Document:

Prepared by R.R. Donnelley Financial -- Third Waiver and Loan Modification Agreement

  
 Exhibit 10.21 
  
 THIRD WAIVER AND LOAN MODIFICATION AGREEMENT 
  
 This Third Waiver and Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of August 30, 2002, by and between eGain Communications Corp., a Delaware corporation (the “Borrower”) and
Silicon Valley Bank (“Bank”). 
  
 1.  DESCRIPTION OF EXISTING
OBLIGATIONS:    Among other indebtedness which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated March 27, 2002 (as may be amended from
time to time, the “Loan Agreement”). The Loan Agreement provided for, among other things, a Committed Revolving Line in the original principal amount of Five Million Dollars ($5,000,000). Defined terms used but not otherwise defined herein
shall have the same meanings as in the Loan Agreement. 
  
 Hereinafter, all indebtedness owing by Borrower to Bank
shall be referred to as the “Obligations.” 
  
 2.  DESCRIPTION OF COLLATERAL AND
GUARANTIES.    Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement. Additionally, repayment of the Obligations is secured by the Intellectual Property Collateral as described in an
Intellectual Property Security Agreement, dated March 27, 2002, by and between Borrower and Bank (as may be amended from time to time, the “IP Security Agreement”). 
  
 Hereinafter, the above-described security documents, together with all other documents securing repayment of the Obligations shall be referred to as the “Security
Documents”. Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”. 
  

3.  WAIVER.    Bank hereby waives the Events of Default arising out of Borrower’s failure to comply with the Liquidity
Covenant set forth in Section 6.7 of the Loan Agreement solely through the time ending August 30, 2002, the failure to comply with such covenant being an Event of Default under Section 8.2 of the Loan Agreement (the “Existing Default”).
This waiver applies only to the Existing Default for the period described herein and shall not in any way affect any other obligation, agreement or covenant of Borrower, or any right or remedy of Bank, under the Loan Agreement, as amended hereby.

  
 4.  DESCRIPTION OF CHANGE IN TERMS. 
  
 A.  Modifications to Loan Agreement. 
  
 1.  Section 2.1.5 of the Loan Agreement is hereby deleted in its entirety and amended to read as follows: 

  
 “2.1.5  Intentionally Omitted.”

  
 2.  Section 2.1.6 of the Loan Agreement is hereby deleted in its entirety and amended
to read as follows: 
  
 “2.1.6  Term Loan. 
  
 (a)  Bank will make a Term Loan available to Borrower. 
  

(b)  Borrower will pay 18 equal installments of principal of $95,290.08 plus accrued interest (the “Term Loan Payment”) commencing
on September 30, 2002. Each Term Loan Payment is payable on the last day of each month during the term of the loan. Borrower’s final Term Loan Payment, due on Term Loan Maturity Date, includes all outstanding Term Loan principal and accrued
interest. 
  
 (c)  If the Term Loan is accelerated following the occurrence of an Event of
Default or otherwise, then Borrower will immediately pay to Bank (i) all outstanding Term Loan principal and accrued interest, (ii) all accrued unpaid interest, including the default rate of interest, to the date of the prepayment, and (iii) all
other sums, if any, that shall have become due and payable with respect to the Term Loan. 
  
 (d)  Borrower shall have the option to prepay all or a portion, such portion not to be less than 25%, of the Term Loan advanced by Bank under this Agreement, provided Borrower (i) provides written notice to Bank to
prepay such portion of the Term Loan prior to such prepayment, and (ii) pays, on the date of the prepayment: (A) that percentage of the outstanding principal; (B) that percentage of unpaid accrued interest to the date of such prepayment; and (C) all
other sums, if any, that shall have become due and payable with respect to the Term Loan.” 
  
 3.  Section 2.3 (a) of the Loan Agreement is hereby amended to read as follows: 
  
 “(a)  Interest Rate. (i) Advances accrue interest on the outstanding principal balance at a per annum rate of 0.25 percentage points above the Basic Rate and (ii) the Term Loan accrues interest at a per annum rate
equal to the Basic Rate. After an Event of Default, Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. The interest rate increases or decreases when the Basic Rate changes. Interest is computed
on a 360 day year for the actual number of days elapsed.” 
  
 4.  Section 6.6 of the
Loan Agreement is hereby amended to read as follow: 
  
 “6.6  Deposit and Investment
Accounts. 
 

 2 

  
 (i)  Borrower will maintain its primary depository and
operating accounts with Bank; and 
  
 (ii)  Except as provided for in this Section
6.6(ii), Borrower will maintain, at all times, not less than 95% of its unrestricted cash and cash equivalents in any accounts at or through Bank at all times, provided, however, that, so long as no Event of Default has occurred and is
continuing, Borrower may maintain a depository or operating account with Barclay’s Bank in the United Kingdom of Great Britain in an aggregate amount not to exceed $2,500,000 (the “Barclay’s Deposit”). Such cash and cash
equivalents, less the Barclay’s Deposit are hereinafter referred to as the “Borrower Cash”. Borrower shall maintain, at all times, not less than an amount equal to the Obligations in a certificate of deposit at Bank. Notwithstanding
the foregoing, Borrower and Bank agree that in the event Borrower raises capital through an equity finance round (the “Raised Capital”), Borrower and Bank shall negotiate in good faith to determine what percentage of such Raised Capital
will be maintained at the Bank.” 
  
 5.  Section 6.7 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following: 
  
 “6.7  Intentionally
Omitted.” 
  
 6.  The following definitions in Section 13 of the Loan Agreement
are hereby amended by deleting the following definitions: (i) Eligible Equipment; (ii) Equipment Advance; (iii) Equipment Availability End Date; (iv) Equipment Loan Amount; (v) Equipment Maturity Date; (vi) Equipment Advance Final Payment; (vii)
Final Payment Percentage; (viii) Loan Factor; (ix) Other Equipment; (x) Repayment Period; (xi) Term Loan Final Payment. 
  
 7.  The following definitions in Section 13 of the Loan Agreement are hereby amended to read as follows: 
  
 ‘Basic Rate” is, the Prime Rate. 
  
 ‘Term Loan” is a loan of $1,715,221.46. 
  
 ‘Term Loan
Maturity Date” is February 29, 2004.” 
  
 5.  CREDIT EXTENSION
AVAILABILITY.    Borrower acknowledges and agrees that as of August 29, 2002 no further Advances shall be available for borrowing under the Revolving Advances Facility. 
  

6.  CASH COLLATERAL.    Borrower acknowledges and agrees that pursuant to the grant of security interest set forth in Section 4.1
of the Loan Agreement, Bank has a perfected security interest in Certificate of Deposit #8800057062 maintained at Bank (the “CD”). Borrower further understands and agrees that Bank has placed a “hold” on the CD and that such hold
shall remain in place for so long as the Obligations hereunder remain outstanding. Notwithstanding the 
 

 3 

 foregoing, at the end of each month Borrower may withdraw funds from the CD, provided: (i) no Event of Default has occurred and is continuing,
and (ii) after any such withdrawal the balance remaining in the CD is equal to or greater than the outstanding Obligations. 
  
 7.  FINANCIAL REPORTING.    For so long as there remains a hold on the CD, Borrower shall not be required to submit the financial statements, reports, and certificates set forth in Section 6.2.

  
 8.  CONSISTENT CHANGES.    The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above. 
  
 9.  NO DEFENSES OF
BORROWER.    Borrower (and each guarantor and pledgor signing below) agrees that, as of the date hereof, it has no defenses against the obligations to pay any amounts under the Obligations. 
  
 10.  CONTINUING VALIDITY.    Borrower (and each guarantor and pledgor signing below) understands and
agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification
Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make
any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification
Agreement, but also to all subsequent loan modification agreements. 
  
 11.  CONDITION
PRECEDENT.    The effectiveness of this Loan Modification Agreement is conditioned upon receipt by Bank of a fully executed copy of this Loan Modification Agreement. 
  
 12.  CONDITION SUBSEQUENT.    As a condition subsequent to the execution of this Loan Modification Agreement, Borrower shall perform or
cause to be performed the following (the failure by Borrower to so perform or cause to be performed constituting an Event of Default): 
  
 12.1  On or before October 1, 2002, receipt by Bank of a fully earned, non-refundable Amendment Fee of $68,014.46. 
  
 This Loan Modification Agreement is executed as of the date first written above. 
  
 
	 BORROWER:
  
 EGAIN COMMUNICATIONS CORP.
 	 	  	 	 BANK:
  
 SILICON VALLEY
BANK
 
	 
	 By:
 	 	         /s/    ERICE
SMIT        
 
	 	  	 	 By:
 	 	         /s/    ALBERT
MARTINEZ        
 

 
 

 4 

  
 
	 
	 Name:
 	 	 Eric Smit        
 
	 	  	 	 Name:
 	 	 Albert Martinez        
 

	 
	 Title:
 	 	 Chief Financial Officer        
 
	 	  	 	 Title:
 	 	 Vice President        
 

 
 

 5THE SECURITIES REPRESENTED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON
THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.

                                                                   July 31, 2001

                        6% SECURED CONVERTIBLE DEBENTURE

FOCUS  SURGERY,  INC.  ("Focus"),  a  Delaware  corporation, for value received,
hereby promises to pay to MISONIX, INC., a New York corporation (the "Holder) at
the  address  set forth in Section 9.2(b) hereof or at such other address as the
Holder may designate in writing, the principal sum of $300,000 on May 25,2003 in
lawful  money  of  the  United States of America, together with interest thereon
from  the  date  on  the amount of the principal amount outstanding from time to
time  at  the  interest  rate hereinafter set forth until payment in full of the
outstanding  principal  balance,  in  accordance  with  all  the  terms  of this
Debenture.

                                    ARTICLE I
                                 INTERPRETATION

11  Definitions.  The  terms  used  in  this  Debenture  shall,  unless there is
something  in the subject matter or the context inconsistent therewith, have the
following  meanings:

     (a)  "Accumulated  Debt" at any time means the aggregate of the Loan Amount
          plus  all  interest  accrued  thereon at the time minus all amounts in
          respect  thereof  paid  by  Focus  to  the  Holder.

     (b)  "Business  Day"  means  a  day  (other than a Saturday or a Sunday) on
          which  banks  are  generally  open for business in New York, New York.

     (c)  "Closing Date" means August 3, 2001 or such other date as Focus agrees
          as  the  date  for  the  execution  and  delivery  of  this Debenture.

<PAGE>
     (d)  "Common  Shares"  means  fully paid and non-assessable Series M common
          shares,  without  par  value,  of  Focus.

     (e)  "Common  Stock" means all of the issued and outstanding common shares,
          of  every  series,  of  Focus.

     (f)  "Consolidation  Event"  means  any  reduction  in the number of Common
          Shares  resulting  from  an  alteration  by any corporate means to the
          share  capital  of  Focus.

     (g)  "Consolidation  Factor" means the quotient obtained when the number of
          Common Shares immediately prior to a Consolidation Event is divided by
          the number of Common Shares immediately after the Consolidation Event.

     (h)  "Conversion  Number"  at any time means the quotient obtained when the
          Accumulated Debt at the time is divided by the Conversion Price at the
          time.

     (i)  "Conversion Option" means the right of the Holder hereunder to convert
          the  Accumulated  Debt  to  Common  Shares.

     (j)  "Conversion  Price"  at  any  time means the price at which Focus will
          issue  Common  Shares pursuant to the Conversion Option, determined in
          accordance  with  Section  4.5.

     (k)  "Event  of  Default"  has  the  meaning  ascribed to it in Section 8.1
          hereof.

     (l)  "GSA"  means  a  general  security agre9ment dated November 7,2000, as
          amended  by  an Amendment of even date herewith, between Focus and the
          Holder  granting  to  the  Holder  a  first priority security interest
          (subject  to  the  provisions  of  the Intercreditor Agreement) in all
          presently  owned  and  after  acquired  property  of  Focus.

     (m)  "Intercreditor Agreement" means an intercreditor agreement between the
          Holder  and  Takal  Hospital  Supply Co., Ltd., a Japanese corporation
          ("Takai"),  dated  November  7,  2000.

     (n)  "Loan" or "Loan Amount" means a loan in the amount of $300,000 made by
          the  Holder  to  Focus  pursuant  to  this  Debenture.

     (o)  "Option"  has  the  meaning  ascribed  to  it  in  Section 2.3 hereof.

     (p)  "Permitted  Encumbrances"  means:

          (i)  liens  or privileges imposed by law in respect of obligations not
               yet  due  or  delinquent  such as carriers' liens, warehousemen's
               liens  and  other  privileges

<PAGE>
               of  a  similar  nature;  or  liens  for  taxes,  assessments  or
               governmental  charges or levies not at the time due or delinquent
               or  the  validity  of  which  is  being  in good faith diligently
               contested in appropriate proceedings; or undetermined or inchoate
               liens,  privileges  and charges incidental to current operations,
               that  have  not  been  filed  pursuant  to  law or that relate to
               obligations  not  due  or  delinquent;

          (ii) minor  encumbrances,  including  without  limitation,  easements,
               rights of way, servitudes or other similar rights in land granted
               to  or  reserved  by  other  persons,  rights  of way for sewers,
               electric lines, telegraph, telephone lines, oil and gas pipelines
               and  related  facilities and other similar purposes, or zoning or
               other  restrictions  as  to  the  use  of  real properties, which
               encumbrances, easements, servitudes, rights of way, other similar
               rights  and  restrictions  do  not  in  the  aggregate materially
               detract  from  the  value  of  the  said properties or materially
               impair their use in the operation of the business of their owner;
               and

         (iii) the  right  reserved  to  or  vested  in  any  municipality  or
               governmental or other public authority by the terms of any lease,
               license,  franchise,  grant  or  permit  acquired by Focus by any
               statutory  provision, to require annual or other periodic payment
               as  a  condition  of  the  continuance  thereof

     (q)  "Registration  Statement"  means  a  registration  statement  which
          registers  the  Common  Shares  to  be issued by Focus pursuant to the
          Conversion  Option  for  sale  under  the  Securities  Act of 1933, as
          amended.

     (r)  "Repayment  Date"  means  May  25,  2003.

1.2  Headings.  The  division  of this Debenture into sections and the insertion
of  headings  are  for  convenience  of  reference only and shall not affect the
interpretation  of  this  Debenture.

1.3  Number  and  Gender.  Words herein importing the singular number only shall
include  the  plural  and  vice  versa, and words importing the masculine gender
shall  include  the  feminine  and  neuter  genders  and  vice  versa.

1.4  Governing  Law.  This  Debenture  shall  be  governed  by  and construed in
accordance  with  the  laws  of  the  State  of  New  York without regard to the
conflicts  of  laws  principles  thereof.  Any  legal  action or proceeding with
respect  to  this  Debenture  against  the  parties hereto may be brought in the

                                      -2-
<PAGE>
Courts  of  the  Supreme  Court  of the State of New York, Suffolk County or the
Federal  District  Court  for the Eastern District of New York, which Courts the
parties  agree  to  be  a  convenient forum for the resolution of any such legal
action  or proceeding, and each of the parties hereto hereby irrevocably submits
to  the  jurisdiction  of  said  Courts.

1.5  Severability.  If  any  one  or  more  of  the provisions contained in this
Debenture  should be held to be invalid, illegal or unenforceable in any respect
in any jurisdiction, the validity, legality and enforceability of such provision
or  provisions  shall  not  in  any  way  be  affected  or impaired in any other
jurisdiction  and  the  validity,  legality  and enforceability of the remaining
provisions  contained  herein  shall  not  thereby  in  any  way  be affected or
impaired.

                                   ARTICLE II
                                  LOAN FACILITY

2.1  Loan  Amount.  Subject  to  all the terms and conditions herein, the Holder
agrees  to  lend  the  sum  of  $300,000  to  Focus.

                                   ARTICLE III
                                    INTEREST

3.1  Rate  of  Interest.  Focus shall pay the Holder interest on the Loan Amount
outstanding  from  time  to  time at a rate equal to six percent (6%) per annum,
payable  when  the  Loan  Amount  is  due and payable, whether at maturity or by
acceleration.  Interest  payments shall be made by separate check payable to the
order  of  the  Holder. After maturity (whether by declaration or otherwise) the
interest  rate chargeable hereunder on the Loan Amount so matured and any unpaid
interest  shall  be  a rate per annum equal to five percent (5%) above the prime
rate  published  by  the  Wall  Street  Journal.

                                      -3-
<PAGE>
3.2  Calculation  of  Interest.  Interest shall be calculated on the Loan Amount
daily  from the date of receipt of funds by Focus on the basis of a 365 day year
both  before  and  after  default  and  maturity.

                                   ARTICLE IV
                            REPAYMENT AND CONVERSION

4.1  Mandatory Repayment. Unless the Holder has exercised the Conversion Option,
Focus  shall  pay  to  the  Holder  the  Accumulated Debt on the Repayment Date.

4.2  Voluntary Prepayment. Focus may from time to time prepay all or part of the
Accumulated Debt, without premium or penalty, upon giving not less than ten (10)
Business  Days' written notice to the Holder specifying the amount of prepayment
and  the  date  for  the making thereof; provided that the Loan Amount hereunder
shall  be  permanently  reduced  by  the  amount  of  any  such  prepayment.

4.3  Place c/Payment.  All  payments  of  principal,  interest,  fees  and other
amounts payable under or by virtue of this Debenture shall be made to the Holder
by  payment as directed by the-Holder from time to time. All such payments shall
be  in  United  States  dollars.

4.4  Conversion. This Debenture shall be convertible at the option of the Holder
at  any  time after August 3, 2001 and up to and including the Repayment Date if
the  Holder  gives  written  notice  thereof  (the "Conversion Notice") to Focus
stating  that  the  Holder  has  elected  to  convert  all its rights under this
Debenture  including  the  Accumulated Debt at the time of the Conversion Notice
into  the  Conversion  Number  of  fully  paid and non-assessable Common Shares,
rounded  to  the nearest one-tenth of one share. If the Holder elects to convert
all  its  rights  under  this  Debenture  then  the  Holder shall surrender this
Debenture,  duly  endorsed  on behalf of the Holder, at the registered office of
Focus  at  or  after  the time of delivery of the Conversion Notice. Focus shall
issue  and deliver to the Holder a certificate or certificates for the number of
Common  Shares  to  which  the Holder shall be entitled. The conversion shall be
deemed  to  have occurred immediately prior to the close of business on the date
of  the surrender of this Debenture to be converted (the "Conversion Date"), and
the  Holder  shall  be treated for all purposes as the registered holder of such
Common  Shares  as  of  that  date.  Focus  shall  cancel  this  Debenture  when
surrendered  to  Focus  and  shall  so  annotate its books and records. Upon the
issuance and delivery of the Common Shares, the Holder shall have no more rights
under  this  Debenture  and  shall be treated for all purposes as the registered
holder  of  Common  Shares as of that date. No fractional Common Shares shall be
issued  on  the  conversion  of  this Debenture. If any fractional interest in a
Common  Share  would,  except  for  the  provisions  of  this  subparagraph,  be
deliverable  on  the conversion of this Debenture, Focus shall, in lieu thereof,
adjust  the  fractional  interest  by payment to the Holder of an amount in cash
(computed  to the nearest cent) equal to the then Conversion Price multiplied by
the  fractional  interest.

4.5  Conversion  Price.  Subject  to  section 4.6, the Conversion Price shall be
$1,200  per  share.

                                      -4-
<PAGE>
4.6  Adjustments  to  Conversion  Price.  Subject to section 4.8, the Conversion
Price  shall  be subject to adjustment from time to time in the event of a stock
split or stock dividend of Common Stock (any of which is referred to herein as a
"Dilution  Event").  Upon  a  Dilution  Event,  the  Conversion  Price  shall be
adjusted,  rounded  to the nearest US $0.01, to be equal to the Conversion Price
immediately prior to the Dilution Event, multiplied by a fraction, the numerator
of  which  is  the  sum  of  the  number  of  shares of Common Stock outstanding
immediately  prior  to  the  Dilution  Event,  including the number of shares of
Common  Stock  issuable  upon exercise of all options, warrants, or rights, upon
conversion  of  all  convertible securities or upon conversion of all securities
issuable  upon exercise of all options, warrants, or rights for such convertible
securities  issued in all prior Dilution Events plus (z) the number of shares of
Common  Stock that the effective price for any Common Stock issued in respect of
the  Dilution  Event  giving  rise to this adjustment would purchase at the then
Conversion Price, and the denominator of which is the number of shares of Common
Stock  outstanding immediately after the Dilution Event, including the number of
shares  of  Common  Stock  issuable  upon  exercise of all options, warrants, or
rights, upon conversion of all convertible securities, or upon conversion of all
convertible  securities  issuable  upon  exercise  of  all options, warrants, or
rights  for  such  convertible  securities issued in this and all prior Dilution
Events.  The  effective  price  for  any  Common Shares issued in respect of any
Dilution  Event  shall  be  the sum of all cash and the fair market value of all
property  other  than  cash,  as determined by Focus' board of directors in good
faith  and  absent  manifest  error, received or applied to the benefit of Focus
plus,  for options, warrants, and rights, the amount equal to the exercise price
multiplied  by  the  number  of  securities  subject to such option, warrant, or
right.

4.7  Record  of  Adjustments. Upon any adjustment of the Conversion Price, Focus
shall maintain at its registered office a statement, signed by the President and
the  Chief  Financial  Officer, showing in reasonable detail the facts requiring
the  adjustment  and  the  Conversion  Price  after  the  adjustment.

4.8  Other  Adjustments.  If  Focus  shall  reorganize or reclassify its capital
(other  than  a  subdivision  or consolidation of its outstanding Common Stock),
consolidate  or  merge  with  or  into  another  corporation,  or  convey all or
substantially  all  of  its  assets to another corporation, this Debenture shall
thereafter  be  convertible  into  the  number  of shares or other securities or
property  to  which  a  holder  of  the  number  of Common Shares deliverable on
conversion  of  this  Debenture  would have been entitled on the reorganization,
reclassification,  consolidation,  merger,  or conveyance; and in any such case,
appropriate adjustments (as determined by the Board of Directors of Focus) shall
be  made  in  the application of the provisions herein set forth with respect to
the rights and interests thereafter of the Holder to the end that the provisions
set  forth  (including  provisions  with  respect  to  changes  in,  and  other
adjustments  of, the Conversion Price) shall thereafter be applicable, as nearly
as  reasonably  may  be,  in relation to any shares or other property thereafter
deliverable  on  conversion  of  this  Debenture.

4.9  Other  Actions.  Simultaneously  with  the  execution  and delivery of this
Debenture,  Focus  and  the  Holder  shall  execute  and deliver an Amendment to
Investment Agreement, in the form of Exhibit B annexed hereto (the "Amendment").

                                      -5-
<PAGE>
4.10  Reservation  of  Shares.  Focus  shall  at  all  times  reserve  and  keep
available,  out  of  its  authorized  but  unissued Common Shares solely for the
purpose  of  effecting  conversion of this Debenture or exercise of the Warrant,
the  full  number  of Common Shares deliverable on conversion of this Debenture.
Focus  shall, from time to time, in accordance with applicable law, increase the
authorized  number  of  Common  Shares  if  at any time the authorized number of
Common  Shares  remaining  unissued  shall  not  be  sufficient  to  permit  the
conversion  of  this  Debenture.

4.11  Issue Costs. Focus shall pay any and all issue and other taxes that may be
payable  in  respect  of any issue or delivery of Common Shares on conversion of
this  Debenture.

                                    ARTICLE V
                                    SECURITY

5.1  Security.  On  the Closing Date Focus shall grant to the Holder as security
for  its  obligations  under  or  by  virtue  of this Debenture a first priority
security  interest (subject to the provisions of the Intercreditor Agreement) in
all  of  Focus'  assets by execution and delivery of an Amendment to the GSA, in
the  form  of  Exhibit  C  annexed  hereto  (the  "GSA  Amendment").

5.2  Inconsistency.  In case of any inconsistency between the provisions of this
Debenture  and the provisions of the GSA, the provisions of this Debenture shall
prevail.

                                   ARTICLE VI
                              CONDITIONS PRECEDENT

6.1  Conditions  For  Benefit  of  the  Holder.  The  following  are  conditions
precedent  to the obligation of the Holder to make the Loan and the Holder shall
not be obliged to make the Loan unless all of the following conditions precedent
have  been  satisfied or waived in writing by the Holder as of the Closing Date:

     (a)  the  GSA Amendment shall have been duly executed and delivered and all
          financing  statements  in respect thereof shall have been filed in all
          appropriate  registries;

     (b)  the  Option shall have been duly executed and delivered to the Holder;

     (c)  the  Amendment  shall  have  been  duly  executed and delivered to the
          Holder;

     (d)  the  Holder shall have received certified copies of resolutions of the
          directors  of  Focus  approving  and  authorizing  this  Debenture;

                                      -6-
<PAGE>
     (e)  the  representations  and  warranties  contained in Article VII hereof
          were  true  and  correct at the time they were made and continue to be
          true  and  correct;

     (f)  no breach of any of the covenants contained in Article VIII hereof has
          occurred  and  is  continuing;

     (g)  no  Event  of Default and no event which, through the giving of notice
          or  lapse  of  time or both, would constitute an Event of Default, has
          occurred  and  is  continuing;  and

     (h)  the  making  of the Loan is not contrary to any statutes, regulations,
          restrictions  or  rules  of  any competent regulatory authority having
          jurisdiction  over  the  Holder.

                                   ARTICLE VII
                         REPRESENTATIONS AND WARRANTIES

7.1  Representations and Warranties. Focus represents and warrants to the Holder
that:

     (a)  Focus  is duly incorporated and validly existing under the laws of the
          State  of  Delaware;

     (b)  Focus has all corporate power and owns all assets (including licenses)
          necessary  in  any  material  respect  to  carry  on  its  business;

     (c)  the  financial  statements  of  Focus  for the year ended June 30,2000
          fairly  reflected  the  financial condition of Focus as of the date of
          such  statements  and there has been no material adverse change in the
          financial  condition  of  Focus  since  June  30,  2000;

     (d)  there  are  no  facts  that  materially adversely affect, or so far as
          Focus  can  reasonably  foresee would materially adversely affect, the
          properties,  assets  conditions  (financial or otherwise), business or
          operations  of  Focus;

     (e)  Focus  is  not  in  breach  of or in default under any applicable law,
          statute or regulation of any jurisdiction where it carries on business
          or any agreement or instrument to which it is a party which in any way
          would  materially  adversely  affect  the ability of Focus to meet its
          obligations  under  this  Debenture  or  the  GSA;

     (f)  there  are  no  actions  or  proceedings pending (including appeals or
          applications  for  review),  or  to  the  best  knowledge  of  Focus
          threatened,  before  any  court,  arbitrator,  administrative  agency,
          referee  or  governmental  body  which,  if  determined  against

                                      -7-
<PAGE>
          Focus,  would  result in a change occurring in the properties, assets,
          conditions  (financial  or  otherwise) business or operations of Focus
          which  would  materially adversely affect the ability of Focus to meet
          its  obligations  under  this  Debenture or the GSA or to carry on its
          business;

     (g)  Focus  has  the  corporate  power  and  authority  to  enter into this
          Debenture  and  the  GSA  and to perform its obligations hereunder and
          thereunder;

     (h)  each  of this Debenture and the GSA has been duly authorized, executed
          and  delivered  by Focus and is a valid and legally binding obligation
          of  Focus  enforceable  against it in accordance with their respective
          terms;

     (i)  neither  the  execution  and delivery of this Debenture or the GSA nor
          performance  in accordance therewith is or will constitute a breach or
          a  default  under:

          (i)  any law, statute or regulation of any jurisdiction where Focus is
               carrying  on  business;

          (ii)  the  charter  documents  of  Focus;  or

          (iii) any  agreement  or  instrument  to  which  Focus  is  a  party

          which  breach  or  default  would  materially adversely affect (x) the
          ability  of  Focus to carry on business, (y) the legality, validity or
          enforceability  of  this  Debenture  or  the GSA or (z) the ability of
          Focus  to  perform  its  obligations  under this Debenture or the GSA;

     (j)  Focus  has  good and marketable title to all its properties and assets
          free  and  clear  of  all  liens,  charges and encumbrances other than
          Permitted  Encumbrances;

     (k)  Focus  has paid on a timely basis with the appropriate authorities all
          federal,  state  and local taxes and any other amounts due to federal,
          state  and local governmental -authorities that are capable of forming
          alien,  charge or encumbrance in favor of such authorities against any
          of  the  assets  of  Focus;  and

     (l)  all  necessary  consents,  approvals and waivers have been obtained to
          permit  Focus  to  enter  into  this  Debenture  and  the  GSA.

7.2  Nature  of  Representations  and  Warranties.  The  representations  and
warranties  set out in this Article VII shall survive the execution and delivery
of this Debenture and the GSA notwithstanding any investigations or examinations
made by the Holder or its counsel, and the Holder shall be deemed to have relied
on  such  representations  and  warranties  when  making  the  Loan.

                                      -8-
<PAGE>
                                  ARTICLE VIII
                               COVENANTS OF FOCUS

8.1  Affirmative  Covenants.  Focus  covenants and agrees to and with the Holder
that  so  long  as  the  Accumulated Debt or any portion thereof is outstanding:

     (a)  Focus  shall  use the Loan proceeds solely for the following purposes:

          (i)  the  completion  of  the  benign  prostate  hyperplasia  clinical
               trials;

          (ii) the  production  and  testing by the Holder of the high intensity
               focused ultrasound device, currently called the SB 500, developed
               by  Focus  for  the process of tissue ablation including, without
               limitation,  payment  in  full  of  all invoices submitted by the
               Holder  whether previously or in the future for all items related
               to  such  production  and  testing;

         (iii) administration  expenses;  and

          (iv) salaries  and  related  payroll  expenses  at  present  levels.

     (b)  Focus will observe and perform all of the covenants, agreements, terms
          and  conditions  to be respectively observed and performed by Focus in
          this  Debenture  and  the  GSA;

     (c)  the  Holder  will  be  provided  with:

          (i)  the  unaudited  financial  statements  of  Focus  for each fiscal
               quarter  end  prepared  in  accordance  with  generally  accepted
               accounting principles ("GAAP") applied consistently, within forty
               five  (45)  days  of  each  fiscal quarter end (not including the
               fiscal  year  end);

          (ii) the  unaudited financial statements of Focus for each fiscal year
               end prepared in accordance with GAAP applied consistently, within
               ninety  (90)  days  of  each  fiscal  year  end  of  Focus;

         (iii) such  other  financial and other information relating to Focus as
               the  Holder  may  reasonably  request.

     (d)  Focus will carry on and conduct its business in a proper and efficient
          manner,  will  keep all of its assets in a good state of repair and in
          proper  working  condition, and will keep or cause to be kept accurate
          books  and  records;

                                      -9-
<PAGE>
     (e)  Focus  will  from time to time pay all rents, taxes, rates, levies or.
          assessments,  ordinary  or  extraordinary, and government fees or dues
          levied,  assessed  or  imposed  upon  Focus  or  its assets capable of
          forming  a  lien, charge or encumbrance on any of the assets of Focus,
          as  and  when the same become due and payable unless their validity is
          disputed  in  good  faith by Focus and the Holder is provided security
          acceptable  to  it,  acting  reasonably,  for  the  payment  of  same;

     (f)  Focus  will  maintain its corporate existence and all registrations in
          jurisdictions  in  which  it  is  carrying  on  business;

     (g)  Focus  will maintain all licenses and permits required to carry on its
          business  and will not transfer, surrender or otherwise dispose of any
          such  licenses  or  permits;

     (h)  Focus  will  comply  with all laws, regulations, rules and orders, the
          non-compliance  with which could have a material adverse effect on its
          business  or  condition  (financial  or  otherwise);

     (i)  Focus  will  forthwith  on  becoming aware of same, provide the Holder
          with  notice  of  the  occurrence of any Event of Default or any event
          which,  through  the  giving of notice or lapse of time or both, would
          constitute  an  Event  of  Default;

     (j)  Focus  will  cause all the property and assets of Focus which are of a
          character usually insured by companies operating like businesses to be
          insured  and kept insured in such amounts as the Holder may reasonably
          require  against  loss  or  damage from any cause which is customarily
          insured against by companies carrying on like businesses with insurers
          approved  by  the  Holder,  with  the  Holder  as  a loss payee as its
          interest  may  appear,  and  will  pay all premiums necessary for such
          purpose  as the same shall become due and shall provide particulars of
          all  such  policies  and  all renewals thereof to the Holder, all such
          policies  or  contracts  to be on terms reasonably satisfactory to the
          Holder;  and

     (k)  Focus  will maintain public liability insurance in such amounts as the
          Holder  may  reasonably  require with insurers approved by the Holder,
          acting  reasonably,  and  will  pay  all  premiums  necessary for such
          purpose  as the same shall become due and shall provide particulars of
          all  such  policies  and  all renewals thereof to the Holder, all such
          policies  or  contracts  to be on terms reasonably satisfactory to the
          Holder.

8.2  Negative Covenants. Focus covenants and agrees to and with the Holder that,
unless  the  Holder  consents in writing, so long as the Accumulated Debt or any
portion  thereof  is  outstanding:

     (a)  Focus  will not grant, create, assume or permit to exist any mortgage,
          pledge,  assignment,  lien,  charge,  encumbrance  or  other  security
          interest,  whether  fixed or floating, upon any of the assets of Focus
          other  than  Permitted  Encumbrances;

                                      -10-
<PAGE>
     (b)  Focus  will  not  make  any  loans  or advances to, whether secured or
          unsecured,  or  guarantee  or otherwise become contingently liable for
          any  obligations  of  any  person,  firm  or  corporation  without the
          Holder's  prior written consent, which consent may be withheld for any
          reason;

     (c)  Focus  will  not  in any fiscal year, except in the ordinary course of
          business, sell or otherwise dispose of any of its assets having in the
          aggregate a value exceeding $250,000 unless the proceeds therefrom are
          paid  to the Holder and Takai in discharge of outstanding secured loan
          amounts  and  such  repayment  is in accordance with the sharing ratio
          provided  in  Section  3  of  the  Jntercreditor  Agreement;

     (d)  Focus will not merge, consolidate, reorganize or become a party to any
          other  transaction  whereby  all  or  substantially  all of its assets
          become  the  property  of any other person, firm or corporation or, in
          the  case of a merger, of the surviving corporation resulting from the
          merger;

     (e)  Focus  will  not  change  its  fiscal  year  end;  and

     (f)  Focus  will  not  pay  salaries,  management fees or bonuses except in
          accordance  with  existing  contracts  or  usual  industry  practices.

                                   ARTICLE IX
                                     DEFAULT

9.1  Events  of  Default. The occurrence of any one or more the following events
(each  such  event being herein called an "Event of Default") shall constitute a
default  under  this  Debenture:

     (a)  if  Focus  fails  to  make  any  payment  to the Holder due under this
          Debenture,  any other outstanding secured debenture issued by Focus to
          the  Holder, or the GSA, whether for principal, interest or otherwise,
          for  more  than  ten  (10)  Business  Days  after  its  due  date;

     (b)  if  Focus  defaults  in the performance or observance of any provision
          contained  in  this Debenture, any other outstanding secured debenture
          issued  by  Focus to the Holder or the GSA on its part to be performed
          or  observed  (other  than  making a payment referred to in clause (a)
          above) and such default continues for more than thirty (30) days after
          the  Holder  has  given  Focus  written  notice  of  the  default;

     (c)  the  Holder,  acting  reasonably, is not satisfied on the basis of the
          financial  statements  furnished  pursuant  to Section 8.1(c) with the
          financial  condition  of  Focus;

                                      -11-
<PAGE>
     (d)  if  proceedings  are  commenced  for  the  dissolution, liquidation or
          winding  up  of  Focus, unless such proceedings are being actively and
          diligently  contested  in  good  faith  by  Focus;

     (e)  if a default under any indenture or instrument evidencing indebtedness
          for  borrowed  money  of  Focus  shall occur and any such indebtedness
          shall  have  been  lawfully accelerated or shall lawfully be or become
          due  and  payable  prior to the date on which the same would otherwise
          have  become  due  and  payable;

     (f)  if  Focus  is  adjudged  or  declared bankrupt or becomes insolvent or
          makes an assignment for the benefit of creditors, or admits in writing
          its  inability  to  satisfy its debts generally as they become due, or
          petitions or applies to any tribunal for the appointment of a receiver
          or  trustee  for  it  or  for any substantial part of its property, or
          commences  any  proceedings  relating  to it under any reorganization,
          arrangement,  readjustment  of debt, dissolution or liquidation law or
          statute  of any jurisdiction whether now or hereafter in effect, or by
          any act indicates its consent to, approval of, or acquiescence in, any
          such  proceeding  for  it or for any substantial part of its property;

     (g)  if  a  receiver,  receiver  and  manager, receiver-manager, custodian,
          liquidator  or  trustee  (or  any  person  with  like powers) shall be
          appointed  for  all  or any substantial part of the property of Focus,
          provided  that  such  appointment  shall  not  constitute  an Event of
          Default  if  and  for  so  long  as:

          (i)  Focus obtains within two (2) Business Days of such appointment an
               order  of  a  court  of  competent  jurisdiction  staying  such
               appointment  and  such order (or a replacement thereof to similar
               effect)  remains  in  full  force  and  effect;  or

          (ii) Focus  disputes  and  continues  to  dispute such appointment and
               provides or causes to be provided to the Holder, such security as
               the  Holder, acting reasonably, shall require for payment of such
               sum  as  may  be necessary to discharge such appointment, and for
               the  purposes hereof it is agreed that the Holder, in determining
               whether  any  proposed  security  is  sufficient,  may assume the
               validity  of  any such appointment and of the powers purported to
               be  granted  to  the  person  so  appointed;

     (h)  if  any  representation or warranty made in this Debenture by Focus or
          any  information furnished in writing to the Holder by Focus before or
          after  the  date  hereof proves to have been incorrect in any material
          adverse  respect  when  made  or  furnished;

     (i)  if  a  writ,  execution  or attachment or similar process is issued or
          levied  against  all or a substantial portion of the property of Focus
          in  connection with any judgment against Focus, as the case may be, in
          any  amount  which  materially  affects  the  assets

                                      -12-
<PAGE>
          of  Focus, as the case may be, and such writ, execution, attachment or
          similar  process  is  not  released,  bonded,  satisfied,  discharged,
          vacated or stayed or unless being actively and diligently contested by
          Focus,  in  good  faith  within  sixty  (60)  days  after  its  entry,
          commencement  or  levy;

     (j)  if  an encumbrancer or lienor takes possession of any substantial part
          of  the  properties  or  assets  of  Focus,  unless Focus disputes and
          continues to dispute such possession in good faith and provides to the
          Holder,  such  security for the payment of such encumbrance or lien as
          the  Holder  shall  reasonably  require;

     (k)  if  an  order  is  made  or  legislation enacted by any competent body
          having  authority  for  the  expropriation,  confiscation, forfeiture,
          escheating,  other  taking  or  compulsory divestiture, whether or not
          with  compensation,  of  all or a significant portion of the assets of
          Focus and such order or legislation remains in effect and has not been
          stayed  by a court of competent jurisdiction for a period of more than
          thirty  (30)  days  from  the  date  of  pronouncement of the order or
          enactment  of  the  legislation,  as  the  case  may  be;

     (i)  if  there  has  been  a  material  adverse  change  in the businesses,
          operations,  assets,  financial or other condition of Focus, since the
          date  hereof,

     (m)  if  judgment  in excess of $50,000 is granted against Focus in respect
          of  which  Focus does not have insurance coverage and the same remains
          undischarged  or  unsatisfied  after the time for appeal therefrom has
          expired  without  Focus  having  appealed the judgment and obtaining a
          stay  of  execution of the judgment, provided that such judgment shall
          not  constitute  an Event of Default if Focus provides or causes to be
          provided to the Holder such security as the Holder, acting reasonably,
          shall  require  for  the  payment  of  such  judgment;  or

     (n)  if  Focus  declares  a dividend on any class or series of shares other
          than  as  required  on  its  issued and outstanding Series T Preferred
          Stock  and  Series  M  Preferred  Stock.

9.2  Termination andAcceleration. Upon the occurrence of an Event of Default and
for  so  long as such Event of Default shall continue, the Holder may, by notice
to  Focus,  do  any  or  all  of  the  following:

     (a)  declare  the entire principal amount of the Loan, all interest accrued
          thereon  and  all  fees and other amounts required to be paid by Focus
          hereunder,  to be immediately due and payable without the necessity of
          further  notice  or  demand  for  payment,  presentment  for  payment,
          protest,  notice  of  dishonor  or any other notice whatsoever (all of
          which are hereby expressly waived) and proceed to exercise any and all
          rights  under  this  Debenture  and  the  GSA;  or

                                      -13-
<PAGE>
     (b)  request  from  Focus  such  additional  financial, marketing, sales or
          other  information  (referred to herein as "Financial Information") as
          the  Holder  may  reasonably request to permit the Holder to determine
          whether  to  waive  the  Event  of  Default.  The  Holder  will  keep
          confidential  all  Financial  Information  disclosed  to  it  by Focus
          hereunder  and  not  copy,  disclose  or  make  any  use of, Financial
          Information.

9.3  Remedies Cumulative and Waivers. It is expressly understood and agreed that
the  respective  rights  and remedies of the Holder under this Debenture and the
GSA are cumulative and are in addition to and not in substitution for any rights
or  remedies provided by law or by equity; and any single or partial exercise by
the Holder of any right of remedy for a default or breach of any term, covenant,
condition  or  agreement  contained  in  this Debenture and the GSA shall not be
deemed  to  be  a  waiver of or to alter, affect or prejudice any other right or
remedy  or other rights or remedies to which the Holder may be lawfully entitled
for  such  default or breach. Any waiver by the Holder of the strict observance,
performance or compliance with any term, covenant, condition or agreement herein
contained or contained in the GSA and any indulgence granted either expressly or
by  course  of  conduct,  by  the Holder shall be effective only in the specific
instance  and  for the purpose for which it was given and shall be deemed not to
be a waiver of any rights and remedies of the Holder under this Debenture or the
GSA.

                                    ARTICLE X
                            MISCELLANEOUS PROVISIONS

10.1  Costs  and  Expenses.  Focus  shall  pay  promptly  all costs and expenses
incurred  by  the Holder in connection with the preparation, execution, delivery
and registration of this Debenture and the GSA, and in connection with arranging
the  establishment  of  the loan hereby established and reasonable out-of-pocket
expenses  of  the  Holder's  counsel  with  respect  thereto and with respect to
advising  the  Holder as to its rights and responsibilities under this Debenture
and  the  GSA.  Except  for  ordinary  expenses  of  the  Holder relating to the
day-to-day  administration  of  this Debenture and the GSA and not involving the
preparation  or review of any waiver, consent or amendment, Focus further agrees
to  pay  all  reasonable  costs  and  expenses incurred by the Holder (including
reasonable  fees  and  expenses  of  counsel, accountants and other experts), in
connection  with  the  preservation or enforcement of rights of the Holder under
this  Debenture  and the GSA including, without limitation, all reasonable costs
and  expenses  sustained  by  the  Holder as a result of any failure by Focus to
perform  or  observe  its  obligations  contained in this Debenture and the GSA.

10.2  Notices.  Any  notice, demand or other communication to be made in respect
of  this Debenture may be made or given by personal delivery, registered mail or
facsimile  transmission  to  the  parties  as  follows:

                                      -14-
<PAGE>
     (a)  if  to  Focus:

          Focus  Surgery,  Inc.
          3940  Pendelton  Way
          Indianapolis,  Indiana  46226
          Attention:  President
          Fax  No.:  (317)541-1581

     (b)  if  to  the  Holder:

          Misonix,  Inc.
          1938  New  Highway
          Farmingdale,  New  York  11735
          Attention:  President
          Fax  No.:  (631)  694-9412

or  at such other addresses or facsimile numbers as may be designated by written
notice  given  by  the  other  party  from  time  to  time.

10.3  Successors  and  Assigns.  This  Debenture  shall become effective when it
shall  have  been executed by the parties hereto and thereafter shall be binding
upon  and  enure  to  the  benefit  of Focus and the Holder and their respective
successors  and  permitted assigns. Focus shall not have the right to assign its
rights  hereunder  or  any interest herein. Subject to all applicable securities
laws,  the  Holder from time to time (y) may grant a participation in all or any
part  of  the  Loan  to  any  third party (a "Participant"), after notice to but
without  any  requirement  of  consent  by Focus, and (z) with the prior written
consent  of Focus (which consent shall not be unreasonably withheld), may assign
all  or any part of its rights and obligations under this Debenture to any third
party  (an  "Assignee")The Holder may give any Participant or Assignee copies of
financial statements and other reports and all other information furnished to it
by  or on behalf of Focus for the purposes of this Debenture. Without limitation
of  its  obligations  hereunder, Focus shall, at its sole cost and expense, give
such  certificates,  acknowledgments  and  further assurances in respect of this
Debenture  and  the  Loan  as  the  Holder  may  require  in connection with any
participation  or  assignment  pursuant to this Section. The Holder shall act on
behalf  of  all  its  Participants  and  Assignees in all dealings with Focus in
respect  of  the Loan, until such time as an Event of Default occurs as a result
of  Focus'  failure  to pay any amount on account of principal or interest owing
under  or  by  virtue  of  this Debenture. Save as aforesaid, any Participant or
Assignee  shall  be  entitled  to the full benefit of this Debenture to the same
extent  as if it were an original party in respect of the rights and obligations
granted  or  assigned  to  it.

10.4  Entire  Agreement. This Debenture constitutes the entire agreement between
the  parties  hereto  and  cancels  and  supersedes  any  prior  agreements,
undertakings, declarations, commitments and representations, written or oral, in
respect  thereof.

                                      -15-
<PAGE>
10.5  Amendments. Any provision of this Debenture or the GSA may be amended only
if  Focus  and  the  Holder  so  agree  in  writing.

10.6  Further  Assurances.  Focus  agrees  that  it  will, at the request of the
Holder,  do  all  such  further  acts  and  execute and deliver all such further
assurances  and  documents  as may be reasonably required by the Holder to carry
out  the  intent  of  this  Debenture.

     IN  WITNESS  WHEREOF  this  Debenture has been duly executed as of the date
first  above  written.

                                         FOCUS  SURGERY,  INC.

                                         By:_____________________________
                                                Narendra  T.  Sanghvi,
                                                President  and  CEO

                                         MISONIX,  INC.

                                         By:______________________________
                                                Michael  A.  McManus,  Jr.
                                                President  and  CEO

                                      -16-
<PAGE>

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