unless and until this  Agreement and the  Ancillary  Agreements
        shall  have been  terminated  in  accordance  with  their  terms and all
        Obligations indefeasibly paid in full in immediately available funds.

                        19.     EVENTS OF DEFAULT.  The occurrence of any of the
        following shall constitute an "EVENT OF DEFAULT":

                (a)     failure to make payment of any of the  Obligations  when
required  hereunder,  and, in any such case,  such failure shall  continue for a
period of three (3) days following the date upon which any such payment was due;

                (b)     failure by any Company or any of its Subsidiaries to pay
any taxes  when due  unless  such  taxes are being  contested  in good  faith by
appropriate  proceedings  and with respect to which adequate  reserves have been
provided  on such  Company's  and/or  such  Subsidiary's  books;

                (c)     failure to perform under,  and/or  committing any breach
of, in any material  respect,  this Agreement or any covenant  contained herein,
which failure or breach shall  continue  without  remedy for a period of fifteen
(15) days after the occurrence thereof;

                (d)     any  representation,  warranty or statement  made by any
Company or any of its Subsidiaries  hereunder,  in any Ancillary Agreement,  any
certificate, statement or document delivered pursuant to the terms hereof, or in
connection with the transactions  contemplated by this Agreement should prove to
be false or misleading  in any material  respect on the date as of which made or
deemed made;

                (e)     the  occurrence  of any default (or similar term) in the
observance or  performance of any other  agreement or condition  relating to any
indebtedness or contingent  obligation of any Company or any of its Subsidiaries
(including,  without  limitation,  the  indebtedness  evidenced  by the Purchase
Agreement and the Related  Agreements)  beyond the period of grace (if any), the
effect of which  default  is to cause,  or permit  the holder or holders of such
indebtedness or beneficiary or  beneficiaries  of such contingent  obligation to
cause,  such  indebtedness  to become due prior to its stated  maturity  or such
contingent obligation to become payable;

                (f)     attachments  or  levies in  excess  of  $100,000  in the
aggregate are made upon any Company's  assets or a judgment is rendered  against
any Company's  property  involving a liability of more than $100,000 which shall
not have been vacated, discharged, stayed or bonded within thirty (30) days from
the entry thereof;

                                       31
<PAGE>

                (g)     any change in any  Company's or any of its  Subsidiary's
condition  or  affairs  (financial  or  otherwise)  which has had,  has or could
reasonably be expected to have a Material Adverse Effect;

                (h)     any  Lien  created  hereunder  or  under  any  Ancillary
Agreement  for any  reason  ceases  to be or is not a valid and  perfected  Lien
having a first priority interest;

                (i)     any Company or any of its  Subsidiaries  shall (i) apply
for,  consent  to or  suffer  to exist  the  appointment  of,  or the  taking of
possession by, a receiver,  custodian, trustee or liquidator of itself or of all
or a substantial  part of its property,  (ii) make a general  assignment for the
benefit  of  creditors,  (iii)  commence  a  voluntary  case  under the  federal
bankruptcy laws (as now or hereafter in effect),  (iv) be adjudicated a bankrupt
or  insolvent,  (v) file a petition  seeking to take  advantage of any other law
providing for the relief of debtors,  (vi) acquiesce to without challenge within
ten (10) days of the filing thereof,  or failure to have dismissed within thirty
(30) days,  any petition  filed  against it in any  involuntary  case under such
bankruptcy  laws,  or (vii) take any action for the purpose of effecting  any of
the foregoing;

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

                (k)     any  Company  or  any of its  Subsidiaries  directly  or
indirectly sells,  assigns,  transfers,  conveys, or suffers or permits to occur
any sale,  assignment,  transfer or  conveyance of any assets of such Company or
any interest therein, except as permitted herein;

                (l)     (i) any  "Person"  or "group" (as such terms are defined
in  Sections  13(d)  and  14(d) of the  Exchange  Act,  as in effect on the date
hereof), other than the Holder, is or becomes the "beneficial owner" (as defined
in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of
35% or more on a fully  diluted  basis of the  then  outstanding  voting  equity
interest of any Company (other than a "Person" or "group" that beneficially owns
35% or  more of such  outstanding  voting  equity  interests  of the  respective
Company on the date hereof),

                        (ii)    the Board of Directors of the Parent shall cease
to  consist of a majority  of the Board of  Directors  of the Parent on the date
hereof (or directors appointed by a majority of the board of directors in effect
immediately prior to such appointment) or

                        (iii)   the Parent or any of its Subsidiaries  merges or
consolidates with, unless the Parent of such Subsidiary is the surviving entity,
or sells all or substantially all of its assets to, any other person or entity;

                (m)     the  indictment or threatened  indictment of any Company
or any of its Subsidiaries or any executive officer of any Company or any of its
Subsidiaries   under  any  criminal  statute,   or  commencement  or  threatened
commencement of criminal or civil  proceeding  against any Company or any of its
Subsidiaries or any executive  officer of any Company or any of its Subsidiaries
pursuant  to which  statute  or  proceeding  penalties  or  remedies  sought  or
available include forfeiture of any of the property of any Company or any of its
Subsidiaries;

                (n)     an Event of Default  shall occur under and as defined in
any Note or in any other Ancillary Agreement;

                                       32
<PAGE>

                (o)     any Company or any of its Subsidiaries  shall breach any
term or provision  of any  Ancillary  Agreement  to which it is a party,  in any
material  respect which breach is not cured within any applicable  cure or grace
period provided in respect thereof (if any);

                (p)     any  Company  or  any of its  Subsidiaries  attempts  to
terminate,  challenges the validity of, or its liability under this Agreement or
any Ancillary  Agreement,  or any  proceeding  shall be brought to challenge the
validity,  binding effect of any Ancillary  Agreement or any Ancillary Agreement
ceases to be a valid, binding and enforceable  obligation of such Company or any
of its Subsidiaries (to the extent such Persons are a party thereto);

                (q)     an SEC stop  trade  order or  Principal  Market  trading
suspension of the Common Stock shall be in effect for five (5) consecutive  days
or five (5) days during a period of ten (10) consecutive days,  excluding in all
cases a  suspension  of all trading on a  Principal  Market,  provided  that the
Parent shall not have been able to cure such trading  suspension  within  thirty
(30) days of the notice  thereof or list the Common  Stock on another  Principal
Market within sixty (60) days of such notice; or

                        20.     REMEDIES.  Following the  occurrence of an Event
        of Default,  Laurus shall have the right to demand  repayment in full of
        all  Obligations,  whether or not otherwise due.  Until all  Obligations
        have been fully and indefeasibly satisfied, Laurus shall retain its Lien
        in all  Collateral.  Laurus shall have,  in addition to all other rights
        provided herein and in each Ancillary Agreement, the rights and remedies
        of a secured  party under the UCC, and under other  applicable  law, all
        other  legal and  equitable  rights  to which  Laurus  may be  entitled,
        including the right to take immediate  possession of the Collateral,  to
        require each Company to assemble the Collateral, at Companies' joint and
        several  expense,  and  to  make  it  available  to  Laurus  at a  place
        designated by Laurus which is reasonably  convenient to both parties and
        to enter any of the premises of any Company or wherever  the  Collateral
        shall be located,  with or without  force or process of law, and to keep
        and store the same on said premises  until sold (and if said premises be
        the property of any Company,  such Company  agrees not to charge  Laurus
        for storage  thereof),  and the right to apply for the  appointment of a
        receiver for such Company's property.  Further,  Laurus may, at any time
        or times after the  occurrence of an Event of Default,  sell and deliver
        all Collateral held by or for Laurus at public or private sale for cash,
        upon credit or otherwise,  at such prices and upon such terms as Laurus,
        in Laurus' sole  discretion,  deems  advisable  or Laurus may  otherwise
        recover upon the  Collateral in any  commercially  reasonable  manner as
        Laurus,  in its sole  discretion,  deems  advisable.  The requirement of
        reasonable  notice shall be met if such notice is mailed postage prepaid
        to Company Agent at Company Agent's address as shown in Laurus' records,
        at least ten (10) days  before the time of the event of which  notice is
        being given.  Laurus may be the  purchaser at any sale, if it is public.
        In  connection  with the exercise of the foregoing  remedies,  Laurus is
        granted permission to use all of each Company's  Intellectual  Property.
        The proceeds of sale shall be applied first to all costs and expenses of
        sale,  including attorneys' fees, and second to the payment (in whatever
        order Laurus elects) of all Obligations.  After the indefeasible payment
        and  satisfaction  in  full of all of the  Obligations,  and  after  the
        payment by Laurus of any other amount  required by any provision of law,
        including  Section  9-608(a)(1)  of the UCC (but only  after  Laurus has
        received what Laurus considers reasonable proof of a subordinate party's
        security interest),  the surplus, if any, shall be paid to Company Agent

                                       33
<PAGE>

        (for the benefit of the applicable  Companies) or its representatives or
        to whosoever may be lawfully entitled to receive the same, or as a court
        of competent jurisdiction may direct. The Companies shall remain jointly
        and  severally  liable to Laurus for any  deficiency.  In addition,  the
        Companies  shall  jointly and  severally  pay Laurus a  liquidation  fee
        ("LIQUIDATION  FEE") in the  amount of five  percent  (5%) of the actual
        amount  collected  in respect of each  Account  outstanding  at any time
        during a Liquidation Period. For purposes hereof,  "LIQUIDATION  PERIOD"
        means a  period:  (i)  beginning  on the  earliest  date of (x) an event
        referred  to in  Section  19(i) or 19(j),  or (y) the  cessation  of any
        Company's  business;  and (ii)  ending on the date on which  Laurus  has
        actually  received all Obligations due and owing it under this Agreement
        and the Ancillary  Agreements.  The Liquidation Fee shall be paid on the
        date on which Laurus  collects the applicable  Account by deduction from
        the  proceeds  thereof.  Each  Company and Laurus  acknowledge  that the
        actual  damages that would be incurred by Laurus after the occurrence of
        an Event of Default would be difficult to quantify and that such Company
        and Laurus have agreed that the fees and  obligations  set forth in this
        Section and in this  Agreement  would  constitute  fair and  appropriate
        liquidated damages in the event of any such termination.

                        21.     WAIVERS.   To  the  full  extent   permitted  by
        applicable law, each Company hereby waives (a)  presentment,  demand and
        protest,  and notice of  presentment,  dishonor,  intent to  accelerate,
        acceleration,   protest,   default,   nonpayment,   maturity,   release,
        compromise,  settlement,  extension  or  renewal  of any or all of  this
        Agreement  and the Ancillary  Agreements or any other notes,  commercial
        paper, Accounts, contracts,  Documents,  Instruments,  Chattel Paper and
        guaranties  at any time held by Laurus on which such  Company may in any
        way be liable,  and hereby ratifies and confirms  whatever Laurus may do
        in this regard;  (b) all rights to notice and a hearing prior to Laurus'
        taking  possession or control of, or to Laurus'  replevy,  attachment or
        levy upon, any Collateral or any bond or security that might be required
        by any court prior to allowing  Laurus to exercise any of its  remedies;
        and (c) the benefit of all valuation, appraisal and exemption laws. Each
        Company  acknowledges that it has been advised by counsel of its choices
        and decisions with respect to this Agreement,  the Ancillary  Agreements
        and the  transactions  evidenced hereby and thereby.

                        22.     EXPENSES.   The  Companies   shall  jointly  and
        severally pay all of Laurus' out-of-pocket costs and expenses, including
        reasonable  fees and  disbursements  of in-house or outside  counsel and
        appraisers,  in connection with the preparation,  execution and delivery
        of this Agreement and the Ancillary  Agreements,  and in connection with
        the  prosecution  or defense of any action,  contest,  dispute,  suit or
        proceeding  concerning  any matter in any way arising out of, related to
        or  connected  with  this  Agreement  or any  Ancillary  Agreement.  The
        Companies shall also jointly and severally pay all of Laurus' reasonable
        fees,  charges,  out-of-pocket  costs and expenses,  including  fees and
        disbursements  of counsel and  appraisers,  in  connection  with (a) the
        preparation, execution and delivery of any waiver, any amendment thereto
        or consent  proposed  or executed in  connection  with the  transactions
        contemplated by this Agreement or the Ancillary Agreements,  (b) Laurus'
        obtaining  performance of the  Obligations  under this Agreement and any
        Ancillary Agreements,  including, but not limited to, the enforcement or
        defense of Laurus' security  interests,  assignments of rights and Liens
        hereunder  as valid  perfected  security  interests,  (c) any attempt to
        inspect, verify, protect, collect, sell, liquidate or

                                       34
<PAGE>

        otherwise dispose of any Collateral, (d) any appraisals or re-appraisals
        of any property  (real or personal)  pledged to Laurus by any Company or
        any of its  Subsidiaries  as  Collateral  for,  or any  other  Person as
        security for, the  Obligations  hereunder and (e) any  consultations  in
        connection  with any of the foregoing.  The Companies shall also jointly
        and severally pay Laurus'  customary  bank charges for all bank services
        (including wire transfers) performed or caused to be performed by Laurus
        for any  Company or any of its  Subsidiaries  at any  Company's  or such
        Subsidiary's  request or in connection  with any Company's  loan account
        with  Laurus.  All such costs and  expenses  together  with all  filing,
        recording and search fees,  taxes and interest  payable by the Companies
        to Laurus  shall be  payable  on  demand  and  shall be  secured  by the
        Collateral.  If  any  tax  by any  Governmental  Authority  is or may be
        imposed on or as a result of any transaction  between any Company and/or
        any Subsidiary  thereof,  on the one hand, and Laurus on the other hand,
        which  Laurus is or may be required to  withhold or pay,  the  Companies
        hereby jointly and severally  indemnifies  and holds Laurus  harmless in
        respect of such taxes, and the Companies will repay to Laurus the amount
        of any such taxes which shall be charged to the Companies' account;  and
        until the Companies  shall furnish  Laurus with  indemnity  therefor (or
        supply  Laurus with evidence  satisfactory  to it that due provision for
        the payment thereof has been made), Laurus may hold without interest any
        balance  standing to each  Company's  credit and Laurus shall retain its
        Liens in any and all Collateral.

                        23.     ASSIGNMENT  BY LAURUS.  Laurus may assign any or
        all of the Obligations together with any or all of the security therefor
        to any  Person  and any such  assignee  shall  succeed to all of Laurus'
        rights with respect thereto; provided that Laurus shall not be permitted
        to effect any such  assignment to a competitor of any Company  unless an
        Event of Default has occurred and is continuing.  Upon such  assignment,
        Laurus shall be released from all  responsibility  for the Collateral to
        the extent same is assigned to any  transferee.  Laurus may from time to
        time sell or otherwise  grant  participations  in any of the Obligations
        and the holder of any such participation  shall, subject to the terms of
        any agreement  between  Laurus and such holder,  be entitled to the same
        benefits as Laurus with respect to any security for the  Obligations  in
        which such holder is a  participant.  Each Company agrees that each such
        holder may  exercise  any and all rights of banker's  lien,  set-off and
        counterclaim  with respect to its  participation  in the  Obligations as
        fully as though such  Company were  directly  indebted to such holder in
        the amount of such participation.

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

                        25.     APPLICATION    OF    PAYMENTS.    Each   Company
        irrevocably  waives the right to direct the  application  of any and all
        payments  at any time or times  hereafter  received by Laurus from or on
        such Company's  behalf and each Company hereby  irrevocably  agrees that
        Laurus shall have the  continuing  exclusive  right to apply and reapply
        any and all payments received at any time or times hereafter against the
        Obligations

                                       35
<PAGE>

        hereunder  in such manner as Laurus may deem  advisable  notwithstanding
        any entry by Laurus upon any of Laurus' books and records.

                        26.     INDEMNITY. Each Company hereby agrees to jointly
        and severally indemnify and hold Laurus, and its respective  affiliates,
        employees,   attorneys  and  agents  (each,  an  "INDEMNIFIED  PERSON"),
        harmless  from and  against  any and all  suits,  actions,  proceedings,
        claims, damages, losses,  liabilities and expenses of any kind or nature
        whatsoever  (including attorneys' fees and disbursements and other costs
        of investigation  or defense,  including those incurred upon any appeal)
        which may be  instituted  or  asserted  against or  incurred by any such
        Indemnified  Person  as the  result  of  credit  having  been  extended,
        suspended or  terminated  under this  Agreement or any of the  Ancillary
        Agreements  or with  respect to the  execution,  delivery,  enforcement,
        performance and administration of, or in any other way arising out of or
        relating  to, this  Agreement,  the  Ancillary  Agreements  or any other
        documents  or  transactions  contemplated  by or  referred  to herein or
        therein and any  actions or  failures to act with  respect to any of the
        foregoing,  except to the extent that any such indemnified  liability is
        finally determined by a court of competent jurisdiction to have resulted
        solely  from such  Indemnified  Person's  gross  negligence  or  willful
        misconduct.  NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
        COMPANY OR TO ANY OTHER  PARTY OR TO ANY  SUCCESSOR,  ASSIGNEE  OR THIRD
        PARTY  BENEFICIARY  OR ANY OTHER PERSON  ASSERTING  CLAIMS  DERIVATIVELY
        THROUGH SUCH PARTY, FOR INDIRECT,  PUNITIVE,  EXEMPLARY OR CONSEQUENTIAL
        DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED,
        SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY  AGREEMENT
        OR AS A  RESULT  OF ANY  OTHER  TRANSACTION  CONTEMPLATED  HEREUNDER  OR
        THEREUNDER.

                        27.     REVIVAL. The Companies further agree that to the
        extent any Company makes a payment or payments to Laurus,  which payment
        or payments or any part thereof are subsequently  invalidated,  declared
        to be fraudulent or preferential, set aside and/or required to be repaid
        to a trustee,  receiver  or any other party  under any  bankruptcy  act,
        state or federal law, common law or equitable cause, then, to the extent
        of such payment or repayment, the obligation or part thereof intended to
        be satisfied  shall be revived and continued in full force and effect as
        if said payment had not been made.

                        28.     BORROWING AGENCY PROVISIONS.

                (a)     Each Company hereby irrevocably designates Company Agent
to be its  attorney and agent and in such  capacity to borrow,  sign and endorse
notes, and execute and deliver all instruments,  documents, writings and further
assurances now or hereafter required hereunder,  on behalf of such Company,  and
hereby  authorizes  Laurus to pay over or credit all loan proceeds  hereunder in
accordance with the request of Company Agent.

                (b)     The handling of this credit  facility as a  co-borrowing
facility  with a borrowing  agent in the manner set forth in this  Agreement  is
solely as an accommodation  to the Companies and at their request.  Laurus shall
not incur any liability to any Company as a result thereof.  To induce Laurus to
do so and in consideration  thereof,  each Company hereby

                                       36
<PAGE>

indemnifies  Laurus  and holds  Laurus  harmless  from and  against  any and all
liabilities,  expenses,  losses, damages and claims of damage or injury asserted
against  Laurus by any Person arising from or incurred by reason of the handling
of the financing  arrangements of the Companies as provided herein,  reliance by
Laurus on any request or  instruction  from  Company  Agent or any other  action
taken by Laurus with respect to this Paragraph 28.

                (c)     All  Obligations  shall be joint  and  several,  and the
Companies   shall  make  payment  upon  the  maturity  of  the   Obligations  by
acceleration or otherwise,  and such obligation and liability on the part of the
Companies  shall  in  no  way  be  affected  by  any  extensions,  renewals  and
forbearance  granted  by Laurus to any  Company,  failure  of Laurus to give any
Company notice of borrowing or any other notice, any failure of Laurus to pursue
to  preserve  its  rights  against  any  Company,  the  release by Laurus of any
Collateral  now or thereafter  acquired from any Company,  and such agreement by
any Company to pay upon any notice issued pursuant thereto is unconditional  and
unaffected by prior recourse by Laurus to any Company or any Collateral for such
Company's Obligations or the lack thereof.

                (d)     Each  Company  expressly  waives  any and all  rights of
subrogation,  reimbursement,  indemnity, exoneration,  contribution or any other
claim which such  Company may now or  hereafter  have against the other or other
Person directly or contingently  liable for the Obligations,  or against or with
respect to any other's property  (including,  without  limitation,  any property
which  is  Collateral  for the  Obligations),  arising  from  the  existence  or
performance of this Agreement, until all Obligations have been indefeasibly paid
in full and this Agreement has been irrevocably terminated.

                (e)     Each Company  represents and warrants to Laurus that (i)
Companies have one or more common shareholders, directors and officers, (ii) the
businesses  and corporate  activities  of Companies are closely  related to, and
substantially benefit, the business and corporate activities of Companies, (iii)
the  financial  and other  operations  of Companies  are performed on a combined
basis as if Companies constituted a consolidated corporate group, (iv) Companies
will receive a substantial  economic  benefit from entering into this  Agreement
and will receive a substantial  economic  benefit from the  application  of each
Loan hereunder, in each case, whether or not such amount is used directly by any
Company and (v) all  requests for Loans  hereunder by the Company  Agent are for
the exclusive and indivisible  benefit of the Companies as though,  for purposes
of this Agreement, the Companies constituted a single entity.

                        29.     NOTICES.  Any notice or request hereunder may be
        given  to any  Company,  Company  Agent  or  Laurus  at  the  respective
        addresses  set forth below or as may  hereafter be specified in a notice
        designated  as a change of  address  under this  Section.  Any notice or
        request hereunder shall be given by registered or certified mail, return
        receipt requested, hand delivery,  overnight mail or telecopy (confirmed
        by mail).  Notices and  requests  shall be, in the case of those by hand
        delivery, deemed to have been given when delivered to any officer of the
        party to whom it is addressed, in the case of those by mail or overnight
        mail,  deemed to have been given three (3) Business  Days after the date
        when deposited in the mail or with the overnight  mail carrier,  and, in
        the case of a telecopy, when confirmed.

                                       37
<PAGE>

Notices shall be provided as follows:

                If to Laurus:           Laurus Master Fund, Ltd.
                                        c/o Laurus Capital Management, LLC
                                        825 Third Avenue, 14th Fl.
                                        New York, New York 10022
                                        Attention:   John E. Tucker, Esq.
                                        Telephone:   (212) 541-4434
                                        Telecopier:  (212) 541-5800

                If to any Company,
                or Company Agent:

                                        Incentra Solutions, Inc.
                                        1140 Pearl Street
                                        Boulder, Colorado 80302
                                        Attention: CFO
                                        Facsimile:(303) 449-9584

                With a copy to:         Law Offices of Karl Reed Guest
                                        94 Underhill Road
                                        Orinda, CA 94563
                                        Attention:  Reed Guest, Esq.
                                        Telephone:  (925) 254-0677
                                        Facsimile:  (925) 254-9226

or such other address as may be  designated  in writing  hereafter in accordance
with this Section 29 by such Person.

                        30.     GOVERNING LAW,  JURISDICTION  AND WAIVER OF JURY
                                TRIAL.

                (a)     THIS  AGREEMENT  AND THE ANCILLARY  AGREEMENTS  SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF THE STATE
OF NEW YORK  APPLICABLE TO CONTRACTS  MADE AND PERFORMED IN SUCH STATE,  WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

                (b)     EACH COMPANY  HEREBY  CONSENTS AND AGREES THAT THE STATE
OR FEDERAL  COURTS  LOCATED  IN THE COUNTY OF NEW YORK,  STATE OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
ANY COMPANY, ON THE ONE HAND, AND LAURUS, ON THE OTHER HAND,  PERTAINING TO THIS
AGREEMENT OR ANY OF THE ANCILLARY  AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS  AGREEMENT OR ANY OF THE ANCILLARY  AGREEMENTS;  PROVIDED,  THAT
LAURUS AND EACH COMPANY  ACKNOWLEDGE THAT ANY

                                       38
<PAGE>

APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
COUNTY OF NEW YORK,  STATE OF NEW YORK;  AND FURTHER  PROVIDED,  THAT NOTHING IN
THIS AGREEMENT  SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT
OR  TAKING  OTHER  LEGAL  ACTION  IN  ANY  OTHER  JURISDICTION  TO  COLLECT  THE
OBLIGATIONS,  TO  REALIZE  ON THE  COLLATERAL  OR ANY  OTHER  SECURITY  FOR  THE
OBLIGATIONS,  OR TO ENFORCE A JUDGMENT  OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH COMPANY  EXPRESSLY  SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT  COMMENCED IN ANY SUCH COURT,  AND EACH COMPANY HEREBY WAIVES
ANY  OBJECTION  WHICH IT MAY HAVE  BASED  UPON  LACK OF  PERSONAL  JURISDICTION,
IMPROPER  VENUE OR FORUM NON  CONVENIENS.  EACH COMPANY  HEREBY WAIVES  PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED  MAIL  ADDRESSED TO COMPANY AGENT AT THE ADDRESS
SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED  COMPLETED UPON
THE EARLIER OF COMPANY  AGENT'S ACTUAL  RECEIPT  THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

                (c)     THE PARTIES  DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,  TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL  SYSTEM AND OF  ARBITRATION,  THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,  SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE,  WHETHER  ARISING IN CONTRACT,  TORT, OR OTHERWISE  BETWEEN
LAURUS, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL
TO THE RELATIONSHIP  ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT,
ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

                        31.     LIMITATION    OF    LIABILITY.    Each   Company
        acknowledges  and understands  that in order to assure  repayment of the
        Obligations  hereunder Laurus may be required to exercise any and all of
        Laurus' rights and remedies hereunder and agrees that, except as limited
        by applicable  law,  neither  Laurus nor any of Laurus'  agents shall be
        liable  for acts  taken or  omissions  made in  connection  herewith  or
        therewith except for actual bad faith.

                        32.     ENTIRE  UNDERSTANDING;  MAXIMUM  INTEREST.  This
        Agreement and the Ancillary  Agreements contain the entire understanding
        among  each  Company  and  Laurus as to the  subject  matter  hereof and
        thereof and any promises, representations,  warranties or guarantees not
        herein  contained  shall  have no force and  effect  unless in  writing,
        signed by each Company's and Laurus' respective  officers.  Neither this
        Agreement,  the  Ancillary  Agreements,  nor any  portion or  provisions
        thereof  may  be  changed,  modified,  amended,  waived,   supplemented,
        discharged,  cancelled or terminated orally or by any course of dealing,
        or in any manner other than by an  agreement  in writing,  signed by the
        party to be charged.  Nothing contained in this Agreement, any Ancillary
        Agreement or in any

                                       39
<PAGE>

        document referred to herein or delivered in connection herewith shall be
        deemed to  establish  or require  the  payment of a rate of  interest or
        other charges in excess of the maximum rate permitted by applicable law.
        In the event that the rate of interest or dividends  required to be paid
        or other  charges  hereunder  exceed the maximum rate  permitted by such
        law, any payments in excess of such  maximum  shall be credited  against
        amounts  owed by the  Companies  to  Laurus  and  thus  refunded  to the
        Companies.

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

                        34.     SURVIVAL.   The   representations,   warranties,
        covenants and  agreements  made herein shall  survive any  investigation
        made by Laurus and the closing of the transactions  contemplated  hereby
        to the extent  provided  therein.  All statements as to factual  matters
        contained  in any  certificate  or other  instrument  delivered by or on
        behalf  of  the  Companies   pursuant  hereto  in  connection  with  the
        transactions  contemplated herebly shall be deemed to be representations
        and warranties by the Companies  hereunder solely as of the date of such
        certificate  or  instrument.  All  indemnities  set forth  herein  shall
        survive the  execution,  delivery and  termination of this Agreement and
        the Ancillary Agreements and the making and repaying of the Obligations.

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

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

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

                        38.     PUBLICITY. Each Company hereby authorizes Laurus
        to make appropriate  announcements of the financial  arrangement entered
        into  by  and  among  each  Company  and  Laurus,   including,   without
        limitation,  announcements  which are commonly known as  tombstones,  in
        such  publications  and to such selected  parties as Laurus shall in its
        sole  and  absolute  discretion  deem  appropriate,  or as  required  by
        applicable law.

                        39.     JOINDER.  It is  understood  and agreed that any
        Person  that  desires to become a Company  hereunder,  or is required to
        execute a counterpart of this Agreement  after the date hereof  pursuant
        to the requirements of this Agreement or any Ancillary Agreement,  shall
        become a Company hereunder by (a) executing a Joinder Agreement in

                                       40
<PAGE>

        form and substance satisfactory to Laurus, (b) delivering supplements to
        such exhibits and annexes to this Agreement and the Ancillary Agreements
        as Laurus  shall  reasonably  request  and (c)  taking  all  actions  as
        specified in this Agreement as would have been taken by such Company had
        it been an  original  party to this  Agreement,  in each  case  with all
        documents  required  above  to be  delivered  to  Laurus  and  with  all
        documents  and  actions  required  above to be  taken to the  reasonable
        satisfaction of Laurus.

                        40.     LEGENDS.  The  Securities  shall bear legends as
        follows;

                (a)     The Note shall bear substantially the following legend:

                "THIS  NOTE HAS NOT BEEN  REGISTERED  UNDER  THE
                SECURITIES  ACT  OF  1933,  AS  AMENDED,  OR ANY
                APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY
                NOT  BE  SOLD,  OFFERED  FOR  SALE,  PLEDGED  OR
                HYPOTHECATED  IN  THE  ABSENCE  OF AN  EFFECTIVE
                REGISTRATION  STATEMENT  AS TO THIS NOTE OR SUCH
                SHARES  UNDER  SAID  ACT  AND  APPLICABLE  STATE
                SECURITIES   LAWS  OR  AN   OPINION  OF  COUNSEL
                REASONABLY  SATISFACTORY  TO  PARENT  THAT  SUCH
                REGISTRATION IS NOT REQUIRED."

                (b)     The Shares of Common Stock  issued  pursuant to exercise
of the Options shall bear a legend which shall be in substantially the following
form until such shares are covered by an effective  registration statement filed
with the SEC:

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

                (c)     The  Options  shall  bear  substantially  the  following
legend:

                "THIS OPTION AND THE COMMON SHARES ISSUABLE UPON
                EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED
                UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                ANY  APPLICABLE   STATE  SECURITIES  LAWS.  THIS
                OPTION  AND  THE  COMMON  SHARES  ISSUABLE  UPON
                EXERCISE OF THIS OPTION MAY NOT BE SOLD, OFFERED
                FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
                OF AN  EFFECTIVE

                                       41
<PAGE>

                REGISTRATION  STATEMENT AS TO THIS OPTION OR THE
                UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT
                AND  APPLICABLE  STATE  SECURITIES  LAWS  OR  AN
                OPINION OF COUNSEL  REASONABLY  SATISFACTORY  TO
                PARENT THAT SUCH REGISTRATION IS NOT REQUIRED."

      [Balance of page intentionally left blank; signature page follows.]

                                       42
<PAGE>

                IN WITNESS  WHEREOF,  the parties have  executed  this  Security
Agreement as of the date first written above.

                                        INCENTRA SOLUTIONS, INC.

                                        By: /s/ Thomas P. Sweeney, III
                                        ------------------------------------
                                        Name:  Thomas P. Sweeney, III
                                        Title: Chairman and CEO

                                        MANAGEDSTORAGE INTERNATIONAL, INC.

                                        By: /s/ Thomas P. Sweeney, III
                                        ------------------------------------
                                        Name:  Thomas P. Sweeney, III
                                        Title: Chairman and CEO

                                        INCENTRA SOLUTIONS INTERNATIONAL, INC.

                                        By: /s/ Thomas P. Sweeney, III
                                        ------------------------------------
                                        Name:  Thomas P. Sweeney, III
                                        Title: Chairman and CEO

                                        PWI TECHNOLOGIES, INC.

                                        By: /s/ Thomas P. Sweeney, III
                                        ------------------------------------
                                        Name:  Thomas P. Sweeney, III
                                        Title: Chairman and CEO

                                        INCENTRA SOLUTIONS OF CALIFORNIA, INC.

                                        By: /s/ Thomas P. Sweeney, III
                                        ------------------------------------
                                        Name:  Thomas P. Sweeney, III
                                        Title: Chairman and CEO

                                        LAURUS MASTER FUND, LTD.

                                        By: /s/ David Grin
                                        ------------------------------------
                                        Name:  David Grin
                                        Title: Managing Partner

                                       43
<PAGE>

                              ANNEX A - DEFINITIONS

                "ACCOUNT  DEBTOR"  means any Person  who is or may be  obligated
with respect to, or on account of, an Account.

                "ACCOUNTANTS"  has the  meaning  given to such  term in  Section
11(a).

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

                "ACCOUNTS  AVAILABILITY" means up to ninety percent (90%) of the
net face amount of Eligible Accounts.

                "AFFILIATE"  means,  with  respect to any Person,  (a) any other
Person (other than a Subsidiary)  which,  directly or indirectly,  is in control
of, is  controlled  by, or is under  common  control with such Person or (b) any
other  Person  who is a  director  or officer  (i) of such  Person,  (ii) of any
Subsidiary of such Person or (iii) of any Person  described in clause (a) above.
For the  purposes of this  definition,  control of a Person shall mean the power
(direct or indirect)  to direct or cause the  direction  of the  management  and
policies of such Person whether by contract or otherwise.

                "ANCILLARY   AGREEMENTS"  means  the  Notes,  the  Options,  the
Registration Rights Agreements, each Security Document and all other agreements,
instruments,  documents,  mortgages,  pledges,  powers  of  attorney,  consents,
assignments,  contracts,  notices,  security  agreements,  trust  agreements and
guarantees  whether  heretofore,  concurrently,  or hereafter  executed by or on
behalf of any Company,  any of its Subsidiaries or any other Person or delivered
to Laurus,  relating to this Agreement or to the  transactions  contemplated  by
this Agreement or otherwise  relating to the  relationship  between or among any
Company and Laurus, as each of the same may be amended,  supplemented,  restated
or otherwise modified from time to time.

                "BALANCE  SHEET DATE" has the meaning given such term in Section
12(f)(ii).
<PAGE>

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

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

                "CAPITAL   AVAILABILITY   AMOUNT"  means  Ten  Million   Dollars
($10,000,000).

                "CHARTER" has the meaning given such term in Section 12(c)(iv).

                "CHATTEL  PAPER"  means  all  "chattel  paper,"  as such term is
defined in the UCC,  including  electronic chattel paper, now owned or hereafter
acquired by any Person.

                "CLOSING  DATE" means the date on which any Company  shall first
receive  proceeds of the initial  Loans or the date  hereof,  if no Loan is made
under the facility on the date hereof.

                "CODE" has the meaning given such term in Section 15(i).

                "COLLATERAL"  means all of each  Company's  property and assets,
whether  real or  personal,  tangible  or  intangible,  and whether now owned or
hereafter  acquired,  or in which it now has or at any  time in the  future  may
acquire any right, title or interests including all of the following property in
which it now has or at any time in the future may  acquire  any right,  title or
interest:

                (a)     all Inventory;

                (b)     all Equipment;

                (c)     all Fixtures;

                (d)     all General Intangibles;

                (e)     all Accounts;

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

                (g)     all Investment Property;

                (h)     all Stock;

                (i)     all Chattel Paper;

                (j)     all Letter-of-Credit Rights;

                                       2
<PAGE>

                (k)     all Instruments;

                (l)     all  commercial  tort claims set forth on SCHEDULE 1(A);

                (m)     all Books and Records;

                (n)     all Intellectual Property;

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

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

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

                "COMMON  STOCK"  means  the  shares  of stock  representing  the
Parent's common equity interests.

                "COMPANY AGENT" means the Parent.

                "CONTRACT   RATE"  has  the  meaning  given  such  term  in  the
respective Note.

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

                "DEPOSIT  ACCOUNTS" means all "deposit accounts" as such term is
defined in the UCC, now or hereafter held in the name of any Person,  including,
without limitation, the Lockboxes.

                "DISCLOSURE CONTROLS" has the meaning given such term in Section
12(f)(iv).

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

                "ELIGIBLE   ACCOUNTS"   means  each  Account  of  each  Eligible
Subsidiary  which  conforms  to the  following  criteria:  (a)  shipment  of the
merchandise or the rendition of services has been completed  provided,  however,
advance billings of monthly minimum charges for  ManagedStorage  customers shall
be excluded from this  requirement  subject to mutual agreement by Purchaser and
the Company;  (b) no return,  rejection or  repossession  of the merchandise has

                                       3
<PAGE>

occurred;  (c)  merchandise or services shall not have been rejected or disputed
by the Account Debtor and there shall not have been asserted any offset, defense
or counterclaim; (d) continues to be in full conformity with the representations
and warranties made by such Company to Laurus with respect  thereto;  (e) Laurus
is, and  continues  to be,  satisfied  with the credit  standing  of the Account
Debtor in  relation  to the  amount of credit  extended;  (f) there are no facts
existing or  threatened  which are likely to result in any adverse  change in an
Account Debtor's financial condition;  (g) is documented by an invoice in a form
approved by Laurus and shall not be unpaid more than one hundred (100) days from
invoice date; (h) not more than  twenty-five  percent (25%) of the unpaid amount
of invoices due from such Account  Debtor  remains  unpaid more than one hundred
(100) days from  invoice  date;  (i) is not  evidenced  by  chattel  paper or an
instrument of any kind with respect to or in payment of the Account  unless such
instrument is duly endorsed to and in possession of Laurus or represents a check
in  payment  of an  Account;  (j) the  Account  Debtor is  located in the United
States; PROVIDED, HOWEVER, Laurus may, from time to time, in the exercise of its
sole  discretion  and  based  upon  satisfaction  of  certain  conditions  to be
determined at such time by Laurus,  deem certain  Accounts as Eligible  Accounts
notwithstanding  that such Account is due from an Account Debtor located outside
of the United  States;  (k) Laurus has a first  priority  perfected Lien in such
Account and such Account is not subject to any Lien other than Permitted  Liens;
(l) does not arise out of  transactions  with any employee,  officer,  director,
stockholder  or Affiliate of any Company;  (m) is payable to such  Company;  (n)
does not arise out of a bill and hold sale prior to shipment  and does not arise
out of a sale to any Person to which such Company is indebted; (o) is net of any
returns,  discounts,  claims, credits and allowances;  (p) if the Account arises
out of contracts  between such Company,  on the one hand, and the United States,
on the other hand, any state, or any department,  agency or  instrumentality  of
any of them,  such  Company has so  notified  Laurus,  in writing,  prior to the
creation of such Account,  and there has been compliance  with any  governmental
notice  or  approval   requirements,   including  compliance  with  the  Federal
Assignment  of Claims  Act;  (q) is a good and  valid  account  representing  an
undisputed bona fide indebtedness  incurred by the Account Debtor therein named,
for a fixed sum as set forth in the invoice  relating thereto with respect to an
unconditional  sale and  delivery  upon the  stated  terms of goods sold by such
Company or work,  labor and/or services  rendered by such Company;  (r) does not
arise out of  progress  billings  prior to  completion  of the  order  except as
allowed in (a) above;  (s) the total unpaid  Accounts  from such Account  Debtor
does not exceed  twenty-five  percent (25%) of all Eligible  Accounts;  (t) such
Company's  right to payment is absolute and not contingent  upon the fulfillment
of any condition whatsoever;  (u) such Company is able to bring suit and enforce
its remedies against the Account Debtor through judicial  process;  (v) does not
represent interest payments,  late or finance charges owing to such Company, and
(w) is otherwise  satisfactory to Laurus as determined by Laurus in the exercise
of its sole  discretion.  In the event any Company  requests that Laurus include
within  Eligible  Accounts  certain  Accounts  of one or more of such  Company's
acquisition  targets,  Laurus  shall at the time of such request  consider  such
inclusion,  but any such  inclusion  shall be at the sole  option of Laurus  and
shall at all times be subject to the  execution  and  delivery  to Laurus of all
such  documentation  (including,  without  limitation,   guaranty  and  security
documentation) as Laurus may require in its sole discretion.

                "ELIGIBLE  SUBSIDIARY"  means each  Subsidiary of the Parent set
forth on  EXHIBIT A hereto,  as the same may be  updated  from time to time with
Laurus' written consent.

                                       4
<PAGE>

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

                "ERISA" has the meaning given such term in Section 12(bb).

                "EVENT OF DEFAULT" means the occurrence of any of the events set
forth in Section 19.

                "EXCHANGE  ACT" means the  Securities  Exchange Act of 1934,  as
amended.

                "EXCHANGE  ACT  FILINGS"  means the Parent's  filings  under the
Exchange Act made prior to the date of this Agreement.

                "FINANCIAL  REPORTING  CONTROLS" has the meaning given such term
in Section 12(f)(v).

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

                "FORMULA  AMOUNT"  has the  meaning  given  such term in Section
2(a)(i).

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

                "GENERAL  INTANGIBLES"  means all "general  intangibles" as such
term is  defined  in the UCC,  now owned or  hereafter  acquired  by any  Person
including  all right,  title and interest  that such Person may now or hereafter
have  in or  under  any  contract,  all  Payment  Intangibles,  customer  lists,
Licenses,  Intellectual Property, interests in partnerships,  joint ventures and
other business associations,  permits,  proprietary or confidential information,
inventions  (whether or not  patented  or  patentable),  technical  information,
procedures,  designs,  knowledge,  know-how,  Software, data bases, data, skill,
expertise,  experience,   processes,  models,  drawings,  materials,  Books  and
Records,  Goodwill  (including  the Goodwill  associated  with any  Intellectual
Property),  all  rights  and claims in or under  insurance  policies  (including
insurance for fire,  damage,  loss,  and  casualty,  whether  covering  personal
property,  real property,  tangible rights or intangible  rights, all liability,
life,  key-person,   and  business  interruption  insurance,  and  all  unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to  receive  tax  refunds  and other  payments,  rights to  received  dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.

                "GOODS"  means all "goods",  as such term is defined in the UCC,
now owned or  hereafter  acquired by any  Person,  wherever  located,  including
embedded software to the extent

                                       5
<PAGE>

included in "goods" as defined in the UCC,  manufactured homes,  standing timber
that is cut and removed for sale and unborn young of animals.

                "GOODWILL"  means all goodwill,  trade  secrets,  proprietary or
confidential information,  technical information,  procedures, formulae, quality
control standards,  designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.

                "GOVERNMENTAL  AUTHORITY"  means any nation or  government,  any
state or other  political  subdivision  thereof,  and any agency,  department or
other  entity  exercising  executive,   legislative,   judicial,  regulatory  or
administrative functions of or pertaining to government.

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

                "INTELLECTUAL  PROPERTY" means any and all patents,  trademarks,
service marks, trade names, copyrights, trade secrets, Licenses, information and
other proprietary rights and processes.

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

                "INVESTMENT PROPERTY" means all "investment  property",  as such
term is defined  in the UCC,  now owned or  hereafter  acquired  by any  Person,
wherever located.

                "LETTER-OF-CREDIT  RIGHTS"  means  "letter-of-credit  rights" as
such term is defined in the UCC, now owned or hereafter  acquired by any Person,
including rights to payment or performance under a letter of credit,  whether or
not such Person,  as beneficiary,  has demanded or is entitled to demand payment
or performance.

                "LICENSE"  means any rights under any written  agreement  now or
hereafter acquired by any Person to use any trademark,  trademark  registration,
copyright,  copyright  registration  or  invention  for  which  a  patent  is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.

                "LIEN" means any mortgage, security deed, deed of trust, pledge,
hypothecation,   assignment,  security  interest,  lien  (whether  statutory  or
otherwise),  charge,  claim or  encumbrance,  or  preference,  priority or other
security  agreement or preferential  arrangement  held or asserted in respect of
any asset of any kind or nature  whatsoever  including any  conditional  sale or
other  title  retention  agreement,  any  lease  having  substantially  the same

                                       6
<PAGE>

economic  effect as any of the  foregoing,  and the filing of, or  agreement  to
give,  any  financing   statement  under  the  UCC  or  comparable  law  of  any
jurisdiction.

                "LOANS"  has the  meaning  given such term in  Section  2(a) and
shall include all other  extensions of credit  hereunder and under any Ancillary
Agreement.

                "LOCKBOXES" has the meaning given such term in Section 8(a).

                "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the  business,   assets,   liabilities,   condition  (financial  or  otherwise),
properties,  operations  or prospects of any Company or any of its  Subsidiaries
(taken  individually  and  as  a  whole),  (b)  any  Company's  or  any  of  its
Subsidiary's  ability to pay or perform the  Obligations in accordance  with the
terms hereof or any Ancillary  Agreement,  (c) the value of the Collateral,  the
Liens on the  Collateral  or the priority of any such Lien or (d) the  practical
realization  of the benefits of Laurus' rights and remedies under this Agreement
and the Ancillary Agreements.

                "NASD" has the meaning given such term in Section 13(b).

                "NOTES" means the  Revolving  Note made by Companies in favor of
Laurus in connection with the transactions  contemplated  hereby, as each of the
same may be amended, supplemented,  restated and/or otherwise modified from time
to time.

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

                "OPTION" means that certain  Common Stock Purchase  Option dated
as of the  Closing  Date made by the  Parent in favor of Laurus  and each  other
warrant made by the Parent in favor Laurus,  as each of the same may be amended,
restated, modified and/or supplemented from time to time.

                                       7
<PAGE>

                "OPTION  SHARES"  has the  meaning  given  such term in  Section
12(a).

                "PAYMENT  INTANGIBLES"  means all "payment  intangibles" as such
term is defined  in the UCC,  now owned or  hereafter  acquired  by any  Person,
including,  a General  Intangible  under  which the Account  Debtor's  principal
obligation is a monetary obligation.

                "PERMITTED  LIENS"  means (a) Liens of  carriers,  warehousemen,
artisans,  bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection  with worker's  compensation,  unemployment  insurance or
other forms of  governmental  insurance  or  benefits,  relating  to  employees,
securing sums (i) not overdue or (ii) being  diligently  contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the Companies and their Subsidiaries, as applicable, in conformity with GAAP;
(c) Liens in favor of Laurus;  (d) Liens for taxes (i) not yet due or (ii) being
diligently  contested in good faith by  appropriate  proceedings,  provided that
adequate  reserves  with  respect  thereto  are  maintained  on the books of the
Companies and their  Subsidiaries,  as applicable,  in conformity with GAAP; and
which have no effect on the priority of Liens in favor of Laurus or the value of
the  assets in which  Laurus  has a Lien;  (e)  Purchase  Money  Liens  securing
Purchase Money  Indebtedness  to the extent  permitted in this Agreement and (f)
Liens specified on SCHEDULE 2 hereto.

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

                "PRINCIPAL  MARKET"  means  the NASD Over The  Counter  Bulletin
Board,  NASDAQ SmallCap  Market,  NASDAQ National Market System,  American Stock
Exchange or New York Stock  Exchange  (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock).

                "PROCEEDS" means "proceeds",  as such term is defined in the UCC
and, in any event,  shall  include:  (a) any and all proceeds of any  insurance,
indemnity,  warranty or guaranty payable to any Company or any other Person from
time to time with  respect to any  Collateral;  (b) any and all payments (in any
form  whatsoever)  made or due and payable to any  Company  from time to time in
connection  with  any  requisition,   confiscation,   condemnation,  seizure  or
forfeiture of any Collateral by any governmental body,  governmental  authority,
bureau or agency (or any person acting under color of  governmental  authority);
(c) any claim of any Company  against  third  parties  (i) for past,  present or
future  infringement of any Intellectual  Property or (ii) for past,  present or
future  infringement  or dilution of any  trademark or trademark  license or for
injury to the goodwill associated with any trademark,  trademark registration or
trademark  licensed  under any  trademark  License;  (d) any  recoveries  by any
Company  against  third  parties  with  respect  to any  litigation  or  dispute
concerning  any  Collateral,  including  claims  arising  out  of  the  loss  or
nonconformity  of,  interference with the use of, defects in, or infringement of
rights  in,  or  damage  to,  Collateral;  (e)  all  amounts  collected  on,  or
distributed on account of, other

                                       8
<PAGE>

Collateral,  including dividends,  interest,  distributions and Instruments with
respect to  Investment  Property  and pledged  Stock;  and (f) any and all other
amounts,  rights to payment or other  property  acquired  upon the sale,  lease,
license,  exchange or other disposition of Collateral and all rights arising out
of Collateral.

                "PURCHASE  MONEY   INDEBTEDNESS"   means  (a)  any  indebtedness
incurred for the payment of all or any part of the  purchase  price of any fixed
asset,  including  indebtedness  under capitalized  leases, (b) any indebtedness
incurred for the sole purpose of financing or refinancing all or any part of the
purchase  price  of any  fixed  asset,  and  (c)  any  renewals,  extensions  or
refinancings  thereof (but not any  increases in the principal  amounts  thereof
outstanding at that time).

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

                "REGISTRATION  RIGHTS AGREEMENT" means that certain Registration
Rights  Agreement  dated as of the  Closing  Date by and  between the Parent and
Laurus and each other  registration  rights  agreement by and between the Parent
and Laurus,  as each of the same may be amended,  modified and supplemented from
time to time.

                "RELATED  AGREEMENTS" means the Related Agreements as defined in
the Securities  Purchase  Agreement,  as amended,  modified or supplemented from
time to time.

                "REVOLVING NOTE" means that certain Secured Revolving Note dated
as of the Closing Date made by the  Companies in favor of Laurus in the original
principal  amount  of Ten  Million  Dollars  ($10,000,000),  as the  same may be
amended, supplemented, restated and/or otherwise modified from time to time.

                "SEC" means the Securities and Exchange Commission.

                "SEC REPORTS" has the meaning given such term in Section 12(u).

                "SECURITIES"  means the Notes and the  Options and the shares of
Common Stock which may be issued  pursuant to  conversion of such Notes in whole
or in part or exercise of such Options.

                "SECURITIES  ACT" has the  meaning  given  such term in  Section
12(r).

                "SECURITY DOCUMENTS" means all security  agreements,  mortgages,
cash collateral deposit letters, pledges and other agreements which are executed
by any Company or any of its Subsidiaries in favor of Laurus.

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

                                       9
<PAGE>

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

                "SUBSIDIARY"  means,  with respect to any Person,  (i) any other
Person whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership  interests  having such power only by
reason of the happening of a  contingency)  to elect a majority of the directors
or other governing body of such other Person, are owned, directly or indirectly,
by such Person or (ii) any other Person in which such Person  owns,  directly or
indirectly, more than 50% of the equity interests at such time.

                "SUPPORTING  OBLIGATIONS" means all "supporting  obligations" as
such term is defined in the UCC.

                "TERM"  means the Closing  Date through the close of business on
the day immediately preceding the third anniversary of the Closing Date, subject
to  acceleration  at the  option of Laurus  upon the  occurrence  of an Event of
Default hereunder or other termination hereunder.

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

                                       10
<PAGE>

                                   EXHIBIT A

                              ELIGIBLE SUBSIDIARIES

1.      PWI Technologies, Inc. (WA)

2.      Incentra Solutions of California, Inc. (DE)

3.      ManagedStorage International, Inc. (DE)

4.      Incentra Solutions International, Inc.

<PAGE>

                                    EXHIBIT B

                           BORROWING BASE CERTIFICATE

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                               SECURITY AGREEMENT
                               ------------------

                            LAURUS MASTER FUND, LTD.

                            INCENTRA SOLUTIONS, INC.

                             PWI TECHNOLOGIES, INC.

                       MANAGEDSTORAGE INTERNATIONAL, INC.

                     INCENTRA SOLUTIONS INTERNATIONAL, INC.

                                       and

                     INCENTRA SOLUTIONS OF CALIFORNIA, INC.

                             Dated: February 6, 2006

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                                TABLE OF CONTENTS

                                                                            PAGE

1.     General Definitions and Terms; Rules of Construction....................1

2.     Loan Facility...........................................................2

3.     Repayment of the Loans..................................................3

4.     Procedure for Loans.....................................................4

5.     Interest and Payments...................................................4

6.     Security Interest.......................................................5

7.     Representations, Warranties and Covenants Concerning the Collateral.....6

8.     Payment of Accounts.....................................................8

9.     Collection and Maintenance of Collateral................................9

10.    Inspections and Appraisals.............................................10

11.    Financial Reporting....................................................10

12.    Additional Representations and Warranties..............................11

13.    Covenants..............................................................22

14.    Further Assurances.....................................................27

15.    Representations, Warranties and Covenants of Laurus....................28

16.    Power of Attorney......................................................30

17.    Term of Agreement......................................................30

18.    Termination of Lien....................................................31

19.    Events of Default......................................................31

20.    Remedies...............................................................33

21.    Waivers................................................................34

22.    Expenses...............................................................34

23.    Assignment By Laurus...................................................35

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                                                                         PAGE(S)

24.    No Waiver; Cumulative Remedies.........................................35

25.    Application of Payments................................................35

26.    Indemnity..............................................................36

27.    Revival................................................................36

28.    Borrowing Agency Provisions............................................36

29.    Notices................................................................37

30.    Governing Law, Jurisdiction and Waiver of Jury Trial...................38

31.    Limitation of Liability................................................39

32.    Entire Understanding...................................................39

33.    Severability...........................................................40

34.    Captions...............................................................40

35.    Counterparts; Telecopier Signatures....................................40

36.    Construction...........................................................40

37.    Publicity..............................................................40

38.    Joinder................................................................40

39.    Legends................................................................41

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