Document:

ex4_3.htm

    
      
        

      

    

    NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

    
       

      COMMON
STOCK PURCHASE WARRANT

      

      AXIS
TECHNOLOGIES GROUP, INC.

      

      
        	
                Warrant
      Shares: 5,341,880

              	
                Issue
      Date: April 25, 2008

              

      

       

      

      THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, GEMINI MASTER FUND, LTD. (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the Issue Date (as defined above)
and on or prior to the close of business on the fifth (5th)
anniversary of the Issue Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Axis Technologies Group,
Inc., a Delaware corporation (the “Company”), up to
5,341,880 shares (the “Warrant Shares”) of
Common Stock.  The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

       

      Section
1.             Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated April 25, 2008, among the Company and the purchasers signatory
thereto.

       

      Section
2.             Exercise.

       

      a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time and from time to time on
or after the Issue Date and on or before the Termination Date by delivery to the
Company of a duly executed facsimile copy of the Notice of Exercise Form annexed
hereto (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company); and, within 3 Trading Days of the date
said Notice of Exercise is delivered to the Company, the Company shall have
received  payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States
bank, unless payment is being made by cashless exercise as provided in Section
2(c) below.  Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder and
the Warrant has been exercised in full, in which case the Holder shall surrender
this Warrant to the Company for cancellation within 3 Trading Days of the date
the final Notice of Exercise is delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased.  The
Holder and the Company shall maintain records showing the number of Warrant
Shares purchased and the date of such purchases.  In the event of any
dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.

       

      
        
           

        

        
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      b)           Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $0.26, subject to adjustment hereunder (the “Exercise
Price”).

       

      c)           Cashless
Exercise.  During any time after February 15, 2009 that there
is not an effective registration statement and current prospectus covering the
resale of the Warrant Shares by the Holder, this Warrant may also be exercised
by means of a “cashless exercise” in which the Holder shall be entitled to
receive a certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:

       

      
        	
                 
      

              	
                (A)
      =

              	
                the
      VWAP on the Trading Day immediately preceding the date of such
      election;

              

      

      

      
        	
                 
      

              	
                (B)
      =

              	
                the
      Exercise Price of this Warrant, as adjusted;
and

              

      

      

      
        	
                 
      

              	
                (X)
      =

              	
                the
      number of Warrant Shares issuable upon exercise of this Warrant in
      accordance with the terms of this Warrant by means of a cash exercise
      rather than a cashless exercise.

              

      

      

      Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be
automatically exercised via cashless exercise pursuant to this Section
2(c).

      

      d)           Holder’s
Restrictions.  The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any
other person or entity acting as a group together with the Holder or any of the
Holder’s Affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any
other  Common Stock Equivalents) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its Affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 2(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder, it being acknowledged by the Holder that
the Company is not representing to the Holder that such calculation is in
compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance
therewith.   To the extent that the limitation contained in this
Section 2(d) applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such
determination.   In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  For purposes of this Section 2(d), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
periodic or annual report, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding.  In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  The “Beneficial Ownership
Limitation” shall be 4.9% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant.  By written notice to
the Company, the Holder may at any time and from time to time increase or
decrease the Beneficial Ownership Limitation to any other percentage specified
in such notice (or specify that the Beneficial Ownership Limitation shall no
longer be applicable), provided, however, that (A) any such increase (or
inapplicability) shall not be effective until the sixty-first (61st) day after
such notice is delivered to the Company, and (B) any such increase or decrease
shall apply only to the Holder and not to any other holder of Warrants. The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 2(d) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

       

      
        
           

        

        
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      e)           Mechanics of
Exercise.

       

      i.      Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the transfer agent of the Company to the Holder by
crediting the account of the Holder’s prime broker with the Depository Trust
Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is a participant in such system and either (x) there is an effective
Registration Statement permitting the resale of the Warrant Shares by the
Holder, or (y) such shares may be sold pursuant to Rule 144, and otherwise by
physical delivery to the address specified by the Holder in the Notice of
Exercise, within 3 Trading Days from the delivery to the Company of the Notice
of Exercise Form, surrender of this Warrant (if required) and payment of the
aggregate Exercise Price as set forth above (“Warrant Share Delivery
Date”).  This Warrant shall be deemed to have been exercised on
the date the Exercise Price is received by the Company.  The Warrant
Shares shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price (or by cashless exercise) and
all taxes required to be paid by the Holder, if any, pursuant to Section
2(e)(vi) prior to the issuance of such shares, have been paid. If the Company
fails for any reason to deliver to the Holder the Warrant Shares or certificates
evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant
Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of Warrant Shares subject to such
exercise (based on the VWAP of the Common Stock on the date of the applicable
Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on
the fifth Trading Day after such liquidated damages begin to accrue) for each
Trading Day after such Warrant Share Delivery Date until such shares or
certificates are delivered.

       

      ii.           Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

       

      
        
           

        

        
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      iii.           Rescission
Rights.  If the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the Warrant
Shares (or otherwise transmit such shares via DWAC to the Holders DTC account)
pursuant to this Section 2(e) by the Warrant Share Delivery Date, then the
Holder will have the right to rescind such exercise.

       

      iv.           Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In
addition to any other rights available to the Holder, if the Company fails to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Shares (or otherwise transmit such shares via DWAC to
the Holders DTC account) pursuant to an exercise on or before the Warrant Share
Delivery Date, and if after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated receiving
upon such exercise (a “Buy-In”), then the
Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed, and (2) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery obligations
hereunder.  For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss.  Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver the
Warrant Shares or certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.

       

      v.      No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.

       

      
        
           

        

        
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      vi.           Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder;
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

       

      vii.           Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

       

      Section
3.             Certain
Adjustments.

       

      a)           Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(A) pays a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (B) subdivides outstanding shares of Common Stock into a larger number
of shares, (C) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.

       

      b)           Subsequent Equity
Sales. If the Company or any Subsidiary thereof, as applicable, at any
time while this Warrant is outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise dispose of or
issue (or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any Person
to acquire shares of Common Stock, at an effective price per share less than the
then Exercise Price (such lower price, the “Base Share Price” and
such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price on such date of the
Dilutive Issuance), then the Exercise Price shall be reduced and only reduced to
equal the Base Share Price, and the number of Warrant Shares issuable hereunder
shall be increased such that the aggregate Exercise Price payable hereunder,
after taking into account the decrease in the Exercise Price, shall be equal to
the aggregate Exercise Price prior to such adjustment.  Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  Notwithstanding the foregoing, no adjustments shall be
made, paid or issued under this Section 3(b) in respect of an Exempt
Issuance.  The Company shall notify the Holder in writing, no later
than the Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 3(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice the “Dilutive Issuance
Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon
the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based upon
the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.

       

      
        
           

        

        
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      c)           Subsequent Rights
Offerings.  If the Company, at any time while the Warrant is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the VWAP at the record date
mentioned below, then the Exercise Price shall be multiplied by a fraction, of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares
issued (assuming receipt by the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.

       

      d)           Pro Rata
Distributions.  If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to
Holders of the Warrants) evidences of its indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock (which shall be subject to Section 3(b)),
then in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.

       

      
        
           

        

        
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      e)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate
Consideration”) receivable as a result of such merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. For purposes
of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder’s right to exercise such warrant
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e)
and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
as amended, or (3) a Fundamental Transaction involving a person or entity not
traded on a national securities exchange, the Nasdaq Global Select Market, the
Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor
entity shall pay at the Holder’s option, exercisable at any time concurrently
with or within 30 days after the consummation of the Fundamental Transaction, an
amount of cash equal to the value of this Warrant as determined in accordance
with the Black Scholes Option Pricing Model obtained from the “OV” function on
Bloomberg L.P. using (i) a price per share of Common Stock equal to the VWAP of
the Common Stock for the Trading Day immediately preceding the date of
consummation of the applicable  Fundamental Transaction, (ii) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of the date of consummation of
the applicable Fundamental Transaction and (iii) an expected volatility equal to
the 100 day volatility obtained from the “HVT” function on Bloomberg L.P.
determined as of the Trading Day immediately following the public announcement
of the applicable Fundamental Transaction.  In addition, if the
Company fails to file a Form 10 with the Commission to register the Common Stock
under the Exchange Act by July 15, 2008 (or thereafter fails to reasonably
diligently respond to all Commission comments or otherwise use its best efforts
to cause the Common Stock to be and remain registered under the Exchange Act),
then at the Holder’s option the Company shall redeem this Warrant for cash at an
amount equal to the value of this Warrant as determined in accordance with the
Black Scholes Option Pricing Model, determined as set forth in the preceding
sentence.

       

      
        
           

        

        
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      f)           Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.

       

      g)           Voluntary Adjustment By
Company. The Company may at any time during the term of this Warrant
reduce the then current Exercise Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.

       

      h)           Notice to
Holder.

       

      i.      Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company enters into a
Variable Rate Transaction (as defined in the Purchase Agreement), despite the
prohibition thereon in the Purchase Agreement, the Company shall be deemed to
have issued Common Stock or Common Stock Equivalents at the lowest possible
conversion or exercise price at which such securities may be converted or
exercised.

       

      ii.           Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock; (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.  The Holder is
entitled to exercise this Warrant during the period commencing on the date of
such notice to the effective date of the event triggering such
notice.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      Section
4.             Transfer of
Warrant.

       

      a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees and in the denomination or denominations specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled.  A Warrant, if properly assigned, may be
exercised by a new holder for the purchase of Warrant Shares without having a
new Warrant issued.

       

      b)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the original Issue Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      c)           Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.

       

      d)           Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection with
any transfer of this Warrant, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky
laws or eligible for resale under Rule
144, the Company may require, as a
condition of allowing such transfer, that
the Holder or transferee of this Warrant,
as the case may be, comply with the
provisions of Section 5.7 of the Purchase Agreement.

       

      Section
5.              Miscellaneous.

       

      a)           No Rights as Shareholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(i).

       

      b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

       

      c)           Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then such action may be taken or such right may be exercised
on the next succeeding Business Day.

       

      d)           Authorized
Shares.

       

      The
Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.  The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this
Warrant.

       

      Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

       

      e)           Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.

       

      f)           Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

       

      g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      h)           Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

       

      i)           Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

       

      j)           Remedies.  Holder,
in addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant.  The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be
adequate.

       

      k)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder.  The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by the Holder or holder of Warrant Shares.

       

      l)           Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

       

      m)           Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant 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 provisions or the remaining provisions of
this Warrant.

       

      n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

       

      

      ********************

      

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      

      IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.

       

      

      
        	 
      	
                AXIS
      TECHNOLOGIES GROUP, INC.

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                By:

              	 /s/
      Jim Erickson 
	 
      	 
      	
                Name:
      Jim Erickson

              
	 
      	 
      	
                Title:  
      President

              

      

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      NOTICE
OF EXERCISE

      

      TO:       
  AXIS TECHNOLOGIES
GROUP,
INC.

      
        	
                RE:

              	
                Warrant
      originally issued on or about _______________ to ____________________ for
      ____________ Warrant Shares.

              

      

      

      (1)           The
undersigned hereby elects to purchase _______________ Warrant Shares of the
Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.

       

      (2)           Payment
shall take the form of (check applicable box):

       

       ̈ in lawful money of the
United States; or

       

       ̈ the cancellation of
such number of Warrant Shares as is necessary, in accordance with the formula
set forth in subsection 2(c), to exercise this Warrant with respect to the
maximum number of Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in subsection 2(c).

       

      (3)           Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

       

      _______________________________

      

      

      The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

      

      _______________________________

      

      _______________________________

      

      _______________________________

      

      (4)  Accredited
Investor.  The undersigned is an “accredited investor” as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

      

      [SIGNATURE
OF HOLDER]

      

      Name of
Warrant Holder:
________________________________________________________________________

      Signature of Authorized Signatory of
Warrant Holder:
_________________________________________________

      Name of
Authorized Signatory:
___________________________________________________________________

      Title of
Authorized Signatory:
____________________________________________________________________

      Date:
________________________________________________________________________________________

      

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      ASSIGNMENT
FORM

      

      (To
assign the foregoing warrant, execute

      this form
and supply required information.

      Do not
use this form to exercise the warrant.)

      

      

      

      FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

       

      

      _______________________________________________
whose address is

      

      _______________________________________________________________.

      

      

      

      _______________________________________________________________

      

      
        	 
      	
                Dated:  ______________,
      _______

              

      

      

      

      
        	 
      	
                Holder’s
      Signature:

              	
                _____________________________

              	 
      
	 
      	
                 
      

              	 
      	 
      
	 
      	
                Holder’s
      Address:

              	
                _____________________________

              	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	
                _____________________________

              	 
      

      

      

      

      

      Signature
Guaranteed:  ___________________________________________

      

      

      NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

       

       

    

    15ex10_1.htm

    
      

    

    EXHIBIT C

     

    SECURITY AGREEMENT

    

    This SECURITY AGREEMENT, dated as of
April ___, 2008 (this “Agreement”), is among Axis Technologies Group,
Inc., a Delaware corporation (the
“Company”), all of the Subsidiaries of the
Company (such Subsidiaries, the “Guarantors”, and together with the Company, the “Debtors”), and the holder(s), each signatory hereto, of the Company’s 10% Senior Secured Convertible
Notes issued or to be issued in the original aggregate principal amount of up to $1,388,888.89 (the “Notes”) pursuant to the Purchase Agreement (as defined below)
(collectively, together with their endorsees, transferees and
assigns, the “Secured
Parties”, and each individually, a “Secured
Party”).

    

    W I T N E S S E T H:

    

    WHEREAS, pursuant to that certain Securities Purchase Agreement dated on or about the date hereof between the Debtor and the Secured
Parties (the “Purchase
Agreement”), the Secured Parties have severally
agreed to extend the loans to the Debtor evidenced by the Notes;

    

    WHEREAS, pursuant to that certain Subsidiary Guarantee, dated as of the date hereof
(“Guarantee”), the Guarantors have jointly and severally agreed to
guarantee and act as
surety for payment of such
Notes;

    

    WHEREAS, in order to induce the Secured
Parties to extend the loans evidenced by the
Notes, each Debtor has agreed to execute and deliver to
the Secured Parties this Agreement and to grant the Secured
Parties a security interest in certain property of such
Debtor to secure the prompt payment, performance and discharge in full of all of
the Company’s obligations under the Notes and other Transaction
Documents and
the Guarantors’ obligations under the
Guarantee; and

    

    WHEREAS, the rights of each Secured Party hereunder shall be pari
passu with each
other Secured Party
and enforced through the
agent for the Secured
Parties appointed pursuant
to Section 18
hereunder;

    

    NOW, THEREFORE, in consideration of the
agreements herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as
follows:

    

    1.          
  Certain
Definitions. As used in
this Agreement, the following terms shall have the meanings set forth in this
Section 1.  Terms used but not otherwise defined in this Agreement
that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings
given such terms in Article 9 of the UCC.

    

    (a)       “Collateral” means the collateral in which the
Secured Parties are granted a security interest by this Agreement and which
shall include the following personal property of the Debtors, whether
presently owned or existing or hereafter acquired or coming into existence,
wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, products
and accounts thereof, including without
limitation all proceeds from the sale or transfer of the Collateral and of
insurance covering the same and of any tort claims in connection
therewith, and all
dividends, interest, cash, notes, securities, equity interest or other property at any time and from
time to time acquired, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Securities (as defined
below):

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    (i)     
  All
goods, including without
limitation (A) all
machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture,
special and general tools, fixtures, test and quality control devices and other
equipment of every kind and nature and wherever situated, together with all
documents of title and documents representing
the same, all additions and accessions thereto, replacements therefor, all parts
therefor, and all substitutes for any of the foregoing and all other items used
and useful in connection with any Debtor’s businesses and all improvements thereto; and (B)
all inventory;

    

    (ii)      
All contract rights and other general intangibles, including without
limitation, all partnership interests, membership interests, stock or other
securities, rights under any of
the Organizational
Documents, agreements related to the Pledged Securities, licenses,
distribution and other agreements, computer software (whether “off-the-shelf”,
licensed from any third party or developed by any Debtor), computer software
development rights, leases, franchises, customer lists, quality control
procedures, grants and rights, goodwill, trademarks, service marks, trade
styles, trade names, patents, patent applications, copyrights, and income tax
refunds;

    

    (iii)     
All accounts, together with all
instruments, all documents
of title representing any of the foregoing, all rights in any merchandising,
goods, equipment, motor vehicles and trucks which any of the same may represent,
and all right, title, security and guaranties with respect to each
account, including any right of stoppage in
transit;

    

    (iv)      All documents, letter-of-credit rights,
instruments and chattel paper;

    

    (v)       All commercial tort
claims;

    

    (vi)      All deposit accounts and all cash
(whether or not deposited in such deposit accounts);

     

    (vii)     All investment
property;

    

    (viii)    All supporting obligations;
and

    

    (ix)       All files, records, books of account,
business papers, and computer programs, including without limitation
and all files, records, books, ledger cards, correspondence, computer programs, tapes, disks, digital storage  media and related data processing software
that at any time evidence or contain information relating to any of the
Collateral set forth in
clauses (i)-(viii) above or are otherwise necessary or helpful in the collection thereof
or realization thereupon;

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (x)       
the products, profits and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(ix) above, and all payments under insurance
(whether or not the Secured Party is the loss payee thereof) or under any
indemnity, warranty or guaranty, payable by reason or loss or damage to, or
otherwise with respect to, any of the foregoing Collateral set forth in clauses (i)-(ix)
above.

    

    Without limiting the generality of the
foregoing, the
“Collateral” shall include all investment property
and general intangibles respecting ownership and/or other equity interests in
each Guarantor, including, without limitation, the shares of capital stock and
the other equity interests listed on Schedule
H hereto (as the same may
be modified from time to time pursuant to the terms hereof), and any other
shares of capital stock and/or other equity interests of any other direct or
indirect subsidiary of any
Debtor obtained in the
future, and, in each case,
all certificates representing such shares and/or equity interests and, in each
case, all rights, options, warrants, stock, other securities and/or equity
interests that may hereafter be received, receivable or distributed in respect
of, or exchanged for, any of the foregoing and all rights
arising under or in connection with the Pledged Securities, including, but not
limited to, all dividends, interest and cash.

     

    Notwithstanding the foregoing, nothing
herein shall be deemed to constitute an assignment of any asset which, in the event of an
assignment, becomes void by operation of applicable law or the assignment of
which is otherwise prohibited by applicable law (in each case to the extent that
such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other
similar applicable law); provided, however, that to the extent permitted by
applicable law, this Agreement shall create a valid security interest in such
asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest
in the proceeds of such asset.

    

    (b)     
“Intellectual
Property” means the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including without limitation (i) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all registrations and recordings
thereof, and all applications in connection therewith, including without
limitation all registrations, recordings and applications in the United States
Copyright Office, (ii) all letters patent of the United States, any other country or any political
subdivision thereof, all reissues and extensions thereof, and all applications
for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade dress, service
marks, logos, domain names and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country or any political subdivision thereof, or
otherwise, and all common law rights related thereto, (iv) all trade secrets
arising under the laws of the United States, any other country or any political
subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the
foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of
action for infringement of the foregoing.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (c)      
“Majority in
Interest” means, at any time of determination, at least
67% in interest (based
on then-outstanding
principal amounts of Notes at the time of such determination) of
the Secured Parties.

    

    (d)       “Necessary
Endorsement” means undated stock powers endorsed in blank
or other proper instruments of assignment duly executed and such other
instruments or documents as
the Agent (as that term is defined below) may reasonably
request.

    

    (e)      
“Obligations” means all of the liabilities and obligations
(primary, secondary, direct, contingent, sole, joint or several) due or to
become due, or that are now or may be hereafter contracted or acquired, or owing
to, of any Debtor to the Secured Parties either (i) under this Agreement, the Notes, the Guarantee, the other Transaction
Documents and any other
instruments, agreements or other documents executed and/or delivered in connection
herewith or
therewith, or (ii) related to any other liabilities or
obligations associated with any indebtedness for borrowed money from any Secured Party to any Debtor, in each case, whether now or hereafter
existing, voluntary or
involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Secured Parties as a
preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted,
extended or modified from time to time.  Without limiting the
generality of the foregoing, the term “Obligations” shall include, without limitation: (i)
principal of and interest on the Notes and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in
connection with this Agreement, the Notes, the Guarantee, the other Transaction
Documents and any other
instruments, agreements or
other documents executed and/or delivered in connection herewith or therewith;
and (iii) all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable
or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving any
Debtor.

    

    (f)      
“Organizational
Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate
of incorporation, certificate of limited partnership or articles of
organization, and including without limitation any certificates of designation for
preferred stock or other forms of preferred equity) and which relate to the internal governance of
such Debtor (such as bylaws, a partnership
agreement or an operating, limited liability or members
agreement).

    

    (g)      
“Pledged
Securities” shall have the meaning ascribed to such
term in Section 4(i).

    

    (h)       “Transaction
Documents” shall have the meaning ascribed to such
term in the Purchase Agreement.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (i)     
  “UCC” means the Uniform Commercial Code of
the State of New
York and/or any other applicable law of any state
or states which has jurisdiction with respect to all, or any portion of, the
Collateral or this Agreement from time to time.  It is the intent of
the parties that defined terms in the UCC should be construed in their broadest
sense so that the term “Collateral” will be construed in its broadest
sense.  Accordingly if there are,
from time to time, changes to defined terms in the UCC that broaden the
definitions, they are incorporated herein and if existing definitions in the UCC
are broader than the amended definitions, the existing ones shall be controlling.

    

    2.            
Grant of
Security Interest in
Collateral. As an
inducement for the Secured Parties to extend the loans as evidenced by the
Notes and to secure the complete and timely
payment, performance and discharge in full, as the case may be, of
all of the Obligations,
each Debtor hereby unconditionally and irrevocably
pledges, grants and hypothecates to the Secured Parties a first priority security interest in and to, a lien upon and a
right of set-off against all of their respective right, title and interest of whatsoever kind and
nature in and to, the
Collateral (a “Security
Interest” and, collectively, the “Security
Interests”).

    

    3.            
Delivery
of Certain Collateral.  Contemporaneously or prior
to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to
the Agent (a) any and all certificates and other instruments representing or
evidencing the Pledged Securities, together with all Necessary
Endorsements, and (b) any and all certificates and
other instruments or documents representing any of the other
Collateral, in each case, together with all Necessary
Endorsements.  The Debtors are, contemporaneously with the execution
hereof, delivering to the
Agent, or have previously
delivered to the
Agent, a true and correct
copy of each Organizational
Document governing any of the Pledged Securities.

    

    4.     Representations,
Warranties, Covenants and Agreements of the Debtors. Except as set forth under the
corresponding section of the disclosure schedules delivered to the
Secured Parties
concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be
deemed a part hereof, each Debtor represents and warrants to, and
covenants and agrees with, the Secured Parties as follows:

    

    (a)     
Each Debtor has the requisite corporate, partnership,
limited liability company or other power and authority to enter into this
Agreement and otherwise to carry out its obligations hereunder.  The execution, delivery and performance
by each Debtor of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of such Debtor and no further action is required by
such Debtor.  This Agreement has been
duly executed by each
Debtor.  This
Agreement constitutes the legal, valid and binding obligation of
each Debtor, enforceable against each Debtor in accordance with its
terms.

    

    (b)     
The Debtors
have no place of business or offices where
their respective books of account and records are kept (other than temporarily
at the offices of its
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule
A attached
hereto.  No Debtor owns any real property.  Except as
disclosed on Schedule
A, none of such Collateral
is in the possession of any
consignee, bailee, warehouseman, agent or processor.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (c)      Except for Permitted Liens (as defined
in the Notes) and except as set forth on
Schedule
B attached hereto, the
Debtors are the sole owner of the Collateral, free and clear of any liens,
security interests,
encumbrances, rights or claims, and are fully authorized to grant the Security
Interests.  Except as set forth on
Schedule
B attached hereto,
there is not on file in any
governmental or regulatory authority, agency or recording office an effective financing statement, security
agreement, license or transfer or any notice of any of the foregoing (other than
those that will be filed in favor of the Secured Parties pursuant to this
Agreement) covering or affecting any of the
Collateral.  Except as set forth on Schedule
B attached hereto and
except pursuant to this Agreement, as long as this Agreement shall be in
effect, the Debtors shall not execute and shall not knowingly permit to be on
file in any such office or
agency any other financing
statement or other document
or instrument (except to the extent filed or recorded in favor of the Secured
Parties pursuant to the terms of this Agreement).

    

    (d)     
No written claim has been
received that any Collateral or Debtor's use of any Collateral violates the rights of any third
party. There has been no adverse decision to
any Debtor's claim of ownership rights in or
exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such
Collateral in full force
and effect, and there is no
proceeding involving said
rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial
body, administrative or regulatory agency, arbitrator or other governmental
authority.

    

    (e)     
Each Debtor shall at all times maintain its books
of account and records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth on Schedule
A attached hereto and may
not relocate such books of account and records or tangible Collateral unless it
delivers to the Secured Parties at least 30 days prior to such relocation (i)
written notice of such relocation and the new location thereof (which must be
within the United States) and (ii) evidence that appropriate financing statements under the UCC and other
necessary documents have been filed and recorded and other steps have been taken
to perfect the Security Interests to create in favor of the Secured
Parties a valid, perfected and continuing first priority lien in all the Collateral.

    

    (f)      
This Agreement creates in
favor of the Secured
Parties a valid security interest in the Collateral, subject
only to Permitted Liens (as defined in the Notes) securing the payment and performance
of the Obligations.  Upon making the filings described in the
immediately following paragraph, all security interests created hereunder in any
Collateral which may be perfected by filing Uniform Commercial Code financing
statements shall have been duly perfected.  Except for the
filing of the Uniform Commercial Code financing
statements referred to in the immediately following paragraph, the recordation
of the Intellectual Property Security Agreement (as defined below)
with the United States Copyright
Office or the United States Patent and Trademark Office with respect to copyrights, patents and trademarks (and applications relating each of the foregoing) as described in paragraph 4(mm), the execution and delivery of deposit
account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to
each deposit account of the Debtors, and the delivery of the certificates
and other instruments provided in Section 3, no further action is necessary to create, perfect
or protect the security interests created hereunder.  Without limiting the
generality of the foregoing, except for the execution and delivery of this Agreement
by all (100%) of the Secured Parties, the filing of said financing statements, the
recordation of said Intellectual Property Security Agreement, and the execution and delivery of
said deposit account control agreements, no consent of any third parties and no
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required for (i) the execution, delivery and
performance of this Agreement, (ii) the creation or perfection of the Security
Interests created hereunder in the Collateral, or (iii) the enforcement of the rights
of the Agent and the
Secured Parties
hereunder.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (g)     
The Debtor hereby authorizes the Agent to file one or more financing
statements under the UCC, with respect to the Security Interests, with the proper filing and recording
agencies in any jurisdiction deemed proper by
it.

    

    (h)      The execution, delivery and performance of this Agreement by
the Debtor does not (i) violate any of the provisions of any Organizational
Documents of the
Debtor or any judgment,
decree, order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to the Debtor or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument (evidencing
the Debtor's debt or otherwise) or other
understanding to which the
Debtor is a party or by
which any property or asset of the Debtor is bound or affected.  All required consents (including without limitation from
stockholders or creditors
of the Debtor) necessary for the Debtor to enter into and perform its
obligations hereunder have
been obtained.

    

    (i)       The capital stock and other
equity interests listed on
Schedule
H hereto (the “Pledged
Securities”) represent all of the capital stock and
other equity interests of the Guarantors, and represent all capital stock and
other equity interests owned, directly or indirectly, by the Company or any Guarantor.  All of the Pledged
Securities are validly issued, fully paid and nonassessable, and the Company is
the legal and beneficial owner of the Pledged Securities, free and clear of any
lien, security interest or other encumbrance except for the security interests created by this
Agreement and other Permitted Liens (as defined in the Notes).

    

    (j)      
The ownership and other
equity interests in partnerships and limited liability companies (if
any) included in the
Collateral (the
“Pledged
Interests”) by their express terms do not provide
that they are securities governed by Article 8 of the UCC and are not held in a
securities account or by any financial intermediary.

    

    (k)     
Except for Permitted Liens (as defined in
the Notes), until this Agreement and the Security Interest
hereunder shall be terminated pursuant to Section 11 hereof, each Debtor shall at all times maintain
in favor of the Secured
Parties the liens and
Security Interests provided for hereunder as valid and
perfected first priority
liens and security interests in all the
Collateral.  Each
Debtor hereby agrees to
defend the same against the claims of any and all persons and
entities.  Each Debtor shall safeguard and protect all
Collateral for the account
of the Secured Parties.  At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from
time to time one or more financing statements pursuant to the UCC in form
reasonably satisfactory to
the Agent and will pay the
cost of filing the same in
all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect
the rights and obligations provided for herein.  Without limiting the generality of the
foregoing, each
Debtor shall pay all
fees, taxes and other
amounts necessary to maintain the Collateral and the Security
Interests hereunder, and each Debtor shall obtain and furnish to the
Agent from time to time, upon demand, such
releases and/or subordinations of claims and liens which may be required to maintain the priority of
the Security Interests hereunder.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (l)       
Except as listed on
Schedule
I, no Debtor will transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Collateral (except for licenses
granted by a Debtor in its ordinary course of business and
sales of inventory and
other unused or outdated assets by a Debtor in its ordinary course of business)
without the prior written consent of all the Secured Parties.

    

    (m)      Each Debtor shall keep and preserve its equipment, inventory
and other tangible Collateral in good condition, repair and order and shall not
operate or locate any such Collateral (or cause to be operated or located) in
any area excluded from insurance coverage.

    

    (n)     
Each Debtor shall maintain with financially sound
and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter
acquired, against loss or
damage of the kinds and in the amounts customarily insured against by entities
of established reputation
having similar properties similarly situated and in such amounts as are
customarily carried under similar circumstances by other such entities and
otherwise as is prudent for entities engaged in similar businesses but in any
event sufficient to cover the full replacement cost
thereof.  Each Debtor shall cause each insurance policy
issued in connection herewith to provide, and the insurer issuing such policy to
certify to the Agent, that (a) the Agent will be named as
lender loss payee and additional insured under each such
insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly notify
the Agent and such cancellation or change shall not be effective as
to the Agent for at least thirty (30) days
after receipt by the Agent of such notice, unless the effect of such change is
to extend or increase coverage under the policy; and (c) the Agent will have the
right (but no obligation) at its election to remedy any default in the payment of premiums
within thirty (30) days of notice from the insurer of such
default.  If no Event of Default (as defined in the Notes) exists and if the proceeds arising out
of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be
applied by the applicable Debtor to the repair and/or replacement of property
with respect to which the loss was incurred to the extent reasonably feasible,
and any loss payments or the balance thereof remaining, to the extent not so applied, shall be
payable to the applicable
Debtor; provided, however, that payments received by any Debtor after an Event of Default occurs and is
continuing or in excess of
$100,000 for any occurrence
or series of related occurrences shall be paid to the Agent on behalf of the Secured Parties
and, if received by
such Debtor, shall be held in trust for
the Secured Parties
and immediately paid over
to the Agent unless otherwise directed in writing by the
Agent.   Copies of such policies or the related certificates, in each case,
naming the Agent as lender loss payee and additional insured shall be delivered
to the Agent at least annually and at the time any new policy of insurance is
issued.

    

    (o)     
Each Debtor shall promptly, but no later than ten (10) days after obtaining knowledge thereof, advise the
Secured Parties, through the Agent, in sufficient detail of any change in the Collateral and of the
occurrence of any event which would have a material adverse effect on the value
of the Collateral or on the
Secured Parties’ security interest
therein.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (p)     
Each Debtor shall promptly execute and deliver to
the Agent such further deeds, mortgages,
assignments, security agreements, financing statements or other instruments,
documents, certificates and
assurances and take such further action as the Agent may from time to time request and may
in its sole discretion deem necessary to perfect, protect or enforce
the Secured
Parties’ security interest in the Collateral
including without limitation, if applicable, the execution and
delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual
Property Security Agreement”) in which the Secured Parties have been
granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security
Agreement, other than as stated therein, shall be subject to all of the terms
and conditions hereof.

    

    (q)      Each Debtor shall permit the Agent and its representatives and agents to inspect the
Collateral during normal
business hours and upon reasonable prior notice, and to make copies of records
pertaining to the Collateral as may be reasonably requested by the
Agent from time to
time.

    

    (r)       Each Debtor shall take all steps reasonably
necessary to diligently pursue and seek to preserve, enforce and collect any
rights, claims, causes of action and accounts receivable in respect of the
Collateral.

    

    (s)     
Each Debtor shall promptly notify the Secured
Parties in sufficient
detail upon becoming aware of any attachment, garnishment, execution or other
legal process levied against any Collateral and of any other information
received by such
Debtor that may materially
affect the value of the Collateral, the Security Interests or the rights and remedies of the
Secured Parties hereunder.

    

    (t)       All information heretofore, herein or
hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is
and will be accurate and complete in all material respects as
of the date furnished.

    

    (u)      The Debtors shall at all times preserve
and keep in full force and effect their respective valid existence and good
standing and any rights and franchises material to its
business.

    

    (v)      No Debtor will change its name, type of
organization, jurisdiction of organization, organizational identification number
(if it has one), legal or corporate structure, or identity, or add any new
fictitious name unless it provides at least 30 days prior written notice to the Secured
Parties of such change and, at the time of such written notification, such
Debtor provides any financing statements or fixture filings necessary to perfect
and continue the perfection of the Security Interests granted and evidenced by this
Agreement.

    

    (w)      Except in the ordinary course of
business, no Debtor may consign any of its inventory
or sell any of its inventory on bill and hold, sale or
return, sale on approval, or other conditional terms of sale without
the consent of the Agent which shall not be unreasonably
withheld.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    (x)       No Debtor may relocate its chief
executive office to a new location without providing 30 days prior written
notification thereof to the Secured Parties and so long as, at the time
of such written
notification, such
Debtor provides any
financing statements or fixture filings necessary to perfect and continue
the perfection of the
Security Interests granted and evidenced by this
Agreement.

    

    (y)      Each Debtor was organized and remains organized solely under the laws of
the state set forth next to such Debtor’s name in Schedule
D attached
hereto, which Schedule
D sets forth
each Debtor’s organizational identification number
or, if any
Debtor does not have one,
states that one does not
exist.

    

    (z)       (i) The actual name of each Debtor is the name set forth in Schedule
D attached
hereto; (ii) no Debtor has
any trade names except as set forth on Schedule
E attached hereto; (iii)
no Debtor has used any name other than that stated in
the preamble hereto or as
set forth on Schedule
E for the preceding five
years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as
set forth on Schedule
E.

    

    (aa)     At any time and from time to time that any Collateral consists of
instruments, certificated securities or other items that require or permit
possession by the secured party to perfect the Security Interest created hereby, the applicable
Debtor shall deliver such Collateral to the Agent.

    

    (bb)    Each Debtor, in its capacity as issuer, hereby
agrees to comply with any and all orders and instructions of the Agent regarding the Pledged Interests
consistent with the terms of this Agreement without the further consent of
any Debtor as contemplated by Section 8-106 (or any
successor section) of the UCC.  Further, each Debtor agrees that it shall not enter into a
similar agreement (or one that would confer “control” within the meaning of Article 8 of the
UCC) with any other person or entity.

     

    (cc)    Each Debtor shall cause all tangible chattel paper
constituting Collateral to be delivered to the Agent, or, if such delivery is
not possible, then to cause such tangible chattel paper to contain a legend
noting that it is subject to the security interest created by this
Agreement.  To the extent that any Collateral consists of electronic
chattel paper, the applicable Debtor shall cause the underlying chattel paper to
be “marked” within the meaning of Section 9-105 of
the UCC (or successor section thereto).

    

    (dd)    If there is any investment property or
deposit account included as Collateral that can be perfected by “control” through an account control agreement,
the applicable Debtor shall, promptly upon written request of the
Agent following the
occurrence of an Event of Default, cause such an account control
agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to
the Agent for the benefit
of the Secured
Parties.

    

    (ee)    To the extent that any Collateral consists of
letter-of-credit rights, the applicable Debtor shall, promptly upon written request of the Agent
following the occurrence of an Event of Default, cause the issuer of each underlying
letter of credit to consent to an assignment of the proceeds thereof to the
Secured Parties.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    (ff)     
To the extent that any
Collateral is in the possession of any third party, the applicable
Debtor shall join with the
Agent in notifying such
third party of the Secured Parties’ security interest in such Collateral and shall use
its best efforts to obtain an acknowledgement and agreement from such third
party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

    

    (gg)    If any Debtor shall at any time hold or acquire a commercial tort claim,
such Debtor shall promptly notify the Secured
Parties in a writing signed by such Debtor of the particulars thereof and grant to
the Secured Parties in such writing a security interest therein and in the
proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
reasonably satisfactory to the Agent.

    

    (hh)    Each Debtor shall immediately provide written
notice to the Secured Parties of any and all accounts which arise
out of contracts with any
governmental authority and, to the extent necessary to perfect or continue the
perfected status of the Security Interests in such accounts and proceeds thereof,
shall execute and deliver
to the Agent an assignment
of claims for such accounts
and cooperate with the
Agent in taking any other steps required, in its
judgment, under the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
to perfect or continue the perfected status of the Security Interests in such accounts and proceeds
thereof.

    

    (ii)     
 Each Debtor shall cause each
subsidiary of such Debtor to immediately become a party hereto
(an “Additional
Debtor”), by executing and delivering an
Additional Debtor Joinder in substantially the form of Annex
A attached hereto and
comply with the provisions hereof applicable to the
Debtors.  Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to (or referred
to in) this Agreement, as
applicable, which replacement schedules shall supersede, or supplements shall
modify, the Schedules then in effect.  The Additional Debtor shall
also deliver such opinions of counsel, authorizing resolutions, good standing
certificates, incumbency certificates, organizational documents,
financing statements and other information and documentation as the Agent may reasonably request.  Upon
delivery of the foregoing
to the Agent, the
Additional Debtor shall be and become a party to this Agreement with the
same rights and obligations
as the Debtors, for all purposes hereof as fully and to the same extent as if it
were an original signatory hereto and shall be deemed to have made the
representations, warranties and covenants set forth herein as of the date of
execution and delivery of such Additional
Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each
Additional Debtor.

    

    (jj)      
Each Debtor shall vote the Pledged Securities to
comply with the covenants and agreements set forth herein and in the Notes.

    

    (kk)     Each Debtor shall register the pledge of the
applicable Pledged Securities on the books of such Debtor.  Each Debtor shall notify each issuer of Pledged
Securities to register the pledge of the applicable Pledged Securities in the name of the Secured
Parties on the books of such issuer.  Further, except with respect to
certificated securities delivered to the Agent, the applicable Debtor shall
deliver to the Agent an acknowledgement of pledge
(which, where appropriate,
shall comply with the requirements of the relevant UCC with respect to
perfection by registration) signed by the issuer of the applicable Pledged
Securities, which acknowledgement shall confirm that: (a) it has registered the
pledge on its books and records; and (b) at any time directed by
the Agent during the continuation of an
Event of Default, such issuer will transfer the record ownership of such Pledged
Securities into the name of any designee of the Agent, will take such steps as may be
necessary to effect the
transfer, and will comply with all other instructions of the Agent regarding such Pledged Securities
without the further consent of the applicable Debtor.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (ll)      
In the event that, upon an
occurrence of an Event of Default, the Agent shall sell all or any of the Pledged
Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any
of the Pledged Securities, each Debtor shall, to the extent applicable: (i)
deliver to the
Agent or the
Transferee, as the case may
be, the articles of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements, evidences of
indebtedness, books of account, financial records and all other Organizational
Documents and records of the Debtors and
their direct and indirect subsidiaries; (ii) use its best efforts to obtain
resignations of the persons then serving as officers and directors of the
Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to
obtain any approvals that are required by any governmental or regulatory body in
order to permit the sale of the Pledged Securities to the Transferee or the
purchase or retention of the Pledged Securities by the Agent and allow the Transferee or the Agent to continue the business of the Debtors
and their direct and indirect subsidiaries.

     

    (mm)  Without limiting the generality of the
other obligations of the
Debtors hereunder,
each Debtor shall promptly (i) cause to be
registered at the United
States Copyright Office all of its material copyrights, (ii) cause the security
interest contemplated hereby with respect to all Intellectual Property
registered at the United States Copyright Office or United States Patent and
Trademark Office to be duly recorded at the
applicable office, and (iii) give the Agent notice whenever it acquires (whether
absolutely or by license) or creates any additional material Intellectual
Property.

    

    (nn)    Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver
all such further instruments and documents, and take all such further action as
may be necessary or desirable, or as the Agent may reasonably request, in order to
perfect and protect any
security interest granted or purported to be granted hereby or to enable the
Secured Parties to exercise and enforce their rights and remedies hereunder and
with respect to any Collateral or to otherwise carry out the purposes of this
Agreement.

    

    (oo)    Schedule
F attached hereto lists all
of the patents, patent applications, trademarks, trademark applications,
registered copyrights, and domain names owned by any of the Debtors as of the date
hereof.  Schedule
F lists all material
licenses in favor of
any Debtor for the use of any patents, trademarks,
copyrights and domain names as of the date hereof.  All material
patents and trademarks of
the Debtors have been duly
recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United
States Copyright Office.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (pp)    Except as set forth on Schedule
G attached hereto, none of
the account debtors or other persons or entities obligated on any of the
Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
in respect of such Collateral.

    

    5.     Effect of Pledge on
Certain Rights. If any of the Collateral subject to this
Agreement consists of nonvoting equity or ownership interests
(regardless of class, designation, preference or rights) that may be converted
into voting equity or ownership interests upon the occurrence of certain events
(including without limitation upon the transfer of all or any of the other stock or assets of the
issuer), it is agreed that the pledge of such equity or ownership interests
pursuant to this Agreement or the enforcement of any of the Agent’s rights hereunder shall not be deemed
to be the type of event which would trigger such conversion rights
notwithstanding any provisions in the Organizational Documents or agreements to
which any
Debtor is subject or to
which any
Debtor is
party.

    

    6.     Defaults. The following events shall be
“Events of
Default”:

    

    (a)       The occurrence of an Event of Default (as
defined in the Notes) under the Notes;

    

    (b)      Any representation or warranty of
any Debtor in this Agreement shall prove to have
been incorrect in any material respect when made;

    

    (c)       The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) business days after delivery to such Debtor of notice of such failure by or on
behalf of a Secured Party unless such default is capable of cure but cannot be
cured within such time frame and such Debtor is using best efforts to cure same in a
timely fashion; or

    

    (d)      If any provision of this Agreement shall
at any time for any reason be declared to be null and void, or the validity or
enforceability thereof
shall be contested by any Debtor, or a proceeding shall be commenced by
any Debtor, or by any governmental authority
having jurisdiction over any Debtor, seeking to establish the invalidity or
unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created
under this Agreement.

    

    7.     Duty to Hold in Trust.

    

    (a)      Upon the occurrence of any Event of
Default and at any time thereafter, each Debtor shall, upon receipt of any revenue,
income, dividend,
interest or other sums subject to the Security
Interests, whether payable pursuant to the
Notes or otherwise, or of any check, draft,
note, trade acceptance or other instrument evidencing an obligation to pay any
such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer
any such sums or instruments, or both, to the Secured Parties, pro-rata in
proportion to their respective then-currently outstanding
principal amount of
Notes for application to the satisfaction of
the Obligations.

    

    (b)      If any Debtor shall become entitled to receive or
shall receive any securities or other property (including without limitation shares of Pledged
Securities or instruments representing Pledged Securities acquired after the
date hereof, or any options, warrants, rights or other similar
property or certificates representing a dividend, or any distribution in
connection with any recapitalization, reclassification or increase or reduction
of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect
subsidiaries) in respect of the Pledged Securities (whether as an addition to,
in substitution of, or in exchange for, such Pledged Securities or otherwise),
such Debtor agrees to (i) accept the same as the
agent of the Secured
Parties; (ii) hold the same in trust on behalf of and for the benefit of the
Secured Parties; and (iii) deliver any and all certificates or instruments
evidencing the same to the
Agent on or before the
close of business on the fifth business day following the receipt thereof by
such Debtor, in the exact form received together
with the Necessary Endorsements, to be held by the Agent subject to the terms of this Agreement
as Collateral.

    
      
         

      

      
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    8.     Rights and Remedies
Upon Default.

    

    (a)      Upon the occurrence of any Event of
Default and at any time thereafter, the Secured Parties, acting through
the Agent, shall have the right to exercise all
of the remedies conferred hereunder and under the Notes and other Transaction
Documents, and the
Secured Parties, acting through the Agent, shall have all the rights and remedies
of a secured party under the UCC.  Without limitation, the
Agent, for the benefit of
the Secured
Parties, shall have the following rights and
powers:

    

    (i)       
The Agent shall have the right to take possession of
the Collateral and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at
such Debtor's premises or elsewhere, and make
available to the
Agent, without rent, all of
such Debtor’s respective premises and facilities for
the purpose of the
Agent taking possession of,
removing or putting the Collateral in saleable or disposable
form.

    

    (ii)       
Upon notice to the
Debtors by the Agent, all rights of each Debtor to
exercise the voting and other consensual rights which it would otherwise be entitled to exercise and
all rights of each Debtor to receive the dividends and interest which it would
otherwise be authorized to receive and retain, shall cease.  Upon such
notice, the
Agent shall have the right
to receive, for the benefit
of the Secured
Parties, any interest, cash
dividends or other payments on the Collateral and, at the option of the Agent, to exercise in such Agent’s discretion all voting rights
pertaining thereto.  Without limiting the generality of the foregoing,
the Agent shall have the right (but not the
obligation) to exercise all rights with respect to the Collateral as it
were the sole and absolute
owner thereof, including
without limitation to vote and/or to exchange, at its sole discretion, any or
all of the Collateral in
connection with a merger, reorganization, consolidation, recapitalization or
other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect
subsidiaries.

    

    (iii)       The Agent shall have the right to
operate the business of
each Debtor using the Collateral and shall have the
right to assign, sell, lease or otherwise dispose of and deliver all or any part
of the Collateral, at public or private sale or otherwise, either with or
without special conditions or stipulations, for cash or on credit or
for future delivery, in such parcel or parcels and at such time or times and at
such place or places, and upon such terms and conditions as the
Agent may deem commercially
reasonable, all without (except as shall be required by applicable statute and
cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly
waived.  Upon each such sale, lease, assignment or other transfer of
Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable
law which cannot be waived, purchase all or any part of the Collateral being
sold, free from and discharged of all trusts, claims, right of redemption and
equities of any
Debtor, which are hereby waived and
released.

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (iv)      
The Agent shall have the right (but not the
obligation) to notify any account debtors and any obligors under instruments or
accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and
obligors.

    

    (v)       
The Agent, for the benefit of the
Secured Parties, may (but is not obligated to) direct any financial
intermediary or any other person or entity holding any investment property to transfer the same to
the Agent, on behalf of the
Secured Parties, or its designee.

    

    (vi)       The Agent may (but is not obligated to) transfer any or all
Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or
Copyright Office into the name of the Secured Parties or any designee or any
purchaser of any Collateral.

    

    (b)      The Agent shall comply with any applicable law in
connection with a disposition of Collateral and such compliance will not be considered adversely
to affect the commercial reasonableness of any sale of the
Collateral.  The Agent may sell the Collateral without giving any
warranties and may specifically disclaim such warranties.  If the
Agent sells any of the Collateral on credit, the
Debtors will only be
credited with payments actually made by the purchaser.  In addition,
each Debtor waives any and all rights that it may
have to a judicial hearing in advance of the enforcement of any of the
Agent’s rights and remedies hereunder, including without
limitation the
Agent’s right following an Event of Default to
take immediate possession of the Collateral and to exercise its rights and
remedies with respect thereto.

     

    (c)       For the purpose of enabling the Agent to
further exercise rights and
remedies under this Section 8 or elsewhere provided by agreement or applicable
law, each
Debtor hereby grants to the
Agent, for the benefit of the Agent and the Secured Parties, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to such
Debtor) to use, license or
sublicense following an Event of Default, any Intellectual Property now owned or
hereafter acquired by such
Debtor, 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 software
and programs used for the compilation or printout
thereof.

    
      
         

      

      
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    9.         Inter Secured Party Rights; Transaction/Applications of Proceeds.

    

    (a)       All Obligations owed to the Secured
Parties shall rank in the order of priority pari passu and pro-rata in proportion to each Secured
Party’s outstanding principal amount of
Notes at any given time that a determination
needs to be made of pro-rata holdings. If
an Event of Default occurs and any party hereto collects proceeds pursuant to
its rights under any Obligations, the Agent shall be immediately notified and
such payment shall be shared with all of the other Secured Parties as set forth
above.
Notwithstanding anything to the contrary contained in the Purchase
Agreement or any document executed in connection with the Obligations and
irrespective of: (i) the time, order or method of attachment or perfection of
the security interests created in favor of Secured Parties; (ii) the time or
order of filing or recording of financing statements or other documents filed or
recorded to perfect security interests in any Collateral; (iii) anything
contained in any filing or agreement to which any Secured Party now or hereafter
may be a party; and (iv) the rules for determining perfection or priority under
the Uniform Commercial Code or any other law governing the relative priorities
of secured creditors, each of the Secured Parties acknowledges that (x) all
other Secured Parties have a valid security interest in the Collateral and (y)
the security interests of the Secured Parties in any Collateral pursuant to any
outstanding Obligations shall be pari passu with each other
and enforced pursuant to the terms of this Agreement through the Agent. 
Each Secured Party, severally and not jointly with the other Secured Parties,
shall indemnify, defend, and hold harmless the other Secured Parties against and
in respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties, and reasonable professional and attorneys’ fees, including those
arising from settlement negotiations, that the other Secured Parties shall incur
or suffer, which arise, result from, or relate to a breach of, or failure by
such Secured Party to perform under this Agreement.

    

    (b)       Notwithstanding
anything contained in this Agreement, in the event that any Debtor obtains
purchase order non-convertible (nor otherwise equity-linked) debt financing in
which a third party lender advances funds solely for financing the manufacture,
production and/or purchase of inventory pursuant to purchase orders previously
received by the Company, repayment of which is (i) secured solely by such
inventory manufactured, produced or purchased and accounts receivables from the
sales thereof and (ii) due promptly following such sales, then each Secured
Party agrees that it will permit such third party lender to have a first
priority lien on such purchase order inventory and such purchase order accounts
receivables, and, to the extent reasonably requested by the Company, will enter
into an intercreditor agreement with such lender, on terms and conditions
reasonably acceptable to the Agent (and which agreement may be executed by the
Agent on its behalf), provided that the Debtors shall pay the Secured Parties’
and/or Agent’s actual out-of-pocket expenses incurred in connection
therewith.

    

    (c)       The proceeds of any such
sale, lease or other
disposition of the Collateral hereunder or from payments made on account of any
insurance policy insuring any portion of the Collateral shall be applied first,
to the expenses of retaking, holding, storing, processing and preparing for
sale, selling, and the like (including
without limitation any taxes, fees and other costs incurred in connection
therewith) of the Collateral, then to the reasonable attorneys’ fees and expenses incurred by the Agent
in enforcing the Secured Parties’ rights hereunder and in connection with
collecting, storing and disposing of the Collateral, then to satisfaction of the
Obligations pro rata among the Secured Parties (based on then-outstanding
principal amounts of Notes at the time of any such
determination), and
then to the payment of any other
amounts required by
applicable law.
 If, upon the sale, license or other
disposition of the Collateral, the proceeds thereof are insufficient to pay all
amounts to which the Secured Parties are legally entitled, the
Debtors will be liable for the deficiency,
together with interest thereon, at the rate of 24% per annum or the lesser amount
permitted by applicable law (the “Default Rate”), and the reasonable fees of any
attorneys employed by the Secured Parties to collect such deficiency.  To the extent
permitted by applicable law, each Debtor waives all claims, damages and demands
against the Secured Parties arising out of the repossession, removal, retention
or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured
Parties as determined by a final judgment (not subject to further appeal) of a
court of competent jurisdiction.

    
      
         

      

      
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    10.          
Securities Law
Provision.  Each Debtor recognizes that the Agent may be limited in its
ability to effect a sale to
the public of all or part of the Pledged Securities by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other federal or
state securities laws (collectively, the “Securities
Laws”), and may be compelled to resort to one or more sales to a
restricted group of purchasers who may be required to agree to acquire the
Pledged Securities for their own account, for investment and not with a view to
the distribution or resale thereof.  Each Debtor agrees that sales so made may be at prices and on terms
less favorable than if the Pledged Securities were sold to the public and that
the Agent has no obligation to delay the sale of
any Pledged Securities for the period of time necessary to register the Pledged
Securities for sale to the
public under the Securities Laws.  Each Debtor shall cooperate with the Agent in its attempt to satisfy any
requirements under the Securities Laws (including without limitation
registration thereunder if requested by the Agent) applicable to the sale of the Pledged Securities by
the Agent.

     

    11.          
Costs
and Expenses.
Each Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation any financing statements pursuant to the UCC,
continuation statements, partial releases and/or termination statements related
thereto or any expenses of any searches reasonably required by the Agent.  The Debtors shall also pay all other claims and
charges which in the
reasonable opinion of the Agent are reasonably likely to prejudice, imperil or otherwise affect
the Collateral or the Security Interests therein.  The Debtors will
also, upon demand, pay to the Agent the amount of any and all reasonable
expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
the Agent, for the benefit
of the Secured
Parties, may incur in connection with (i) the
enforcement of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from,
or other realization upon, any of the Collateral, or (iii) the exercise or
enforcement of any of the rights of the Secured Parties under the Notes.  Until so paid, any fees payable
hereunder shall be added to the principal amount of the Notes and shall bear interest at the Default
Rate.

    

    12.         
Responsibility for
Collateral. The
Debtors assume all
liabilities and responsibility in connection with all Collateral, and the
Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or
theft of any of the Collateral or its unavailability for any
reason.  Without limiting the generality of the foregoing, (a) neither
the Agent nor any Secured Party (i) has any duty (either before or after an
Event of Default) to collect any amounts in
respect of the Collateral or to preserve any rights relating to the Collateral,
or (ii) has any obligation to clean-up or otherwise prepare the Collateral for
sale, and (b) each
Debtor shall remain
obligated and liable under
each contract or agreement included in the Collateral to be observed or
performed by such
Debtor
thereunder.  Neither the Agent nor any Secured Party shall have any
obligation or liability under any such contract or agreement by reason of or
arising out of this
Agreement or the receipt by the Agent or any Secured Party of any payment
relating to any of the Collateral, nor shall the Agent or any Secured Party be
obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to
make inquiry as to the nature or sufficiency of any payment received by the
Agent or any Secured Party in respect of the Collateral or as to the sufficiency
of any performance by any party under any such contract or agreement, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Agent or to which the Agent or any
Secured Party may be entitled at any time or times.

    
      
         

      

      
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    13.          
Security
Interests Absolute. All rights of the Secured Parties
and all obligations of the
Debtors hereunder, shall be
absolute and unconditional, irrespective of: (a) any lack of validity or
enforceability of this Agreement, the Notes, any other Transaction Documents or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (b) any change
in the time, manner or place of payment or performance of, or in any other term
of, all or any of the Obligations, or any other amendment or waiver of or any consent to
any departure from the Notes, any other Transaction
Documents or any other
agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to
departure from any other
collateral for, or any guarantee, or any other security, for all or any
of the Obligations; (d) any action by the Secured Parties to obtain, adjust,
settle and cancel in its sole discretion any insurance claims or matters made or
arising in connection with the Collateral; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available to
a Debtor, or a discharge of all or any part of
the Security Interests granted hereby.  Until the
Obligations shall have been paid and performed in full, the rights of the
Secured Parties shall continue even if the Obligations are barred for any
reason, including without limitation the running of the statute of
limitations or
bankruptcy.  Each
Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance.  In the event that at any time any
transfer of any Collateral or any payment received by the Secured Parties
hereunder shall be deemed
by final order of a court of competent jurisdiction to have been a voidable
preference or fraudulent conveyance under the bankruptcy or insolvency laws of
the United States, or shall be deemed to be otherwise due to any party
other than the Secured Parties, then, in any
such event, each
Debtor’s obligations hereunder shall survive
cancellation of this Agreement, and shall not be discharged or satisfied by any
prior payment thereof and/or cancellation of this Agreement, but shall
remain a valid and binding
obligation enforceable in accordance with the terms and provisions
hereof.  Each
Debtor waives all right to
require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the
Secured Parties may hold at
any time, or to marshal assets, or to pursue any other remedy.  Each Debtor waives any defense arising by reason of
the application of the statute of limitations to any obligation secured
hereby.

    

    14.      
    Term of Agreement. This Agreement and the
Security Interests shall terminate, automatically and without any action on the
part of the Agent or Secured Parties, on the date on which all payments under
the Notes have been indefeasibly paid in full and all other Obligations have
been paid or discharged; provided, however, that all indemnities of the parties
hereto contained in this Agreement (including without limitation Annex B hereto) shall
survive and remain operative and in full force and effect regardless of the
termination of this Agreement.  The Agent and Secured Parties shall,
at Debtor’s request and expense, take any and all action required to discharge
any and all security interests and release to Debtor any and all Collateral in
the Agent’s or Secured Parties’ possession or control.  The Secured
Parties hereby agree that the Debtor shall have the right to take all necessary
action to cause the termination and release of all security interests granted
hereunder upon termination of this Agreement.

    
      
         

      

      
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    15.         
 Power of Attorney;
Further Assurances.

    

    (a)      
Each Debtor authorizes the Agent, and does hereby make,
constitute and appoint the
Agent and its officers, agents, successors or assigns
with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with
power, in the
name of the
Agent or such Debtor, to, after the occurrence and during
the continuance of an Event of Default, (i) endorse any note, checks, drafts,
money orders or other instruments of payment (including payments payable under
or in respect of any policy
of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) sign and endorse any financing
statement pursuant to the UCC or any invoice, freight or express bill, bill of
lading, storage or warehouse receipts, drafts against debtors, assignments, verifications
and notices in connection with accounts, and other documents relating to the
Collateral; (iii) pay or discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on or threatened against the Collateral; (iv) demand,
collect, receive, compromise, settle and sue for monies
due in respect of the Collateral; (v) transfer any Intellectual Property or
provide licenses respecting any Intellectual Property; and (vi) generally, at
the option of the Agent, and at the expense of the Debtors, at any time, or from time to
time, execute and deliver any and all documents and instruments and do all acts
and things which the
Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted therein in order to effect the
intent of this Agreement, the Notes and other Transaction Documents
all as fully and effectually as the
Debtors might or could do;
and each Debtor hereby ratifies all that said attorney
shall lawfully do or cause
to be done by virtue hereof.  This power of attorney is coupled with
an interest and shall be irrevocable for the term of this Agreement and
thereafter as long as any of the Obligations shall be
outstanding.  The
designation set forth herein shall be deemed to amend and
supersede any inconsistent provision in the Organizational Documents or other
documents or agreements to which any Debtor is subject or to which any Debtor is a party.  Without limiting the generality of the
foregoing, after the
occurrence and during the continuance of an Event of Default, each Secured Party
is specifically authorized to execute and file any applications for or
instruments of transfer and assignment of any patents, trademarks, copyrights or
other Intellectual Property with the United States
Patent and Trademark Office and the United States Copyright
Office.

    

    (b)      On a continuing basis, each Debtor will make, execute, acknowledge,
deliver, file and record, as the case may be, with the proper filing and
recording agencies in any
jurisdiction, including without limitation the jurisdictions indicated on
Schedule
C attached hereto, all such
instruments, and take all such action as may reasonably be deemed necessary or
advisable, or as reasonably requested by the Agent, to perfect the Security
Interests granted hereunder and otherwise to
carry out the intent and purposes of this Agreement, or for assuring and
confirming to the
Agent the grant or
perfection of a perfected security interest in all the
Collateral under the
UCC.

    

    (c)       Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority
in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any
instrument which the
Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including the filing, in
its sole discretion, of one or more financing or continuation statements and
amendments thereto,
relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing
statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies
all such actions taken by the Agent.  This power of attorney is
coupled with an interest and shall be irrevocable for the term of this
Agreement.

    
      
         

      

      
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    16.          
Notices. All notices, requests, demands and
other communications hereunder shall be subject to the notice provision of the Purchase Agreement.

    

    17.          
Other
Security. To the extent
that the Obligations are now or hereafter secured by property other than the
Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other
entity, then the
Agent shall have the right,
in its sole discretion, to pursue, relinquish, subordinate, modify or take any
other action with respect thereto, without in any way modifying or affecting any
of the Secured Parties’ rights and remedies hereunder.

    

    18.          
Appointment of
Agent. The Secured Parties hereby appoint
Gemini
Strategies, LLC or its
appointed agent to act as their agent (“Gemini” or “Agent”) for purposes of exercising any and all
rights and remedies of the Secured Parties hereunder. Such appointment shall continue until
revoked in writing by a Majority in Interest, at which time a
Majority in Interest
shall appoint a new
Agent.  The Agent shall have the rights,
responsibilities and immunities set forth in Annex
B
hereto.

    
 

    19.           Miscellaneous.

    

    (a)      
No course of dealing between the
Debtors and the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on the part
of the Secured Parties, any right, power or privilege hereunder or under the
Notes shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege.

    

    (b)      All of the rights and remedies of the Secured Parties with
respect to the Collateral, whether established hereby or by the Notes or by any other agreements,
instruments or documents or by law, shall be cumulative and may be
exercised singly or concurrently.

    

    (c)      This Agreement, together with the
exhibits and schedules hereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into this Agreement and the exhibits and schedules
hereto.  No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Debtors and a Majority in
Interest or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought, provided that no amendment affecting the
Collateral or the security interest granted herein may be effected without the
prior written consent of all the Secured Parties.

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    (d)      If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    (e)       No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.

    

    (f)     
 This Agreement
shall be binding upon and inure to the benefit of the parties and their
successors and permitted assigns.  The Company and the Guarantors may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of each Secured Party (other than by
merger).  Any Secured Party may assign any or all of its rights under
this Agreement to any Person to whom such Secured Party assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions of this Agreement that apply to
the “Secured Parties.”

    

    (g)      Each party shall take such further
action and execute and deliver such further documents as may be necessary or appropriate in
order to carry out the provisions and purposes of this
Agreement.

    

    (h)      All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflicts of law thereof.  Each Debtor agrees that all proceedings concerning
the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the
Notes (whether brought against a party hereto
or its respective affiliates, directors, officers, shareholders, partners,
members, employees or agents) shall be commenced exclusively in the state and
federal courts sitting in
the City of New York,
Borough of Manhattan.
Each Debtor hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the
City of New York, Borough of
Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any proceeding, any claim that it is not
personally subject to the jurisdiction of any such court or that such proceeding is improper.  Each party hereto hereby irrevocably
waives personal service of process and consents to process being served in any
such proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be
deemed to limit in any way any right to serve process in any manner
permitted by law.  Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated
hereby.  If any party shall commence a
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such proceeding shall be reimbursed by the other party for its
reasonable attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such
proceeding.

     

    
      
        
        

      

      
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    (i)       
This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall constitute one
and the same Agreement.  In the event that any signature is
delivered by facsimile transmission or e-mail transmission, such signature shall create a valid
binding obligation of the party executing the same (or on whose behalf such signature is executed)
with the same force and effect as if such facsimile signature were the original
thereof.

    

    (j)       
All Debtors (including without limitation any
Additional Debtor joined hereto) shall be jointly and severally be
liable for the obligations
of each Debtor to the Secured Parties hereunder.

    

    (k)       Each Debtor shall indemnify, reimburse and hold
harmless the Agent and the
Secured Parties and their
respective partners, members, shareholders, officers, directors,
employees and agents
(and any other persons with
other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses,
claims, liabilities, damages, penalties, suits, costs and expenses, of any kind
or nature, (including fees
relating to the cost of investigating and defending any of the foregoing)
imposed on, incurred by or asserted against such Indemnitee in any way related
to or arising from or alleged to arise from this Agreement or the Collateral,
except any such losses, claims, liabilities, damages,
penalties, suits, costs and expenses which result from any violation of the terms or provisions
of this Agreement or the agreements underlying the Obligations or the negligence or willful misconduct of the
Indemnitee.  This indemnification provision is in addition
to, and not in limitation of, any other indemnification provision in the
Notes, the Purchase Agreement or any other
agreement, instrument or other document executed or delivered in connection
herewith or therewith.

    

    (l)       
Nothing in this Agreement
shall be construed to subject the Agent or any Secured Party to liability
as a partner or member
in or of any Debtor or any of its direct or indirect subsidiaries, nor
shall the Agent or any Secured Party be deemed to
have assumed any
obligations under any partnership agreement or limited liability company
agreement, as applicable, of any such Debtor or any of its direct or indirect subsidiaries or
otherwise, unless and until any such Secured Party exercises its right to
be substituted for
such Debtor as a partner or member, as applicable,
pursuant hereto.

    

    (m)     
To the extent that the
grant of the security interest in the Collateral and the enforcement of the
terms hereof require the consent, approval or action of any partner or member, as applicable, of
any Debtor or any direct or indirect subsidiary of
any Debtor or compliance with any provisions of
any of the Organizational Documents, the Debtors hereby grant such consent and
approval and waive any such noncompliance with the terms of said
documents.

    

    [SIGNATURE PAGES
FOLLOW]

    
      
         

      

      
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    IN WITNESS WHEREOF, the parties hereto
have caused this Security Agreement to be duly executed on the day
and year first above written.

    

    

    
      	
              AXIS
      TECHNOLOGIES GROUP, INC.

            	 
	 
      	 
      	 
	 
      	 
      	 
	
              By:

            	
               /s/ Jim
      Erickson

            	 
	 
      	
              Name:

            	 
	 
      	
              Title:

            	 
	 
      	 
      	 
	 
      	 
      	 
	
              AXIS TECHNOLOGIES, INC.,
      a Delaware corporation

            	 
	 
      	 
      	 
	
              By:

            	
              
                 /s/ Jim
      Erickson

              

            	 
	
              Name:

            	 
      	 
	
              Title:

            	 
      	 

    

    

    

    [SIGNATURE PAGE OF HOLDERS
FOLLOWS]

    
      
         

      

      
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    [SIGNATURE PAGE OF HOLDERS TO AXTG SECURITY AGREEMENT]

    

    

    

    
      	
              GEMINI
      MASTER FUND, LTD.

            	 
	
              By:

            	
              GEMINI
      STRATEGIES, LLC, as investment manager

            	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 
	 
      	
              By:

            	 /s/ Steven
      Winters 	 
	 
      	
              Name:

            	
              Steven
      Winters

            	 
	 
      	
              Title:

            	
              Managing
      Member

            	 

    

    

    

    
      	
              GEMINI STRATEGIES, LLC,
      as Agent

            	 
	 
      	 
      	 
	 
      	 
      	 
	
              By:

            	  /s/
      Steven Winters 	 
	
              Name:

            	
              Steven
      Winters

            	 
	
              Title:

            	
              Managing
      Member

            	 

    

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    SCHEDULE
A

    

    Principal Place
of Business of Debtors:

    

    The Debtors’ books of account and records are kept
at 2055 S Folsom Street, Lincoln, NE 68522.  The Company leases this
facility as a tenant.

    

    Locations
Where Collateral is Located or Stored:

    

    2055 S
Folsom Street, Lincoln, NE 68522

    

    

    SCHEDULE B

    Exceptions

    

    
      	
               
      

            	
              ·

            	
              Enterprise Bank-to be paid in full after
      receipt of funds

            

    

    

    

    SCHEDULE C

    Recording
Jurisdictions

    

    
      	
              Debtor

               

            	
              Filing
      Jurisdiction

            
	
              Axis
      Technologies Group, Inc.

            	
              Delaware

            
	
              Axis
      Technologies, Inc.

            	
              Delaware

            

    

    

    

    SCHEDULE D

    Legal
Names,
Organizational
Jurisdictions and
Identification Numbers

    

    
      	
              Name

            	
              Jurisdiction

            	
              ID
      Number

            	
              Address

            
	 
      	 
      	 
      	 
      
	
              Axis
      Technologies Group, Inc.

            	
              Delaware

            	
              2803312

            	
              2055
      S Folsom Street

            
	 
      	 
      	 
      	
              Lincoln, NE 68522

            
	 
      	 
      	 
      	 
      
	
              Axis
      Technologies, Inc.

            	
              Delaware

            	
              3626005

            	
              2055
      S Folsom Street

            
	 
      	 
      	 
      	
              Lincoln, NE 68522

            

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    SCHEDULE E

    Names;
Mergers and Acquisitions

    

    
      	
               
      

            	
              ·

            	
              Axis Technologies,
      Inc.

            

    

    
      	
               
      

            	
              ·

            	
              Riverside Entertainment,
      Inc.

            

    

    
      	
               
      

            	
              ·

            	
              Dreamfield Holdings,
      Inc.

            

    

    
      	
               
      

            	
              ·

            	
              Globaldigitalcommerce.com,
      Inc.

            

    

    

    

    SCHEDULE F

    Intellectual
Property

    

    INTELLECTUAL PROPERTY OWNED
BY:  Axis Technologies,
Inc.

    

    
      	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
              TRADEMARK

            	 	
              COUNTRY

            	 	
              FILING DATE

            	 	
              APPLICATION/ SERIAL NO.

            	 	
              ISSUANCE DATE

            	 	
              STATUS

            	 	
              REG. NO.

            
	
              The
      Future of Florescent Lighting

            	 	
              United
      States

            	 	
              6/17/2004

            	 	
              78-437,293

            	 	
              9/27/2005

            	 	
              Registered

            	 	
              3,001,415

            
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 	 
      
	
              PATENT

            	 	
              COUNTRY

            	 	
              FILING DATE

            	 	
              APPLICATION/ SERIAL NO.

            	 	 
      	 	
              STATUS

            	 	
              REG. NO.

            
	
              Method
      and Apparatus for Dimming Control of Electronic Ballasts

            	 	
              United
      States

            	 	
              06/29/2004

            	 	
               10/707,982

            	 	
              11/29/2005

            	 	
              Registered

            	 	
              US
      6,969,955 B2

            

    

    

    

    SCHEDULE G

    Government
Account
Debtors

    

    NONE

    

    

    SCHEDULE H

    Pledged
Securities

    

    Axis Technologies,
Inc.

    

    

    SCHEDULE
I

    Permitted Licenses and
Dispositions

    

    Inventory,
ordinary course of business

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    ANNEX A

    to

    SECURITY AGREEMENT

    

    
      FORM OF ADDITIONAL DEBTOR
JOINDER

    

    

    Security Agreement dated as
of April ___, 2008 made by

    Axis
Technologies Group, Inc.

    and its subsidiaries party thereto from
time to time, as
Debtors

    to and in favor of

    the Secured Parties identified therein
(the “Security
Agreement”)

    

    Reference is made to the Security
Agreement as defined above; capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in, or by reference in, the
Security Agreement.

    

    The undersigned hereby agrees that upon
delivery of this Additional Debtor Joinder to the Secured Parties referred to
above (or the Agent on
their behalf), the
undersigned shall (a) be an Additional Debtor under the Security Agreement,
(b) have all the rights and
obligations of the Debtors
under the Security Agreement as fully and to the same extent as if the
undersigned was an original signatory thereto, and (c) be deemed to have made the
representations and
warranties set forth therein as of the date of execution and delivery of this
Additional Debtor Joinder.  WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY
INTEREST IN THE COLLATERAL OWNED BY IT AS MORE FULLY SET FORTH IN THE SECURITY
AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET
FORTH THEREIN.

    

    Attached hereto are supplemental and/or
replacement Schedules to the Security Agreement, as applicable. An executed copy of this Joinder shall be
delivered to the Secured Parties (or the Agent on their
behalf), and the Secured
Parties may rely on the matters set forth herein on or after the date
hereof.  This Joinder shall not be modified, amended or terminated without the prior written
consent of the Secured Parties.

    

    IN WITNESS WHEREOF, the undersigned has
caused this Joinder to be executed in the name and on behalf of the
undersigned.

    

    
      	 
      	
              [Name of Additional
      Debtor]

            	 
	 
      	 
      	 
      	 
	 
      	
              By:

            	
               

            	 
	 
      	 
      	 
      	 
	 
      	
              Name:

            	 
      	 
	 
      	
              Title:

            	 
      	 
	 
      	
              Address:

            	 

    

    Dated:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ANNEX B

    to

    SECURITY AGREEMENT

    

    THE AGENT

    

    1.  Appointment. The Secured Parties (all capitalized
terms used herein and not otherwise defined shall have the respective meanings
provided in the Security Agreement to which this Annex B is attached (the
"Agreement")), by their acceptance of the benefits
of the Agreement, hereby designate Gemini Strategies, LLC (“Gemini” or “Agent”) as the Agent to act as specified herein
and in the Agreement.  Each Secured Party shall be deemed irrevocably to authorize the
Agent to take such action on its behalf under the provisions of the Agreement
and any other Transaction Document (as such term is defined in the Notes) and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto.  The Agent may
perform any of its duties hereunder by or through its agents or
employees.

    

    2.  Nature of
Duties.  The Agent shall have no
duties or responsibilities except those expressly set forth in the
Agreement.  Neither the Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for
any action taken or omitted
by it as such under the Agreement or hereunder or in connection herewith or
therewith, be responsible for the consequence of any oversight or error of
judgment or answerable for any loss, unless caused solely by its or their
gross negligence or willful misconduct as determined by a final
judgment (not subject to further appeal) of a court of competent
jurisdiction.  The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the
Agreement or any other
Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in
the Agreement or any other Transaction Document, expressed or implied, is
intended to or shall be so construed as to impose upon the Agent any obligations in respect
of the Agreement or any other Transaction Document except as expressly set forth
herein and therein.

    

    3.  Lack of Reliance on
the Agent.  Independently and without
reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and
shall continue to make (i) its own independent investigation of the financial
condition and affairs of the Company and its subsidiaries in connection with
such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the
transactions contemplated by the Transaction Documents, and the taking or not
taking of any action in connection therewith, and (ii) its own appraisal of the
creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from
time to time, and the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Secured Party with any
credit, market or other information with respect thereto, whether
coming into its possession before any
Obligations are incurred or at any time or times thereafter.  The
Agent shall not be responsible to the Debtors or any Secured Party for any recitals,
statements, information, representations or warranties herein or in any
document, certificate or
other writing delivered in connection herewith, or for the execution,
effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of the
Agreement or any other Transaction Document, or for the financial condition of the
Debtors or the value of any
of the Collateral, or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of the
Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the
Collateral, or the existence or possible existence of any default or Event of
Default under the Agreement, the Notes or any of the other Transaction
Documents.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    4.  Certain Rights
of the
Agent.  The Agent
shall have the right to take any action with respect to the Collateral, on
behalf of all of the Secured Parties.  To the extent practical, the
Agent shall request instructions from the Secured Parties with respect to any
material act or action
(including failure to act) in connection with the Agreement or any other
Transaction Document, and shall be entitled to act or refrain from acting in
accordance with the instructions of Secured Parties holding a majority in
principal amount of Notes (based on then-outstanding principal
amounts of Notes at the time of any such
determination); if such instructions are not provided despite the
Agent’s request therefor, the Agent shall be
entitled to refrain from such act or taking such action, and if such action is taken, shall be
entitled to appropriate indemnification from the Secured Parties in respect of
actions to be taken by the Agent; and the Agent shall not incur liability to any
person or entity by reason of so refraining.  Without
limiting the foregoing, (a) no Secured Party
shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting hereunder in accordance with the terms of
the Agreement or any other Transaction Document, and the Debtors shall have no right to question or
challenge the authority of, or the instructions given to, the Agent pursuant to
the foregoing, and (b) the Agent shall not be required
to take any action which the Agent believes (i) could reasonably be expected
to expose it to personal
liability or (ii) is contrary to this Agreement, the Transaction Documents or
applicable law.

    

    5.  Reliance.  The Agent shall be entitled
to rely, and shall be fully protected in relying, upon any writing, resolution,
notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by the proper person
or entity, and, with respect to all legal matters pertaining to the Agreement
and the other Transaction Documents and its duties
thereunder, upon advice of counsel selected by it, and upon all other matters pertaining
to this Agreement and the other Transaction Documents and its duties thereunder,
upon advice of other experts selected by it. Anything to the contrary notwithstanding,
the Agent shall have no obligation whatsoever to any Secured Party to assure
that the Collateral exists
or is owned by the Debtors
or is cared for, protected or insured or that the liens granted pursuant to the
Agreement have been
properly or sufficiently or lawfully created, perfected, or enforced or are
entitled to any particular priority.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    6.  Indemnification.  To the extent that the Agent
is not reimbursed and
indemnified by the Debtors,
the Secured Parties will jointly and severally reimburse and
indemnify the Agent, in proportion to their initially purchased respective
principal amounts of Notes, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent in performing its duties hereunder or under the
Agreement or any other Transaction Document, or in any way relating to or
arising out of the Agreement or any other
Transaction Document except for those determined by a final judgment (not
subject to further appeal) of a court of competent jurisdiction to have resulted
solely from the Agent's own gross negligence or willful misconduct.  Prior to taking any action hereunder as
Agent, the Agent may require each Secured Party to deposit with it sufficient
sums as it determines in good faith is necessary to protect the Agent for costs
and expenses associated with taking such action.

    

    7.  Resignation by the
Agent.

    

    (a)     
The Agent may resign from
the performance of all its functions and duties under the Agreement and the
other Transaction Documents at any time by giving 30 days' prior written notice
(as provided in the
Agreement) to the Debtors and the Secured
Parties.  Such resignation shall take effect upon the appointment of a
successor Agent pursuant to clauses (b) and (c) below.

    

    (b)      Upon any such notice of resignation, the
Secured Parties, acting by a Majority in Interest, shall appoint a successor Agent
hereunder.

    

    (c)      If a successor Agent shall not have been
so appointed within said 30-day period, the Agent shall then appoint a successor
Agent who shall serve as Agent until such time, if any, as the Secured Parties
appoint a successor Agent
as provided above.  If a successor Agent has not been appointed within
such 30-day period, the Agent may petition any court of competent jurisdiction
or may interplead the Debtors and the Secured Parties in a proceeding for the
appointment of a successor Agent, and all fees,
including, but not limited to, extraordinary fees associated with the filing of
interpleader and expenses associated therewith, shall be payable by the
Debtors on demand.

    

    (d)     
 Upon the acceptance of any
appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties and
obligations under the Agreement.  After any retiring Agent’s resignation or removal hereunder as
Agent, the provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    8.  Rights with respect
to Collateral.  Each Secured Party agrees
with all other Secured Parties and the Agent (i) that it shall not, and shall
not attempt to, exercise any rights with respect to its security interest in the
Collateral, whether pursuant to any other agreement or otherwise (other
than pursuant to this Agreement), or take or institute any action against the
Agent or any of the other Secured Parties in respect of the Collateral or its
rights hereunder (other than any such action arising from the breach of this Agreement) and (ii)
that such Secured Party has no other rights with respect to the Collateral other
than as set forth in this Agreement and the other Transaction
Documents.

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