Document:

AMENDMENT
      NO. 1 

    TO
      

    SECURITY
      AGREEMENT

     

    This Amendment
      No. 1 to Security Agreement
      (the
“Amendment”)
      is
      made effective as of October 18, 2006 (the “Amendment
      Date”)
      and is
      entered into by and between Ronco Corporation, a Delaware corporation (the
      “Borrower”),
      and
      Sanders Morris Harris Inc., a Texas corporation, individually and as agent
      for
      the Lenders (the “Secured
      Party”).
      

     

    Capitalized
      terms used in this Amendment that are not otherwise defined herein shall have
      the meanings set forth in the Security Agreement dated June 9, 2006 between
      the
      Borrower and the Secured Party (the “Agreement”).

     

    Whereas,
      the
      Borrower and the Secured Party are parties to the Agreement;

     

    Whereas, the
      Borrower intends to enter into a senior credit agreement (the “Laurus
      Loan”)
      with
      Laurus Master Fund, Ltd (“Laurus”);

     

    Whereas, a
      condition to closing on the Laurus Loan is that the Secured Party and Laurus
      enter into an intercreditor and subordination agreement pursuant to which the
      Secured Party shall subordinate its interest in the Collateral to
      Laurus;

     

    Whereas, certain
      provisions of the Agreement require amendment to facilitate the Laurus Loan;
      and

     

    Whereas,
      the
      Agreement may be amended by the Secured Party and the Borrower. 

     

    Now,
      Therefore,
      in
      consideration of the mutual covenants and obligations set forth herein, and
      for
      other good and valuable consideration, the receipt and sufficiency of which
      is
      hereby acknowledged, the Borrower and the Secured Party hereby agree as
      follows:

     

    	1.          
             	
            Amendment
              of the Agreement.

          

     

    The
      parties hereby agree to amend the terms of the Agreement as of the Amendment
      Date as provided below.

     

    1.1  Amendment
      of Section 1(e). Section
      1(e) is hereby amended and restated in its entirety to read as
      follows:

     

    “(e)
      The
      term “Loan
      Documents”
means
      this Agreement, the Letter Loan Agreement dated as of the date hereof (the
“Loan
      Agreement”), among the Borrower and the Lenders and the Note.” 

     

    1.2  Amendment
      of Section 4(a).
      Section
      4(a) is hereby amended and restated in its entirety to read as
      follows:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “(a) Ownership
      and Liens.
      Other
      than the assignment of the Collateral to Laurus Master Fund, Ltd. (the “New
      Insurance Assignment”) as collateral pursuant to terms of the loan (the “Laurus
      Loan”) made by Laurus Master Fund, Ltd. to Debtor, Debtor will maintain good and
      marketable title to all Collateral free and clear of all Liens, except for
      Liens
      held by, as applicable, the Secured Party, Wells
      Fargo Bank, National Association, Prestige Capital Corporation, Laurus Master
      Fund, Ltd., Crossroads Financial, LLC
      and the
      Permitted Liens. Debtor will cause any financing statement or other security
      instrument with respect to the Collateral, other than those held by Laurus
      Master Fund, Ltd., Wells Fargo Bank, National Association, Crossroads Financial,
      LLC and Prestige Capital Corporation, to be terminated, except as may exist
      or
      as may have been filed in favor of Secured Party. Debtor will defend at its
      reasonable expense Secured Party’s right, title and security interest in and to
      the Collateral against the claims of any third party other than Wells Fargo
      Bank, National Association, Laurus Master Fund, Ltd., Crossroads Financial,
      LLC
      and Prestige Capital Corporation.”
      

     

    1.3 Amendment
      of Section 4(b). Section
      4(b) is hereby amended and restated in its entirety to read as
      follows:

     

    “(b) Further
      Assurances.
      Debtor
      will from time to time at its expense promptly execute and deliver all further
      instruments and documents and take all further action that Secured Party may
      reasonably request in order (i) to perfect and protect the security interest
      created or purported to be created hereby and the priority of such security
      interest, (ii) to enable Secured Party to exercise and enforce its rights and
      remedies hereunder in respect of the Collateral, and (iii) to otherwise effect
      the purposes of this Agreement, including without limitation executing and
      filing such financing or continuation statements, or amendments thereto.”

     

    1.4 Amendment
      of Section 5(a).
      Section
      5(a) is hereby amended and restated in its entirety to read as
      follows:

     

    “(a) Transfer
      or Encumbrance.
      Debtor
      will not other than pursuant to the New Insurance Assignment and subject to
      the
      rights of Wells
      Fargo Bank, National Association, Laurus Master Fund, Ltd., Prestige Capital
      Corporation, Crossroads Financial, LLC
      and the
      holders of Permitted Liens, (i) sell, assign (by operation of law or otherwise),
      transfer, exchange, lease or otherwise dispose of any of the Collateral, (ii)
      grant a lien or security interest in or execute, file or record any financing
      statement or other security instrument with respect to the Collateral to any
      party other than Secured Party, or (iii) deliver actual or constructive
      possession of any of the Collateral to any party other than Secured
      Party.”

     

    1.5 Amendment
      of Section 5(b).
      Section
      5(b) is hereby amended and restated in its entirety to read as
      follows:

     

    “(b) Impairment
      of Security Interest.
      Other
      than as contemplated by the terms of the Laurus Loan, Debtor will not take
      or
      fail to take any action which would in any manner impair the value or
      enforceability of Secured Party’s security interest in any
      Collateral.”

     

    
      
         

      

      
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    1.6 Amendment
      of Section 6(d).
      Section
      6(d) is hereby amended and restated in its entirety to read as
      follows:

     

    “(d) Debtor’s
      Receipt of Proceeds.
      Subject
      to the rights of Wells
      Fargo Bank, National Association, Laurus Master Fund, Ltd., Crossroads
      Financial, LLC, Prestige Capital Corporation
      and the
      holders of Permitted Liens, all amounts and proceeds (including instruments
      and
      writings) received by Debtor in respect of the Collateral shall be received
      in
      trust for the benefit of Secured Party hereunder and, upon request of Secured
      Party, shall be segregated from other property of Debtor and shall be forthwith
      delivered to Secured Party in the same form as so received (with any necessary
      endorsement) and applied to the Indebtedness in such manner as Secured Party
      deems appropriate in its sole discretion. Notwithstanding the foregoing, all
      amounts and proceeds in respect of the Collateral received by Secured Party
      in
      excess of the Indebtedness shall be promptly paid to Debtor.”

     

    1.7 Amendment
      of Section 7(c).
      Section
      7(c) is hereby amended and restated in its entirety to read as
      follows:

     

    “(c) Abandonment.
      Debtor
      abandons the Collateral or any portion thereof; provided, however, that an
      assignment of the Collateral to Laurus Master Fund, Ltd. pursuant to the New
      Insurance Assignment shall not constitute an abandonment of the
      Collateral.”

    

    1.8 Amendment
      of Section 8(a).
      Section
      8(a) is hereby amended and restated in its entirety to read as
      follows:

     

    “(a) Remedies.
      Subject
      to the New Insurance Assignment and the rights of Laurus Master Fund, Ltd.,
      Secured Party may from time to time at its discretion, without limitation and
      without notice except as expressly provided in any of the Loan
      Documents:”

    

    2.           
      Miscellaneous.

     

    2.1 Waiver.
      The
      Secured Party hereby waives any Event of Default under the Agreement occurring
      immediately prior to the Amendment Date.

     

    2.2 No
      Other Changes.
      All
      terms of the Agreement (including, without limitation, the provisions of the
      Agreement which apply following termination of the Agreement) shall remain
      in
      full force and effect as amended hereby.

     

    2.3 Governing
      Law. THIS
      AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF TEXAS AND APPLICABLE FEDERAL LAWS, EXCEPT TO THE EXTENT PERFECTION
      AND
      THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED
      UNDER THE SECURITY AGREEMENT, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE
      GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
      TEXAS.

     

    
      
         

      

      
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    2.4 Invalid
      Provisions.
      If any
      provision of this Amendment are held to be illegal, invalid or unenforceable
      under present or future laws effective during the term of this Amendment, such
      provision shall be fully severable and this Amendment shall be construed and
      enforced as if such illegal, invalid or unenforceable provision had never
      comprised a part of this Amendment, and the remaining provisions of this
      Amendment shall remain in full force and effect and shall not be affected by
      the
      illegal, invalid or unenforceable provision or by its severance from this
      Amendment.

     

    2.5 Counterparts.
      This
      Amendment may be executed in any number of counterparts and signatures may
      be
      delivered by facsimile, each of which shall be deemed an original, but both
      of
      which together shall constitute one and the same instrument.

     

     

     

    [Signature
      Page Follows]

     

    

     

    

    
      
         

      

      
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    In
      Witness Whereof,
      the
      parties have caused this Amendment No. 1 to Security Agreement to be executed
      by
      their respective authorized officers.

     

    

     

    COMPANY:

     

    RONCO
      CORPORATION 

    

    

    By:
      /s/
      Paul
      Kabashima                                              

    Name:
      Paul Kabashima

    Title:
      Interim President and Chief Executive Officer

    

    

    

    

    

    SECURED
      PARTY:

     

    SANDERS
      MORRIS HARRIS, INC.

     

    By:
      /s/Ben
      T.
      Morris                                                 

    

    

    Name:
      ________________________________

    

    

    Title:
      _________________________________

    

     

     

    

      [Signature
        Page to Amendment No. 1 to Security
        Agreement]SECURITY
      AND PURCHASE AGREEMENT

     

    This
      Security and Purchase Agreement is made as of October 18, 2006 by and among
      LAURUS MASTER FUND, LTD., a Cayman Islands company (“Laurus”),
      RONCO
      CORPORATION , a Delaware 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 that 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 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)  Revolving
      Loans.

     

    (i)  Subject
      to the terms and conditions set forth herein and in the Ancillary Agreements,
      Laurus shall make revolving loans (the “Revolving
      Loans”)
      to the
      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”)
      (for
      example, reserves with respect to (i) sums that the Companies are required
      to
      pay (such as taxes, assessments, insurance premiums, or, in the case of leased
      assets, rents or other amounts payable under such leases) and have failed to
      pay
      under any Section of this Agreement or any other Ancillary Agreement, (ii)
      amounts owing by the Companies or their Subsidiaries to any Person to the extent
      secured by a Lien on, or trust over, any of the Collateral, (such as Liens
      or
      trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,
      laborers, or suppliers, or Liens or trusts for ad
      valorem,
      excise,
      sales, or other taxes) except if such amounts are the subject of Subordinated
      Debt Documentation, or (iii) any deterioration in the financial condition or
      credit quality of any Account Debtor, and (y) an amount equal to (I) the
      Accounts Availability plus (II) the Inventory Availability minus (III) the
      Reserves. At any time when Laurus creates or changes the amount of Reserves,
      it
      shall promptly provide the Company with notice of the new amount of Reserves
      and
      with the components of the Reserves (such as taxes, insurance premiums, or
      one
      or more specific Eligible Accounts, naming each Account Debtor) and the amount
      of Reserves assigned to each such component. Laurus shall not change the
      Reserves on a retroactive basis. The amount derived at any time from
      Section 2(a)(i)(y)(I) plus Section 2(a)(i)(y)(II) minus Section
      2(a)(i)(y)(III) shall be referred to as the “Formula
      Amount.”
The
      Companies shall, jointly and severally, execute and deliver to Laurus on the
      Closing Date the Secured Non-Convertible Revolving Note and the Secured
      Non-Convertible Term Note. The Companies hereby each acknowledge and agree
      that
      Laurus’ obligation to purchase the Secured Non-Convertible Revolving Note and
      the Secured Non-Convertible Term Note from the Companies on the Closing Date
      shall be contingent upon the satisfaction (or waiver by Laurus in its sole
      discretion) of the items and matters set forth herein on or prior to the Closing
      Date .

     

    (ii)  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.

     

    (iii)  The
      Companies acknowledge that the exercise of Laurus’ discretionary rights with
      respect to the establishment of Reserves, as described in (i) above may result
      during the Term in one or more increases or decreases in the advance percentages
      used in determining Accounts Availability and/or Inventory Availability and
      each
      of the Companies hereby consent to any such increases or decreases which may
      limit or restrict advances requested by the Companies

     

    
      
        
        

      

      
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    (iv)  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.

     

    (v)  If,
      after
      notice to the Company, 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 reasonable 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 Revolving 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’ 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.

     

    (vi)  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.

     

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

     

    (b)  Term
      Loan.
      Subject
      to the terms and conditions set forth herein and in the Ancillary Agreements,
      Laurus shall make a term loan (the “Term Loan”) to Company Agent (for the
      benefit of Companies) in an aggregate amount equal to $4,000,000. The Term
      Loan
      shall be advanced on the Closing Date and shall be, with respect to principal,
      payable in consecutive monthly installments of principal in accordance with
      the
      terms of the Secured Non-Convertible Term Note, subject to acceleration upon
      the
      occurrence of an Event of Default or termination of this Agreement. The Term
      Loan shall be evidenced by the Secured Non-Convertible Term Note.

     

    
      
        
        

      

      
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    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 Maturity
      Date
      (as defined in the Secured Non-Convertible Term Note) (i) the then aggregate
      outstanding principal balance of the Term Loan together with accrued and unpaid
      interest, fees and charges and: (ii) all other amounts owed Laurus under the
      Secured Non-Convertible Term Note; (c) shall repay on the expiration of the
      Term
      (i) the then aggregate outstanding principal balance of the Revolving Loans
      together with accrued and unpaid interest, fees and charges and; (ii) all other
      amounts owed 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 3:00 p.m. (New York time) on the
      due
      date thereof in immediately available funds.

     

    4.  Procedure
      for Revolving Loans.
      Company
      Agent may by written notice request a borrowing of Revolving Loans prior to
      3:00
      p.m. (New York time) on the Business Day of its request to incur, on the next
      Business Day, a Revolving Loan. Together with each request for a Revolving
      Loan
      (or at such other intervals as Laurus may reasonably 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 Revolving 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
      Revolving 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 Revolving 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 notice to the Company of 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 notice of Event of Default at the Default Rate
      applicable to such Obligations. 

     

    
      
        
        

      

      
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    (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). 

     

    (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.
      On the
      Closing Date, the Companies shall jointly and severally pay to Laurus Capital
      Management, LLC a closing payment in an amount equal to three and one-half
      percent (3.50%) of the Total Investment 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 shall bear additional interest at a rate equal to three
      quarters of one percent (0.75%) 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)  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)(iii) will be paid on the Closing Date and shall
      be
      $70,000 for such expenses referred to in this Section 5(b)(iii) plus the cost
      of
      any required third-party appraisals and/or extraordinary diligence, subject
      to
      the Parent’s prior approval, as well as fees and expenses of outside counsel to
      the extent the retention of same is deemed prudent by Laurus, and Laurus has
      notified the Company in advance of its engagement of such counsel.

     

    (iv) Closing
      on Subordinated Loan.
      On the
      Closing Date, the Company shall have closed on the sale of a convertible
      promissory note expressly subordinated to the Obligations in the principal
      amount of $1,500,000 to Sanders Morris Harris, Inc. or an affiliate thereof
      .

     

    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. 

     

    
      
        
        

      

      
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    (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)  Except
      as
      set forth on Schedule
      6(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,
      except as set forth on Schedule
      6(c),
      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 Revolving Loan
      and made as of the time of each and every Revolving Loan hereunder) and
      covenants as follows:

     

    (a)  Except
      as
      set forth on Schedule
      7(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.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (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 (other than certain Inventory held
      at any time in Canada, the cost basis of which shall not exceed USD$250,000
      at
      any time and Intellectual Property registered in jurisdictions other than the
      United States of America) 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.

     

    (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 $250,000 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 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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (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 five (5) Business Days after
      obtaining knowledge thereof (i) of any event or circumstance that, to its
      knowledge, would cause Laurus to consider any then existing Account and/or
      Inventory in excess of $100,000 as no longer constituting an Eligible Account
      or
      Eligible Inventory, as the case may be; (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 material 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 that owes the Company in excess
      of
      $100,000; (vi) of any material return of goods; and (vii) of any loss, damage
      or
      destruction of any of the Collateral in excess of $100,000.

     

    (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 (other than certain Inventory held
      in
      Canada, the cost basis of which shall not exceed USD$250,000) at the addresses
      listed in Schedule
      12(aa),
      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 $50,000 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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (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.

     

    (q)  All
      Inventory manufactured by it in the United States of America shall be produced
      in accordance with the requirements of the Federal Fair Labor Standards Act
      of
      1938, as amended and all rules, regulations and orders related thereto or
      promulgated thereunder.

     

    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, National Association 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 October _ 2006. 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, a record of which shall be provided to the Company
      on
      its monthly statement of account. 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 six (6) months, unless an Event of Default has occurred and is
      continuing or Laurus believes that such verification is necessary to preserve
      or
      protect the Collateral, utilizing an audit control company or any other agent
      of
      Laurus.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (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 3:00 p.m. (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.

     

    10.  Inspections
      and Appraisals.
      At all
      times during normal business hours and upon not less than 48 hours prior notice,
      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. If the aggregate amount of Loans
      outstanding at such time does not exceed the Formula Amount, Laurus may not
      exercise this right more than two times in any year. 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 materially
      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, the Parent’s consolidated audited financial
      statements with a report of independent certified public accountants of
      recognized standing selected by the Parent and acceptable to Laurus (Laurus
      acknowledges that the Company’s current independent certified public accountants
      are acceptable to it) (the “Accountants”),
      which
      annual financial statements shall be without qualification and shall include
      a
      balance sheet as at the end of such fiscal year and the related statements
      of
      income, stockholder’s equity
      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 Event of Default hereunder and,
      if so, stating in reasonable detail the facts with respect thereto;

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (b)  As
      soon
      as available and in any event within forty five (45) days after the end of
      each
      quarter, an unaudited/internal balance sheet and statement of income,
      stockholder’s equity and cash flows of the Parent, 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 the Parent, in reasonable detail and stating in comparative
      form the figures for the corresponding date and periods in the previous year
      for
      the Parent, or if applicable, the Parent’s predecessor entities, 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 the addition
      of footnotes, and (ii) whether or not such officer has knowledge of the
      occurrence of any Event of Default hereunder not theretofore reported and
      remedied and, if so, stating in reasonable detail the facts with respect
      thereto; 

     

    (c)  Within
      twenty-five (25) days after the end of each month (or more frequently if Laurus
      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, Inventory and/or Eligible Inventory, 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 fifteen (15) 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”),
      or
      notice to Laurus that such documents have been filed as long as such documents
      are available on the SEC’s web site, 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
      and sell the Notes, (iii) to issue and sell the Warrants and the shares of
      Common Stock issuable upon exercise of the Warrants (the “Warrant
      Shares”)
      and to
      (iv) carry out the provisions of this Agreement and the Ancillary Agreements
      and
      to carry on its business as presently conducted. Except as set forth in Schedule
      12(a), 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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (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
      600,000,000 million shares, of which 500,000,000 are shares of Common Stock,
      par
      value $0.00001 per share, 2,091,605 shares of which are issued and outstanding,
      and 100,000,000 are shares of preferred stock, par value $0.00001 per share
      of
      which 15,580,932 shares of 10% Series A Convertible Preferred Stock are issued
      and outstanding. The authorized, issued and outstanding capital stock of each
      Subsidiary of each Company is set forth on Schedule
      12(c).

     

    (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, issuance or sale of any of the Notes or the Warrants or the issuance
      of any of the Warrant 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 non-assessable; 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
      Warrant 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 Warrant 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:

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

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

     

    (e)  Liabilities.
      Neither
      it nor any of its Subsidiaries has any liabilities of the type required to
      be
      disclosed in financial statements under GAAP, 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 $50,000 (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, 2005 (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) incurred any indebtedness for money borrowed
      or any other liabilities (other than ordinary course obligations) individually
      in excess of $50,000 or, in the case of indebtedness and/or liabilities
      individually less than $50,000, 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.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (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 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, 10% or greater stockholders or employees other than:

     

    (i)  for
      payment of salary or fees 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

     

    
      
        
        

      

      
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    (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 $50,000 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 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; 

     

    
      
        
        

      

      
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    (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;

     

    (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. Except as set forth on Schedule
      12(j),
      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.

     

    
      
        
        

      

      
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    (ii)  Neither
      it nor any of its Subsidiaries has received any written 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.

     

    (k)  Compliance
      with Other Instruments.
      Except
      as set forth on Schedule
      12(k),
      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. Except as set forth on Schedule
      12(l),
      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

     

    
      
        
        

      

      
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    (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),
      neither
      it nor any of its Subsidiaries is a party to or bound by any currently effective
      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.
      Except
      as set forth in Schedule 12(p), 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 

     

    
      
        
        

      

      
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    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 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 or made available to Laurus all
      information requested by Laurus, including the Exchange Act Filings, in
      connection with Laurus’ decision to enter into this Agreement, including all
      material information each Company and its Subsidiaries believe is reasonably
      necessary to make such investment decision. Neither this Agreement, the
      Ancillary Agreements nor the schedules hereto and thereto, 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. 

     

    
      
        
        

      

      
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    (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
      documents required to be filed by it under the Exchange Act. Laurus has had
      access to copies of: (i) its Annual Report on Form 10-K for its fiscal year
      ended June 30, 2005, as amended; and (ii) its Quarterly Reports on Form 10-Q
      for
      its fiscal quarters ended September 30, 2005, December 31, 2005, and March
      31,
      2006, as amended, and the Form 8-K filings which it has made since July 1,
      2005
      to date, as such reports may have been amended (collectively, the “SEC
      Reports”).
      Except as set forth on Schedule
      12(u),
      each
      SEC Report, as amended, was, at the time of the filing of the latest amendment
      to it, in substantial compliance with the requirements of its respective form
      and none of the SEC Reports, as amended, nor the financial statements (and
      the
      notes thereto) included in the SEC Reports, as amended, as of the filing date
      of
      their latest respective amendment, 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, as amended.

     

    (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.

     

    
      
        
        

      

      
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    (y)  Dilution.
      It
      specifically acknowledges that the Parent’s obligation to issue the Warrant and
      the Warrant Shares 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. 

     

    (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) to the Company's
      knowledge, 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)
      with respect to any of their respective employee benefit plans; (ii) it and
      each
      of its Subsidiaries has met all applicable minimum funding requirements under
      Section 302 of ERISA in respect of its employee benefit plans; (iii) neither
      it
      nor any of its Subsidiaries has any knowledge of any event or occurrence which
      would result in the Pension Benefit Guaranty Corporation terminating any of
      its
      employee benefit plans under Title IV of ERISA; (iv) neither it nor any of
      its
      Subsidiaries has any fiduciary responsibility for investments with respect
      to
      any employee benefit plan existing for the benefit of persons other than its
      employee benefit plans or those of any of its Subsidiaries; and (v) neither
      it
      nor any of its 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.

     

    
      
        
        

      

      
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    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 exercise
      of
      the Warrants 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 OTC Bulletin Board or other 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.
      If
      applicable, 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 only (i) to irrevocably repay in full all
      outstanding obligations of the Company to Prestige Capital Corporation, to
      make
      regularly scheduled payments on the Existing Indebtedness (including accrued
      but
      unpaid amounts) and on certain existing loans set forth on Schedule 13(e) ,
      (ii)
      for general working capital purposes and to pay certain payables that are
      determined to be critical by the Company, and (iii) for capital expenditures
      relating to its business, including leasehold improvements and tooling
      purchases.

     

    
      
        
        

      

      
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    (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 prior notice
      (not less than 48 hours notice), during normal business hours, not more than
      two
      times per year (unless
      the aggregate amount of Loans outstanding at such time shall exceed the Formula
      Amount),
      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;

     

    (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.

     

    In
      compliance with Regulation FD under the federal securities laws, Laurus
      acknowledges that its has signed a confidentiality agreement with respect to
      the
      Company and its Subsidiaries and that such agreement will apply to the Company’s
      and its Subsidiaries’ disclosure of any material, non-public information to
      Laurus.

     

    (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

     

    
      
        
        

      

      
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    nature
      whatsoever with respect to the assets pledged to Laurus as security for its
      obligations hereunder and under the Ancillary Agreements. Except as set forth
      in
Schedule
      13(h),
      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
      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.

     

    
      
        
        

      

      
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    (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 and in a Form 8-K filing with the SEC, and
      may
      file a copy of this Agreement with the SEC and otherwise describe this Agreement
      in its future SEC filings.

     

    (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 other than
      each Company’s indebtedness to Laurus and as set forth on Schedule 13(l)(i)
      attached
      hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
      $250,000 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) (1)directly or indirectly
      declare, pay or make any dividend or distribution on any class of its Stock
      provided,
      however,
      that
      the Company may make regularly scheduled payments and distributions on its
      Preferred Stock in accordance with Schedule
      13 (l)(iv)
      if no
      Event of Default shall exist immediately prior to, or after giving effect to
      any
      such proposed payment or distribution or (2) 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 (3) issue any Preferred
      Stock that is convertible at a variable rate but lacks a minimum conversion
      price; (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)
      except as set forth in Schedule
      13(l)(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 

     

    
      
        
        

      

      
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    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
      material 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) except as set forth on
Schedule
      13(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 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 39 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 reasonably 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 Warrant.

     

    (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. 

     

    
      
        
        

      

      
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    (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.

     

    (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 Secured
      Non-Convertible Term 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 an unlimited variable/floating conversion and/or pricing feature (commonly
      known as a “floorless convertible”) 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 Warrant Shares.
      The
      Parent shall at all times have authorized and reserved a sufficient number
      of
      shares of Common Stock to provide for the exercise of the Warrants.

     

    (u)  Prohibition
      of Amendments to Subordinated Debt Documentation.
      It
      shall
      not, without the prior written consent of Laurus, amend, modify or in any way
      alter the terms of any of the Subordinated Debt Documentation 

     

    (v)  Prohibition
      of Grant of Collateral for Subordinated Debt Documentation.
      Except
      as set forth in Schedule 13(v), it shall not, without the prior written consent
      of Laurus, grant or permit any of its Subsidiaries to grant to any Person any
      Collateral of such Company or any collateral of any of its Subsidiaries as
      security for any obligation arising
      under the Subordinated Debt Documentation.

     

    
      
        
        

      

      
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    (w)  Prohibitions
      of Payment Under Subordinated Debt Documentation.
      Neither
      it nor any of its Subsidiaries shall, without the prior written consent of
      Laurus, make any payments in respect of the indebtedness evidenced by the
      Subordinated Debt Documentation, other than as expressly permitted by the terms
      thereof.

     

    (x)   Prohibitions
      of Cash Payments Under Preferred Stock.
      Neither
      it nor any of its Subsidiaries shall without the prior written consent of Laurus
      make any cash payment in respect of the Preferred Stock.

     

    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 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 in any Ancillary Agreement.

     

    15.  Representations,
      Warranties and Covenants of Laurus.
      Laurus
      hereby represents, warrants and covenants (which such representations,
      warranties and covenants are also hereby made in respect of the Warrant) 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 and sold 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 Notes to be issued to it under
      this Agreement and the Securities acquired by it upon the exercise of the
      Warrants.

     

    (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.

     

    
      
        
        

      

      
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    (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.

     

    (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 engage in “short sales” of the Parent’s Common Stock as long as
      any 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 shall undertake appropriate actions to ensure
      compliance with applicable law or regulation. 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 

     

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

    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 earlier to occur of either (a) the Parent’s
      delivery to Laurus of a Notice of Redemption (as defined in the Notes) or (b)
      the existence of an Event of Default at a time when the average closing price
      of
      the Common Stock as reported by Bloomberg, L.P. on the Principal Market for
      the
      immediately preceding five trading days is greater than or equal to 150% of
      the
      Exercise Price (as defined in the Warrant).

     

    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, this
      Agreement may be terminated by the Company prior to the expiration of the Term
      and Laurus shall release its security interests promptly upon full and
      irrevocable payment to it by the Companies of all Obligations
      and
      payment to Laurus of an early termination fee in an amount equal to (1) five
      percent (5%) of the Capital Availability Amount if such payment occurs prior
      to
      the first anniversary of the Closing Date and (2) four percent (4.0%) of the
      Capital Availability Amount if such termination occurs thereafter during the
      Term. 

     

    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
      

     

    
      
        
        

      

      
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    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 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 five (5) Business Days
      following the date upon which 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, which failure shall
      continue without remedy for a period of 30 days after notice from such tax
      authority to the Company;

     

    (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 30 days after the occurrence
      thereof;

     

    (d)  any
      representation, warranty or statement made by any Company or any of its
      Subsidiaries hereunder or in any Ancillary Agreement should prove to be false
      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 agreement filed by the Company with the SEC as a “material agreement”
(including, without limitation, the indebtedness evidenced by the Subordinated
      Debt Documentation), 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, which default
      shall continue without remedy beyond its applicable cure period ;

     

    (f)  attachments
      or levies in excess of $50,000 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 $50,000 which shall not have been vacated, discharged,
      stayed or bonded within thirty (30) days from the entry thereof;

     

    (g)  any
      change in any Company’s or any of its Subsidiary’s condition or affairs
      (financial or otherwise) which in Laurus’ reasonable, good faith opinion, could
      reasonably be expected to have a Material Adverse Effect,; 

     

    (h)  any
      Lien
      (other than Permitted Liens) 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, except as to tax Liens;

     

    
      
        
        

      

      
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    (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)  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 Laurus, 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 50% or more on a fully diluted
      basis of the then outstanding voting equity interest of any Company, or (ii)
      the
      Parent or any of its Subsidiaries merges or consolidates (and is not the
      surviving entity) with, 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 felony
      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 (or similar term) shall occur under and as defined in any Note or
      in
      any other Ancillary Agreement;

     

    (o)  Intentionally
      Omitted;

     

    (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; 

     

    
      
        
        

      

      
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    (r)  The
      Parent’s failure to deliver Common Stock to Laurus pursuant to and in the form
      required by the Notes and this Agreement, if such failure to deliver Common
      Stock shall not be cured within two (2) Business Days after notice is received
      by the Company that such Common Stock has not been delivered or any Company
      is
      required to issue a replacement Note to Laurus and such Company shall fail
      to
      deliver such replacement Note within seven (7) Business Days after notice is
      received by the Company that such replacement Note has not been delivered;
      or

     

    (s)  any
      Company, or any of its Subsidiaries shall take or participate in any action
      which would be prohibited under the provisions of any of the Subordinated Debt
      Documentation or make any payment on the indebtedness evidenced by the
      Subordinated Debt Documentation to a Person that was not entitled to receive
      such payments under the subordination provisions of applicable Subordinated
      Debt
      Documentation.

     

    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 except as set
      forth on Schedule
      20.
      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 (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 

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    competent
      jurisdiction may direct. The Companies shall remain jointly and severally liable
      to Laurus for any deficiency. 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 obligations set forth in this Section and in this Agreement
      would constitute fair and appropriate liquidated damages in the event of any
      such termination.
      The
      parties hereto each hereby agree that the exercise by any party hereto of any
      right granted to it or the exercise by any party hereto of any remedy available
      to it (including, without limitation, the issuance of a notice of redemption,
      a
      borrowing request and/or a notice of default), in each case, hereunder or under
      any Ancillary Agreement which has been publicly filed with the SEC shall not
      constitute confidential information and no party shall have any duty to the
      other party to maintain such information as confidential, except for the
      portions of such publicly filed documents, if any, that are subject to
      confidential treatment request made by the Companies to the SEC.

     

    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, subject to the cap
      on
      such expenses set forth in Section 5(b)(iii) of this Agreement, 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 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

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

    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 (other
      than
      income or similar taxes) 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 up to the amount claimed
      to be due to such Government Authority 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 which is not a competitor of any Company and
      any
      such transferee shall succeed to all of Laurus’ rights with respect thereto.
      Upon such transfer, 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 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 jointly and severally indemnifies and holds 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 reasonable 

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    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.
      Laurus
      hereby indemnifies and holds the Company, its Subsidiaries, and their respective
      affiliates, employees, attorneys and agents (each, a “Company
      Indemnified Person”),
      harmless from and against any and all final judgments and expenses of any kind
      or nature whatsoever (including reasonable 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
      Company Indemnified Person as the result of Laurus’ gross negligence or willful
      misconduct.

     

    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 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.

     

    
      
        
        

      

      
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    (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 or 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, except that the Company’s Obligations shall be reduced by any amount
      that Laurus has actually recovered by any prior recourse to any Company or
      any
      Collateral.

     

    (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) the Subsidiaries are wholly
      owned subsidiaries of the Parent, (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 and Companies constitute 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 shall 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 upon the earlier of actual receipt or five (5) 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

        
          

        

      

      
        
        

      

    

    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:

              	
                RONCO
                  CORPORATION 

              
	 	
                61-69
                  West Mooreland Road

              
	 	
                Simi
                  Valley, CA 93065-1662

              
	 	
              
	 	
                Attention:   
                  Chief Executive Officer

              
	 	
                Telephone: 
                  (805) 433-1030

              
	 	
                Facsimile:    
                  (805) 433-1033

              
	 	 
	
                With
                  a copy to:

              	
                Broad
                  and Cassel

              
	 	
                1
                  N. Clematis Street, Suite 500

              
	
              	
                West
                  Palm Beach, Florida 33401

              
	 	
                Attention:   
                  Kathleen L. Deutsch, P.A.

              
	 	
                Telephone: 
                  (561) 832-3300

              
	 	
                Facsimile:   
                   (561) 650-1130

              

      

    

     

    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 AND LAURUS 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 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 

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    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 AND LAURUS 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 THAT IT MAY HAVE BASED
      UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM
      NON CONVENIENS.
      EACH
      COMPANY AND LAURUS 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 OR LAURUS, AS THE CASE MAY BE, AT THE ADDRESS SET
      FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
      THE
      EARLIER OF ACTUAL RECEIPT THEREOF OR FIVE (5) 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 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.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

    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, as long as such announcements
      comply with applicable law; provided, however, that Laurus shall provide the
      text of any public press releases to the Company in advance for its approval,
      which approval shall not be unreasonably withheld.

     

    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 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

        
          

        

      

      
        
        

      

    

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

     

    (a)  The
      Notes
      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 UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
      OR
      AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO RONCO CORPORATION THAT SUCH
      REGISTRATION IS NOT REQUIRED.”

     

    (b)  Any
      shares of Common Stock issued pursuant to exercise of the Warrants, 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 RONCO CORPORATION THAT SUCH REGISTRATION IS NOT
      REQUIRED.”

     

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

     

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

     

    

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

     

     

     

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

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        42

        
          

        

      

      
        
        

      

    

     

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

     

    RONCO
      CORPORATION 

     

    By:/s/
      Paul
      Kabashima                                       
 

    Name:
      Paul
      Kabashima                                        

    Title:
      Interim
      President                                        

     

    RONCO
      MARKETING CORPORATION

     

    By:
      /s/
      Paul
      Kabashima                                      

    Name:
      Paul
      Kabashima                                      
 

    Title:
      Interim
      President                                       

     

    LAURUS
      MASTER FUND, LTD. 

     

    By:
      unintelligible                                              
       

    Name:
      unintelligible                                         
       

    Title:
      Director                                                     
      

     

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    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
      the sum of (i) ninety percent (90%) of the net face amount of Eligible Accounts
      that arise other than from direct response receivables plus (ii) sixty percent
      (60%) of Eligible Accounts that arise from direct response receivables with
      multi pay arrangements.

     

    “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 Warrants, the Registration Rights Agreements, the Subordination
      Agreement, and each document set forth on the closing checklist attached hereto
      as Exhibit
      C
      and
      incorporated herein by reference. 

     

    “Balance
      Sheet Date”
has
      the
      meaning given such term in Section 12(f)(ii).

     

    “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 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
      $11,000,000.

     

    “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, except Equipment subject to Capital Leases as set forth in Schedule
      1(A);

     

    (c)  all
      Fixtures;

     

    (d)  all
      Goods;

     

    (e)  all
      General Intangibles;

     

    (f)  all
      Accounts, except the account that acts as collateral for the Company’s credit
      card processor as set forth on Schedule 1A hereto;

     

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

     

    (h)  all
      Investment Property;

     

    (i)  all
      Stock;

     

    (j)  all
      Chattel Paper;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (k)  all
      Letter-of-Credit Rights;

     

    (l)  all
      Instruments;

     

    (m)  all
      commercial tort claims set forth on Schedule
      1(B);

     

    (n)  all
      Books
      and Records;

     

    (o)  all
      Intellectual Property;

     

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

     

    (q)  (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

     

    (r)  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
      Ronco Corporation, a Delaware corporation.

     

    “Contract
      Rate”
has
      the
      meaning given such term in the respective Note. “Default”
means
      any act or event that, 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, but
      excluding the account that acts as collateral for the Company’s credit card
      processor as set forth in Item 2 of Schedule 1(A) hereto.

     

    “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 Company which conforms to the following criteria: (a)
      shipment of the merchandise or the rendition of services has been completed;
      (b)
      no return, rejection or repossession of the merchandise has occurred;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (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 ninety (90) 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 ninety (90) 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,
      that
      Accounts due from an Account Debtor located outside of the United States shall
      be deemed to be Eligible Accounts as long as each such Account is covered by
      credit insurance acceptable to Laurus in its sole discretion; (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; (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
      Inventory”
means
      Inventory owned by a Company which Laurus, in its discretion, determines: (a)
      is
      subject to a first priority perfected Lien in favor of Laurus and is subject
      to
      no other Liens whatsoever (other than Permitted Liens); (b) is located on
      premises with respect to which Laurus has received a landlord or mortgagee
      waiver acceptable in form 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    and
      substance to Laurus; (c) is not in transit; (d) is in good condition and meets
      all standards imposed by any governmental agency, or department or division
      thereof having regulatory Governmental Authority over such Inventory, its use
      or
      sale including the Federal Fair Labor Standards Act of 1938 as amended, and
      all
      rules, regulations and orders thereunder; (e) is currently either usable or
      salable in the normal course of such Company’s business; (f) is not placed by
      such Company on consignment or held by such Company on consignment from another
      Person; (g) is in conformity with the representations and warranties made by
      such Company to Laurus with respect thereto; (h) is not subject to any
      licensing, patent, royalty, trademark, trade name or copyright agreement with
      any third parties; (i) does not require the consent of any Person for the
      completion of manufacture, sale or other disposition of such Inventory and
      such
      completion, manufacture or sale does not constitute a breach or default under
      any contract or agreement to which such Company is a party or to which such
      Inventory is or may be subject; (j) is not work-in-process; (k) is covered
      by
      casualty insurance acceptable to Laurus and under which Laurus has been named
      as
      a lender’s loss payee and additional insured; and (l) not to be ineligible for
      any other reason.

     

    “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.

     

    “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 substitutions 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.

     

    “Existing
      Indebtedness”
means
      (i) the Popeil Indebtedness and (ii) obligations of the Parent to the holders
      of
      that certain Preferred Stock of the Parent issued on June 30, 2005 in an amount
      equal to $50,000,000 plus additional Preferred Stock issued and to be issued
      in
      the future as dividends thereon plus additional Preferred Stock issued on August
      22, 2006 in settlement of certain claims of the holders of the Preferred Stock
      and (iii) the SMH Indebtedness .

     

    “Financial
      Reporting Controls”
has
      the
      meaning given such term in Section 12(f)(v).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    “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 (including the policy owned by the Company on the
      life of Mr. Ronald M. Popeil), 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
      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.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    “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.

     

    “Inventory
      Availability”
means
      up to the lesser of (a) 70% of the value of the Companies’ Eligible Inventory
      (calculated on the basis of the lower of cost or market, on a first-in first-out
      basis) and (b) 85% of the appraised net orderly liquidation value of Companies’
Eligible Inventory (as evidenced by an Inventory appraisal satisfactory to
      Laurus in its good faith business judgment).

     

    “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 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”
means
      the Revolving Loans and the Term Loan and 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 the Company
      and
      its Subsidiaries (taken as a whole), (b) the Company’s and 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.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

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

     

    “Notes”
means
      the Secured Non-Convertible Revolving Note and the Secured Non-Convertible
      Term
      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.

     

    “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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    “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.

     

    “Popeil
      Indebtedness”
means
      all indebtedness of any Company to Ron Popeil or any successor in interest
      to
      Ron Popeil or any entity owned or controlled by Ron Popeil outstanding on the
      date hereof including but not limited to indebtedness arising under those
      certain purchase money promissory notes dated June 30, 2005 in the aggregate
      original principal amount of $16,300,000 issued by the Company to Popeil
      Inventions, Inc. and Ronco Inventions, LLC, but excluding amounts owed to Mr.
      Popeil or his affiliates that do not relate to loan repayments, such as amounts
      owed for consulting services.

     

    “Preferred
      Stock”
means
      that certain Series A Convertible Preferred Stock of the Company. A true,
      correct and complete certified copy of the Amended and Restated Certificate
      of
      Designation of the Preferred Stock is attached hereto as Exhibit
      D.

     

    “Principal
      Market”
means
      the OTC Bulletin Board, NASDAQ Capital 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 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).

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    “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 Agreements”
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.

     

    “Revolving
      Loans”
shall
      have the meaning given such term in Section 2(a)(i).

     

    “SEC”
means
      the Securities and Exchange Commission.

     

    “SEC
      Reports”
has
      the
      meaning given such term in Section 12(u).

     

    “Secured
      Non-Convertible Revolving Note”
means
      that certain Secured Non-Convertible Revolving Note dated as of the Closing
      Date
      made by the Companies in favor of Laurus in the original face amount of Eleven
      Million Dollars ($11,000,000), as the same may be amended, supplemented,
      restated and/or otherwise modified from time to time.

     

    “Secured
      Non-Convertible Term Note”
means
      that certain Secured Non-Convertible Term Note dated as of the Closing Date
      made
      by the Companies in favor of Laurus in the original face amount of Four Million
      Dollars ($4,000,000), as the same may be amended, supplemented, restated and/or
      otherwise modified from time to time.

     

    “Securities”
means
      the Notes and the Warrants and the shares of Common Stock which may be issued
      pursuant to exercise of such Warrants, in whole or in part.

     

    “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.

     

    “SMH
      Indebtedness”
means
      all indebtedness of any Company to Sanders Morris Harris, Inc. or an affiliate
      thereof arising on or before the date hereof, including but not limited to
      indebtedness arising under that certain amended and restated subordinated
      promissory note originally issued on June 9, 2006 in the principal amount of
      $1,500,000 and that certain subordinated promissory note of even date herewith
      in the principal amount of $1,500,000.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    “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).

     

    “Subordinated
      Debt Documentation”
shall
      mean (i) each agreement executed by and among or between any Company and Ron
      Popeil or any successor in interest to Ron Popeil or any entity owned or
      controlled by Ron Popeil relating to or evidencing the Popeil Indebtedness
      and
      (ii) each agreement executed by and among or between any Company andSanders
      Morris Harris or any affiliate thereof relating
      to or evidencing the SMH Indebtedness.

     

    “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.

     

    “Term
      Loan”
has
      the
      meaning given such term in Section 2(a)(c).

     

    “Total
      Investment Amount”
means
      Fifteen Million Dollars ($15,000,000).

     

    “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.

     

    “Warrants”
means
      that certain Common Stock Purchase Warrant 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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Exhibit
      A

     

    Eligible
      Subsidiaries

     

    

     

    

     

    

     

    Ronco
      Marketing Corporation., a Delaware corporation

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Exhibit
      B

     

    Borrowing
      Base Certificate

    
       

    

    
      Currency
        Conversion Rate:

      
        	 	 	 	 	
                As
                  of

              	 	 	 
	
                ACCOUNTS
                  RECEIVABLE per ___________________ Aging

              	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                Ineligible
                  Accounts:

              	 	 	 	 	 	 	 
	
                Accounts
                  over 90 days from Invoice Date

              	 	 	 	 	
                0.00

              	 	 
	
                Credit
                  Balances Over 90 days from Invoice Date

              	 	 	 	
                0.00

              	 	 
	
                Untercompany
                  and Affiliate Accounts

              	 	 	 	 	
                0.00

              	 	 
	
                _____
                  % Concentration Cap

              	 	 	 	 	
                0.00

              	 	 
	
                Contra
                  Accounts

              	 	 	 	 	
                0.00

              	 	 
	
                Cash
                  Sales and COD Accounts

              	 	 	 	 	
                0.00

              	 	 
	
                Foreign
                  Receivables

              	 	 	 	 	
                0.00

              	 	 
	
                Government
                  Receivables (without Assignment of Claims) 

              	 	 	 	
                0.00

              	 	 
	
                Discounts,
                  Credits and Allowances

              	 	 	 	 	
                0.00

              	 	 
	
                Cross-age
                  (__% Past Due)

              	 	 	 	 	
                0.00

              	 	 
	
                Bill
                  and Hold Invoices

              	 	 	 	 	
                0.00

              	 	 
	
                Finance/Service/Late
                  Charges

              	 	 	 	 	
                0.00

              	 	 
	
                Other:

              	 	 	 	 	
                0.00

              	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                ELIGIBLE
                  ACCOUNTS RECEIVABLE

              	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                Accounts
                  Receivable Advance Rate

              	 	 	 	
                90%

              	 	 	 
	 	 	 	 	 	 	 	 
	
                ACCOUNTS
                  RECEIVABLE AVAILABILITY

              	 	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                INVENTORY
                  per ______ Balance Sheet

              	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                Ineligible
                  Inventory

              	 	 	 	 	 	 	 
	
                Work-in-Process

              	 	 	 	 	
                0.00

              	 	
                0.00

              
	
                Excess/Slow
                  Moving

              	 	 	 	 	
                0.00

              	 	 
	
                Supplies/Packaging

              	 	 	 	 	
                0.00

              	 	 
	
                Damaged

              	 	 	 	 	
                0.00

              	 	 
	
                Other:

              	 	 	 	 	
                0.00

              	 	
                0.00

              
	 	 	 	 	 	 	 	
                 

              
	
                ELIGIBLE
                  INVENTORY

              	 	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                Inveltory
                  Advance Rate

              	 	 	 	
                50%

              	 	 	 
	 	 	 	 	 	 	 	 
	
                Inventory
                  Cap

              	 	 	 	 	 	 	
                [1,000,000.00]

              
	 	 	 	 	 	 	 	 
	
                INVENTORY
                  AVAILABILITY

              	 	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                TOTAL
                  AVAILABILITY

              	 	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                Less
                  Reserves

              	 	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                NET
                  AVAILABILITY

              	 	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                REVOLVING
                  CREDIT LINE

              	 	 	 	
                 

              	
                0.00

              	 	 
	
                MINIMUM
                  BORROWING NOTE

              	 	 	 	
                 

              	
                0.00

              	 	 
	 	 	 	 	 	 	 	 
	
                NET
                  BORROWING AVAILABILITY (Lesser of Line or Net
                  Availability)

              	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	
                Less:
                  Laurus Loans

              	 	 	 	 	 	 	
                0.00

              
	
              	 	 	 	 	 	 
	
                EXCESS/(DEFICIT)
                  AVAILABILITY

              	 	 	 	 	 	
                0.00

              
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                The
                  undersignes herebty certifies that all of the foregoing information
                  regarding the Eligible Accounts and Eligible Inventory are true
                  and
                  correct on the date hereof and all such Accounts and Inventory
                  listed as
                  Elibible are Elibible within the meaning given such term in the
                  Security
                  Agreement dated __/__/200__ among Borrower, the other companues
                  names
                  therein and Laurus Master Fund, Ltd.

              
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                ________________
                  , Borrowing
                  Agent

              	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	
                By:
                  _______________________________

              	 	 	 	 	 	 
	
                Name:

              	 	 	 	 	 	 	 
	
                Title:

              	 	 	 	 	 	 	 

      

    

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Exhibit
      C

     

    Closing
      Checklist

     

    

    
      	
              Documents

            
	
              Security
                Agreement

            
	
              Secured
                Non Convertible Revolving Note

            
	
              Secured
                Non Convertible Term Note

            
	
              Warrant

            
	
              Registration
                Rights Agreement

            
	
              Stock
                Pledge

            
	
              IP
                Security Agreement

            
	
               

            
	
              Popeil
                Subordination Agreement

            
	
              Intercreditor
                and Subordination Agreement with SMH

            
	
              Funds
                Escrow Agreement

            
	
              Prestige
                Payoff Letter

            
	
              Landlord
                Waivers:

            
	
              Location
                1

            
	
              Location
                2

            
	
              Location
                3

            
	
              Location
                4

            
	
              Disbursement
                Letter

            
	
              Schedules

            
	
               

            
	
              Lockbox
                Account Control Agreement

            

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    Exhibit
      D

     

    Amended
      and Restated Certificate of Designation

     

    

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    SECURITY
      AND PURCHASE AGREEMENT

     

     

    LAURUS
      MASTER FUND, LTD.

     

    RONCO
      CORPORATION 

     

    and

     

    RONCO
      MARKETING CORPORATION

     

    

     

    

     

    Dated:
      October 18, 2006

     

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

    
 

    
      
        	 	 	

                Page

              
	 	 	 
	
                1.

              	
                General
                  Definitions and Terms; Rules of Construction.

              	
                1

              
	 	 	 
	
                2.

              	
                Loan
                  Facility

              	
                2

              
	 	 	 
	
                3.

              	
                Repayment
                  of the Loans

              	
                4

              
	 	 	 
	
                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.

              	
                9

              
	 	 	 
	
                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

              	
                28

              
	 	 	 
	
                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

              	
                35

              
	 	 	 
	
                23.

              	
                Assignment
                  By Laurus

              	
                35

              
	 	 	 

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	 	 	 

                Page(s)

              
	 	 	 
	
                24.

              	
                No
                  Waiver; Cumulative Remedies

              	
                36

              
	 	 	 
	
                25.

              	
                Application
                  of Payments

              	
                36

              
	 	 	 
	
                26.

              	
                Indemnity

              	
                36

              
	 	 	 
	
                27.

              	
                Revival

              	
                36

              
	 	 	 
	
                28.

              	
                Borrowing
                  Agency Provisions

              	
                37

              
	 	 	 
	
                29.

              	
                Notices

              	
                38

              
	 	 	 
	
                30.

              	
                Governing
                  Law, Jurisdiction and Waiver of Jury Trial

              	
                39

              
	 	 	 
	
                31.

              	
                Limitation
                  of Liability

              	
                40

              
	 	 	 
	
                32.

              	
                Entire
                  Understanding

              	
                40

              
	 	 	 
	
                33.

              	
                Severability

              	
                40

              
	 	 	 
	
                34.

              	
                Captions

              	
                40

              
	 	 	 
	
                35.

              	
                Counterparts;
                  Telecopier Signatures

              	
                40

              
	 	 	 
	
                36.

              	
                Construction

              	
                41

              
	 	 	 
	
                37.

              	
                Publicity

              	
                41

              
	 	 	 
	
                38.

              	
                Joinder

              	
                41

              
	 	 	 
	
                39.

              	
                Legends

              	
                41

              
	 	 	 

      

    

     

     

     

    
      
        
        

      

      
        ii

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]