DIGITAL LIGHTWAVE

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQd0lnGxj6XEFrsGtPsm2bP8XcT48++ghIiFUuz0r+/+K51mx8RK7U6aRQYrsrrp o4t8zvIeOTYt3QqDIDU+ag== 0001016100-03-000018.txt : 20030602 0001016100-03-000018.hdr.sgml : 20030602 20030602164554 ACCESSION NUMBER: 0001016100-03-000018 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030602 ITEM INFORMATION: Other events FILED AS OF DATE: 20030602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL LIGHTWAVE INC CENTRAL INDEX KEY: 0001016100 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 954313013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21669 FILM NUMBER: 03728424 BUSINESS ADDRESS: STREET 1: 601 CLEVELAND STREET STREET 2: 5TH FLOOR CITY: CLEARWATER STATE: FL ZIP: 33775 BUSINESS PHONE: 8134426677 MAIL ADDRESS: STREET 1: 601 CLEVELAND STREET STREET 2: 5TH FLOOR CITY: CLEARWATER STATE: FL ZIP: 33775 8-K 1 digl8k06022003.htm DIGITAL LIGHTWAVE - 8K DIGITAL LIGHTWAVE - 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 21, 2003

DIGITAL LIGHTWAVE, INC.

(Exact name of registrant as specified in its charter)

Delaware

000-21669

95-4313013

(State or Other Jurisdiction

(Commission File Number)

(IRS Employer

of Incorporation)

Identification No.)

15550 Lightwave Drive

Clearwater, Florida 33760

(Address of Principal Executive Offices and Zip Code)

Registrant’s telephone number, including area code: (727) 442-6677

The matters discussed in this current report include certain forward-looking statements that involve risks and uncertainties, including the risks detailed from time to time in the SEC reports of Digital Lightwave, Inc., including the reports on Form 10-K and Form 10-Q. These statements are only predictions and actual results could differ materially from those projected in the forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date of filing, and we assume no obligation to update any such forward looking statements.

Item 5. Other Events and Required FD Disclosure.

Jabil Forbearance

As previously reported, in December 2001, Digital Lightwave, Inc. (“Digital”) signed a manufacturing services agreement with Jabil Circuit, Inc. (“Jabil”), a leading provider of technology manufacturing services with a customer base of industry-leading companies. Under the terms of the agreement, Jabil purchased Digital’s existing inventory to fulfill orders until Digital’s then-present inventory was depleted to safety stock levels. Under the terms of the agreement, Jabil had served as Digital’s primary contract manufacturer for Digital’s circuit board and product assembly and provided engineering design services.

In February 2003, Jabil terminated the manufacturing services agreement, and in March 2003, Jabil commenced an arbitration proceeding against Digital with the American Arbitration Association. The arbitration was commenced in connection with the non-payment by Digital of amounts due under the manufacturing services agreement. Jabil claimed damages in excess of $6.7 million for unpaid invoices, termination charges and costs and charges relating to the cessation of manufacturing. Jabil also sought recovery of interest, costs and expenses.

On May 21, 2003 (but effective as of May 1, 2003), Digital and Jabil entered into a forbearance agreement relating to Jabil’s claims against Digital relating to the manufacturing services agreement. Under the terms of the forbearance agreement, Digital (a) paid Jabil $620,000 in cash, (b) delivered to Jabil a promissory note in the original principal amount of approximately $2.83 million (the “First Note”), and (c) delivered to Jabil a promissory note in the original principal amount of approximately $2.74 million (the “Second Note” and, together with the First Note, the “Notes”). Digital and Jabil agreed that the principal amount of the First Note represents the unpaid outstanding accounts receivable owed by Digital to Jabil for product previously delivered to Digital under the manufacturing services agreement and that the principal amount of the Second Note represents the compromised amount due by Digital to Jabil for component inventory, work-in-process inventory, and finished good inventory for which Digital has not yet paid Jabil.

Each of the Notes bears interest at six percent (6.0%) per year. Under the First Note, Digital is required to make a payment of approximately $253,000 on September 1, 2003, and thereafter is required to make monthly payments of approximately $210,000 from October 1, 2003, through October 1, 2004. The Second Note does not provide for periodic payments. The Second Note requires Digital to pay all unpaid principal and accrued interest in full on October 1, 2004. As provided for in the forbearance agreement, all payments made by Digital to Jabil for certain existing inventory (as such term is defined in the forbearance agreement) will be credited as payments on the Second Note. Each of the Notes provides for the accelerated payment of all unpaid principal and accrued interest upon the occurrence of certain events described in the Notes.

Pursuant to the forbearance agreement, Jabil agreed to forbear from taking further actions to collect on Jabil’s claim but only so long as Digital complies with all terms, conditions, obligations, and duties provided in the forbearance agreement, the Notes, and each other document or agreement signed in connection with the forbearance agreement. If Digital does not timely perform its obligations or defaults under the forbearance agreement, the Notes or any related agreement, Jabil no longer will be required to forbear in pursuing the immediate collection of all amounts owed by Digital to Jabil, and Jabil may take all legal action to collect the amounts and enforce its rights. As further consideration to Digital under the forbearance agreement, Jabil agreed to allow Optel, LLC, an entity controlled by Digital’s majority stockholder and current chairman of the board of directors, Dr. Bryan Zwan, to pur chase the Notes at a 20% discount off the full outstanding principal and unpaid accrued interest at any time during the period between the date of the forbearance agreement and September 1, 2003.

Under the terms of the forbearance agreement, Digital acknowledged that Jabil rightfully terminated the manufacturing services agreement in February 2003. Digital and Jabil have begun the negotiations for a new manufacturing agreement, but no agreement has been reached and there is no commitment or obligation for either party to enter into a new manufacturing agreement. The parties agreed that if they are able to reach an understanding with respect to any such new manufacturing agreement, Digital will be required to prepay Jabil for any additional inventory or component parts that are to be purchased, and that Jabil will have no obligation to pay or carry the costs or expenses for any additional inventory or component parts to be used in the manufacturing process.

The forbearance agreement and the Notes are attached to this Current Report on Form 8-K as exhibits and are incorporated herein by reference. The foregoing summary does not purport to be complete and is qualified in its entirety by reference to such documents.

$520,000 Loan from Optel

On May 29, 2003, Digital borrowed $500,000 from Optel, LLC (“Optel”) pursuant to a Secured Promissory Note (the “Optel Note”). Optel is an entity controlled by Digital’s majority stockholder and current chairman of the board of directors, Dr. Bryan Zwan. The Optel Note (a) bears interest at an annual rate equal to 10% per annum, (b) is secured by a first priority security interest in substantially all of the assets of Digital pursuant to an Eighth Amended and Restated Security Agreement, dated as of May 29, 2003 (the “Security Agreement”), and (c) may be prepaid at any time. Digital used the proceeds from the note for general corporate and working capital purposes. The Optel Note matures on July 31, 2004, unless certain specified events occur accelerating the maturity. Digital’s total indebtedness to Optel is now $4.0 million.

The Optel Note and the Security Agreement are attached hereto as exhibits and are incorporated herein by reference. The foregoing summary does not purport to be complete and is qualified in its entirety by references to the Optel Note and the Security Agreement.

Digital has insufficient short-term resources for the payment of its current liabilities. Various creditors have contacted us in order to demand payment for outstanding liabilities owed to them and some creditors have commenced legal proceedings against Digital. We are in discussions with our creditors in order to restructure our outstanding liabilities. In order to alleviate Digital’s working capital shortfall, we are attempting to raise additional debt and/or equity financing. On April 15, 2003, Digital received a commitment letter from Optel for the provision of an $11.96 million credit facility to be secured by substantially all of Digital’s assets, inclusive of the $4.0 million already extended by Optel as of May 29, 2003. The closing of the facility is subject to the execution of definitive agreements embodying the terms set forth in the commitment letter and containing c ustomary representations, warranties and covenants, in light of the financial condition of Digital. Based upon the recent resignation of Digital’s chief accounting officer, Optel has advised Digital that it is not prepared to execute a definitive loan agreement on the terms contemplated by the commitment letter, unless Digital engages a chief financial officer who is reasonably acceptable to Optel, within a specified timeframe. If Digital is unable to engage a suitable chief financial officer within such timeframe, Optel has advised Digital that it will nonetheless be willing to provide an uncommitted facility for the same amount and on similar terms, except that draws under the facility will be subject to Optel’s approval, in its sole discretion.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(a)

Financial Statements of Businesses Acquired.

Not applicable.

(b)

Pro Forma Financial Information.

Not applicable.

(c)

Exhibits.

10.1

Forbearance Agreement, dated effective as of May 1, 2003, between Digital Lightwave, Inc. and Jabil Circuit, Inc. (Executed and delivered May 21, 2003).

10.2

Promissory Note ($2,838,904.06 Principal Amount), dated effective as of May 1, 2003, between Digital Lightwave, Inc. and Jabil Circuit, Inc. (Executed and delivered May 21, 2003).

10.3

Promissory Note ($2,741,095.94 Principal Amount), dated effective as of May 1, 2003, between Digital Lightwave, Inc. and Jabil Circuit, Inc. (Executed and delivered May 21, 2003).

10.4

Secured Promissory Note, dated as of May 29, 2003, between Digital Lightwave, Inc. and Optel, LLC.

10.5

Eighth Amended and Restated Security Agreement, dated as of May 29, 2003, between Digital Lightwave, Inc. and Optel, LLC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

DIGITAL LIGHTWAVE, INC.

Date: June 2, 2003

By:

/s/ JAMES GREEN

James Green

Chief Executive Officer

and President

EXHIBIT INDEX

Number

Description

10.1

Forbearance Agreement, dated effective as of May 1, 2003, between Digital Lightwave, Inc. and Jabil Circuit, Inc. (Executed and delivered May 21, 2003).

10.2

Promissory Note ($2,838,904.06 Principal Amount), dated effective as of May 1, 2003, between Digital Lightwave, Inc. and Jabil Circuit, Inc. (Executed and delivered May 21, 2003).

10.3

Promissory Note ($2,741,095.94 Principal Amount), dated effective as of May 1, 2003, between Digital Lightwave, Inc. and Jabil Circuit, Inc. (Executed and delivered May 21, 2003).

10.4

Secured Promissory Note, dated as of May 29, 2003, between Digital Lightwave, Inc. and Optel, LLC.

10.5

Eighth Amended and Restated Security Agreement, dated as of May 29, 2003, between Digital Lightwave, Inc. and Optel, LLC.

EX-10.1 3 ex101.htm EXHIBIT 10.1 FOREBEARANCE AGREEMENT - Exhibit 10.1

FORBEARANCE AGREEMENT

THIS FORBEARANCE AGREEMENT (this "Agreement") is made effective as of the 1^st day of May, 2003 (the "Effective Date"), between DIGITAL LIGHTWAVE, INC., a Delaware corporation ("Digital"), having its principal place of business at 15550 Lightwave Drive, Clearwater, FL 33760, and JABIL CIRCUIT, INC., a Delaware corporation ("Jabil"), having offices at 10560 9^th Street North, St. Petersburg, FL 33716.

RECITALS

Jabil is in the business of designing, developing, manufacturing, testing, configuring, assembling, packaging and shipping electronic assemblies and systems.

Digital is in the business of designing, developing, distributing, marketing, and selling products containing electronic assemblies and systems.

Jabil and Digital previously entered into a Manufacturing Services Agreement (the "Manufacturing Agreement") on or about December 2001 under which Jabil manufactured and shipped electronic assemblies and systems to Digital and Digital is obligated to pay Jabil certain amounts.

The parties acknowledge and agree that Digital has defaulted under the terms of the Manufacturing Agreement. As a result of the default, Jabil has previously exercised its right to setoff against the $750,651 deposit (the "Offset") that Digital made with Jabil. After properly accounting for the Offset, Digital agrees and understands that it owes Jabil a minimum of $6,200,000 (the "Claim") for product previously shipped to Digital and for other obligations of Digital owing to Jabil under the Manufacturing Agreement.

Digital acknowledges that Jabil is entitled to immediate payment for the full amount of the Claim, but has asked that Jabil accept payment of the Claim over time pursuant to the terms of this Agreement and has asked that Jabil forbear in further collection efforts against Digital. Jabil has agreed to forbear but only so long as Digital complies with and performs its obligations under this Agreement.

Therefore, in consideration of ten dollars ($10.00) and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and the mutual covenants and benefits herein described in this Agreement, the parties agree as follows:

TERMS

Recitals. The recitals to this Agreement are true and correct and are incorporated by reference and made part of the terms of this Agreement.

Digital's Default. Digital stipulates and hereby agrees that Digital has defaulted on certain of its obligations under the Manufacturing Agreement and as a result now owes Jabil the total amount of the Claim which amount is now past due and owing in full, without setoff, defense, or counterclaim of any kind.

Cancellation of Manufacturing Agreement. Digital acknowledges and agrees that Jabil has rightfully cancelled the Manufacturing Agreement effective February 27, 2003 because of the defaults by Digital and that Jabil has no further obligation under the Manufacturing Agreement.

Negotiations Regarding New Manufacturing Agreement. Digital has requested that Jabil enter into a new manufacturing agreement under which Jabil would manufacture and ship product to Digital. The parties have begun the negotiations for a new manufacturing agreement, but no agreement has been reached as of the date of this Agreement and there is no commitment or obligation for either party to enter into a new manufacturing agreement. The parties agree that if they are able to reach an understanding with respect to any such new manufacturing agreement, Digital will be required to prepay Jabil for any additional inventory or component parts that are to be purchased, and that Jabil will have no obligation to pay or carry the costs or expenses for any additional inventory or component parts to be used in the manufacturing process.

Payment of Claim. Digital agrees to pay the full amount of the Claim as follows:

Simultaneously with the execution of this Agreement, Digital shall pay Six Hundred Twenty Thousand Dollars ($620,000.00) (the "Initial Payment") to Jabil.

Simultaneously with the execution of this Agreement, Digital shall execute a $2,838,904.06 promissory note (the "A/R Note") in favor of Jabil, and Digital shall pay all amounts evidenced by the A/R Note according to its terms. The parties agree that the A/R Note represents the unpaid outstanding accounts receivable owed by Digital to Jabil for product previously delivered to Digital.

Simultaneously with the execution of this Agreement, Digital shall execute a $2,741,095.94 promissory note (the "Inventory Note") in favor of Jabil and shall pay all amounts evidenced by the Inventory Note according to its terms. Digital acknowledges and agrees that the Inventory Note represents the compromised amount due by Digital to Jabil for component inventory, work-in-process inventory, and finished good inventory that exist as of the date of this Agreement (referred to as the "Existing Inventory") for which Digital has not yet paid Jabil. If the parties are able to negotiate and enter into a new manufacturing agreement, then over time Digital will purchase and pay for certain Existing Inventory. In addition, regardless whether the parties are able to negotiate and enter into a new manufacturing agreement, Jabil will use its commercially reasonab le efforts to sell to third parties those items of Existing Inventory that have been identified by Digital as being available for sale to third parties. As Digital or a third party pays for Existing Inventory, the amounts paid to Jabil will be credited to reduce the amount owed by Digital under the Inventory Note. Thus, if (i) the parties enter into a new manufacturing agreement and Digital pays for some or all of the Existing Inventory or (ii) a third party purchases and pays for some or all of the Existing Inventory, then when the Inventory Note matures on October 1, 2004, Digital will only be responsible for paying for the unpaid amount of the Existing Inventory plus all unpaid accrued interest under the Inventory Note.

Promissory Notes. As a condition of the forbearance of Jabil, Digital agrees to pay the full amount of the Claim, together with interest, according to the terms of the A/R Note and the Inventory Note (collectively, the "Notes") executed at the same time as this Agreement. Digital agrees to make its obligations under the Notes independent and separate of any obligation that Jabil later may have if the parties enter into a new manufacturing agreement. Digital further agrees to forfeit and waive any right of setoff, offset or defense that it may now or later have related to its obligations under the Notes.

Claim Represents a Compromised Amount. Digital acknowledges and agrees that the Claim amount of $6,200,000 represents a compromised amount on the part of Jabil and that Jabil believes that an amount in excess of $6,800,000 is due by Digital to Jabil. The parties agree that the compromised amount of the Claim will be binding on the parties but only if Jabil receives and is able to keep the full amount of the Claim under the terms of this Agreement. Therefore, the parties further agree that if for any reason (including because of filing of a bankruptcy case) Digital fails to pay the full amount of the Claim to Jabil or if any portion of the Claim now or later paid by Digital to Jabil is determined to be a preference under 11 U.S.C. § 547 or is otherwise set aside for any reason, then Jabil is entitled to be paid and to file a claim against Digital for the full amount du e by Digital to Jabil. If Jabil seeks such a determination of the full amount owed by Digital, Digital may dispute the amount of the claim to the extent that it exceeds $6,200,000, but Digital acknowledges and agrees that Jail's claim against Digital is at minimum $6,200,000 as of the date of this Agreement. Because the parties have agreed to this compromised amount, Digital waives its right to receive and releases Jabil from any duty to provide the information described in section 10.6(b) of the Manufacturing Agreement. If Jabil later seeks a determination of the full amount owed by Digital, Jabil will provide the information described in section 10.6(b) within 6 months after a written demand for such information by Digital.

Option to Purchase Promissory Notes at Discount. As further consideration to Digital, Jabil agrees to allow Optel LLC ("Optel") to purchase the Notes at a 20% discount off the full outstanding principal and unpaid accrued interest at any time during the period between the date of this Agreement and September 1, 2003. If Optel exercises this option to purchase the Notes, Jabil will assign the Notes to Optel without recourse, representation, or warranty under documentation acceptable to Jabil in its sole discretion, and Optel will be responsible for all costs incurred in preparing the documentation and taxes related to any assignment or transfer of the Notes.

Financial Information. Digital agrees to submit to Jabil by the last day of each month, all Digital's monthly financial reports, periodic operating statements, balance sheets, cash flow statements, financial projections, and capital expenditure plans for the previous month together with any other information reasonably requested by Jabil. Jabil expressly agrees to maintain such information in confidence and acknowledges and agrees that Jabil is aware of the restrictions imposed by the United States federal securities laws and other applicable foreign and domestic laws on a person possessing material non-public information about a public company and that Jabil will comply with such laws.

10.

Forbearance by Jabil. Digital acknowledges and agrees that Jabil is entitled to immediate enforcement of all its rights and to take actions to collect the total amount of the Claim. Digital has requested Jabil to forbear in taking action at this time to enforce its rights under the Manufacturing Agreement and to provide Digital with the opportunity to satisfy its obligations owing to Jabil under the terms and conditions set forth in this Agreement. Jabil agrees to forbear from taking further actions to collect on the Claim but only so long as Digital complies with all terms, conditions, obligations, and duties provided in this Agreement, the Notes, and each other document or agreement signed in connection with this Agreement. In the event Digital does not timely perform its obligations or defaults under this Agreement, the Notes or any related agreement, Jabil no lon ger will be required to forbear in pursuing the immediate collection of all amounts owed by Digital to Jabil and may take all legal action to collect the amounts and enforce its rights.

11.

Waiver and Release. Digital hereby releases and waives all claims or causes of actions that exist or may exist, known or unknown, as of the date of execution of this Agreement against Jabil, its subsidiaries, affiliates, officers, directors, and agents, including, without limitation, all claims, setoffs, defenses or counterclaims which exist or may exist as of the date of execution of this Agreement with respect to the Claim, the Notes, or the Manufacturing Agreement, or which exist or may exist as of the date of execution of this Agreement, or which could be asserted by it in connection with any arbitration or action that could be instituted by Jabil to enforce its rights to collect the Claim or any other rights under the Manufacturing Agreement.

12.

Waiver of Notice of Default. Notwithstanding any provision of this Agreement or the Manufacturing Agreement, Jabil shall not be required to provide written notice of any future default, whether monetary or non-monetary, to Digital. Further, Digital waives and releases any right to notice that it may previously have been entitled to receive under the Manufacturing Agreement and, to the extent that such rights are provided by law, then Digital waives and releases such rights as well.

13.

WAIVER OF JURY TRIAL. DIGITAL HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY LITIGATION BASED ON THIS AGREEMENT OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, AND ANY RELATED AGREEMENTS. DIGITAL ACKNOWLEDGES AND AGREES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO JABIL TO ENTER INTO THIS AGREEMENT.

14.

Execution of Further Documents. Digital agrees to cooperate with Jabil so that the interests of Jabil are protected, and Digital agrees to execute whatever further documents Jabil may reasonably request or reasonably deem necessary to effectuate the terms of this Agreement.

15.

Miscellaneous.

(a)

This Agreement may be executed in a number of identical counterparts which, taken together, shall constitute collectively one (1) agreement; but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart executed by the party to be charged.

(b)

Any future waiver, alteration, amendment or modification of any of the provisions of this Agreement shall not be valid or enforceable unless in writing and signed by all parties, it being expressly agreed that this Agreement cannot be modified orally, by course of dealing or by implied agreement. Any delay by Jabil in enforcing its rights after an event of default shall not be a release or waiver of the event of default and shall not be relied upon by Digital as a release or waiver of the default.

(c)

This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their heirs, executors, administrators, successors, legal representatives, and assigns. The parties acknowledge and agree that Optel is an intended third-party beneficiary of this Agreement.

(d)

The headings of paragraphs in this Agreement are for convenience of reference only and shall not in any way affect the interpretation or construction of this Agreement.

(e)

This Agreement shall be governed by the laws of the State of Florida and federal law, as applicable.

(f)

The warranties and representations of Digital in this Agreement shall survive the termination of this Agreement.

(g)

The terms and conditions set forth in this Agreement are the product of joint draftsmanship by all parties, each being represented by counsel, and any ambiguities in this Agreement or any documentation prepared pursuant to or in connection with this Agreement shall not be construed against any of the parties because of draftsmanship.

(h)

For purposes of this Agreement and the other documents referenced herein, the addresses for notice to Jabil and Digital are as follows:

DIGITAL LIGHTWAVE, INC.

15550 Lightwave Drive

Clearwater, FL 33760

Attn: President

With a copy to:

JABIL CIRCUIT, INC.

10560 9^th Street North

St. Petersburg, FL 33716

Attn: General Counsel

With a copy to:

Holland & Knight LLP

P.O. Box 1288

Tampa, FL 33601-1288

Notice shall be in writing, and shall be deemed to have been given (i) 72 hours after being sent by certified or registered mail, return receipt requested, postage prepaid and addressed as set forth above; or (ii) if by personal delivery (a) to Digital, when personally delivered to Digital or any other officer, partner, agent or employee of Digital at its respective address set forth above, or (b) if to Jabil, when personally delivered to an officer Jabil at the address set forth above. Rejection or other refusal to accept or inability to deliver because of a changed address of which no notice has been received shall also constitute service of notice. Digital and Jabil may change such address by sending written notice to the other in accordance with the foregoing; however, no written notice of change of address shall be effective until the date of receipt thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

DIGITAL LIGHTWAVE, INC.

By:_________________________________

Name:______________________________

Title:_______________________________

STATE OF _______________________

COUNTY OF _____________________

The foregoing instrument was acknowledged before me on May, ____, 2003, by ________________ as ________________ of and on behalf of Digital Lightwave, Inc. He is personally known to me or who has produced _____________________________ as identification.

___________________________________

Notary Public, State at Large

Print Name:________________________

My commission expires:

JABIL CIRCUIT, INC.

By:_________________________________

Name:______________________________

Title:_______________________________

STATE OF _______________________

COUNTY OF _____________________

The foregoing instrument was acknowledged before me on May, ____, 2003, by ________________ as ________________ of and on behalf of Jabil Circuit, Inc. He is personally known to me or who has produced ______________________________ as identification.

___________________________________

Notary Public, State at Large

Print Name:________________________

EX-10.2 4 ex102.htm EXHIBIT 10.2 PROMISSORY NOTE - EXHIBIT 10.2

PROMISSORY NOTE

DIGITAL LIGHTWAVE, INC.

$2,838,904.06

Effective Date: May 1, 2003

Promise to pay. Digital Lightwave, Inc. (“Maker”), a Delaware corporation, 15550 Lightwave Drive, Clearwater, FL 33760, for value received, promises to pay to the order of Jabil Circuit, Inc. (“Jabil”) at 10560 9^th Street North, St. Petersburg, FL 33716, or at such other place as the holder of this Note designates in writing to Maker, the principal amount of TWO MILLION EIGHT HUNDRED THIRTY EIGHT THOUSAND NINE HUNDRED AND FOUR AND 06/100 DOLLARS (U.S. $2,838,904.06) and to pay interest as required under this Note.

Interest rate. Maker shall pay interest on the outstanding principal amount of this Note at a rate of six percent (6%) per year.

Payments. Maker shall make the following payments:

No payments are due on this Note for the first four (4) months. On September 1, 2003, Maker shall make a payment of $253,048.80 (which consists of $56,778.08 in accrued interest and $196,270.72 in principal) and beginning October 1, 2003, Maker shall make monthly payments of $210,465.24 on the first day of each month thereafter until October 1, 2004 when Maker shall make a final payment of all outstanding principal and unpaid interest.

Application and form of payments. Payments will be applied first to accrued interest and then to principal, and all interest on this Note will be computed on the basis of the actual number of days elapsed over a 360-day year. Payments of interest and principal must be made in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. Payments received after 2:00 p.m. will be treated as being received on the next banking day.

Prepayment, late fee, interest on default, and maximum interest. Maker may prepay all or any portion of this Note without penalty. Partial prepayments will be applied against required principal installments in the inverse order of their maturities. Therefore, partial prepayments will not affect the due date of any required installments under the Note until the Note is paid in full. Maker agrees to pay a late fee equal to five percent of any payment of either principal or interest that is not paid within five days of the date the payment is due. Interest on all amounts not paid when due after maturity, acceleration, or otherwise, will accrue and is payable at the rate of 18 percent per year. Notwithstanding anything in this Note to the contrary, the annual rate of interest payable on this Note is limited to the maximum rate of interest now allowed by applicable l aw or any higher rate of interest allowed because of a future amendment to applicable law. If any payment of interest, or any charge in the nature of interest, under this Note would cause the annual interest rate of this Note to exceed this limitation, Jabil shall credit the excess amount as a payment of principal under this Note or, if Maker so requests, return the excess amount to Maker.

Acceleration in Event of Transfer of Assets. Maker agrees that the full principal and accrued interest on this Note will be immediately due and payable upon the sale, transfer, seizure, or any other disposition of (a) all or substantially all of Maker's assets, which the parties agree includes any disposition of the assets (not including the sale of inventory in the ordinary course of business) related to the (a) Network Information (or "NIC") product line, (b) the Network Access Agents (or "NAA") product line, or (c) the Optical Test System product line acquired from Tektronix, Inc. In addition, in the event of any sale, transfer, seizure or other disposition of assets (not including the sale of inventory in the ordinary course of business) with a fair market value in excess of $2,000,000 in the aggregate during any six-month period, Maker shall pay the Holde r of this Note at least the greater of (a) thirty three percent (33%) of the proceeds of any such sales net of cost directly related to the sales, or (b) an amount equal to the total proceeds paid to any other creditor of Maker.

Default and remedies. The occurrence of any of the following events constitutes a “Default”:

(a)

The nonpayment when due of any interest or principal under this Note or any other liability, obligation, or indebtedness (including without limitation the $2,741,095.94 promissory note dated on or about the same date as this Note) owing from Maker to Jabil, whether at maturity, by acceleration, or otherwise;

(b)

A breach by Maker of any representation, warranty, or covenant contained in this Note or any other agreement between Maker and Jabil;

(c)

The initiation of an action or proceeding for the dissolution, termination or liquidation of Maker;

(d)

A determination by Jabil that any representation or warranty made by Maker to Jabil is now, or was when made, materially untrue or misleading;

(e)

The insolvency, appointment of a custodian, trustee or receiver for Maker, or Maker files (or any creditor files against Maker) a petition seeking relief under any bankruptcy, insolvency, reorganization, or other debtor relief law;

(f)

A lien not expressly approved in writing by Jabil is placed upon or attaches to any property of Maker, except: (i) liens and security interests of Jabil; (ii) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Maker and with respect to which adequate reserves have been set aside on its books; (iii) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Maker’s business to the extent: (A) such liens secure indebtedness which is not overdue or (B) such liens secure indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriat e proceedings diligently pursued and available to Maker, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (iv) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property which do not interfere in any material respect with the use of such real property or ordinary conduct of the business of Maker as presently conducted thereon or materially impair the value of the real property which may be subject thereto; (v) purchase money security interests in equipment (including capital leases) and purchase money mortgages on real estate not to exceed $50,000 in the aggregate at any time outstanding so long as such security interests and mortgages do not apply to any property of Maker other than the equipment or real estate so acquired, and the indebtedness secured thereby does not exceed the cost of the equipment or real estate so acquired, as the case may be ; and (vi) any lien on the property of Maker existing as of the date of this Note.;

(g)

The entry of a judgment or issuance of a writ of execution, garnishment, levy, attachment or similar process related to any judgment for the payment of money against Maker in excess of $50,000 in any one case or in excess of $50,000 in the aggregate and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against Maker or any of its assets. However, the entry of the judgment (the "Joseph Judgment") in favor of Seth P. Joseph for approximately 4.8 million will not constitute a default under this Note unless and until there is a seizure of any assets pursuant to a writ of execution or otherwise by the holder of (or any successor in right s to) the Joseph Judgment; or

(h)

A determination by Jabil that a material adverse change has occurred in the financial condition of Maker since the financial condition of Maker was disclosed to Jabil in connection with this Note.

Upon the occurrence of a Default and at any time thereafter, Jabil, at its option and as often as it desires, may declare all liabilities, obligations, and indebtedness, including this Note, to be immediately due and payable without demand, notice, or presentment.

Payment of costs. Maker shall pay all costs incurred by the holder of this Note in enforcing or collecting this Note and enforcing each agreement executed in connection with this Note (including any agreement under which real or personal property is pledged as security for this Note), including without limitation all attorneys’ fees, costs, and expenses incurred in all matters of interpretation, enforcement, and collection, before, during, and after demand, suit, proceeding, trial, appeal, and post-judgment collection efforts as well as all costs and fees incurred by the holder of this Note in connection with any bankruptcy, reorganization, or similar proceeding (including efforts to obtain relief from any stay) if Maker or any other person or entity liable for the indebtedness represented by this Note becomes involved in any bankruptcy, reorganization, or si milar proceeding.

Waiver and consents. Maker and every other person liable at any time for payment of this Note waives presentment, protest, notice of protest, and notice of dishonor. Maker expressly consents to all extensions and renewals of this Note (as a whole or in part) and all delays in time of payment or other performance under this Note that the holder of this Note grants at any time and from time to time, without limitation and without any notice to or further consent of Maker. Maker agrees that its obligations under this Note are independent of the obligations of any other person or entity that now or later is obligated to pay this Note. Maker also agrees that Jabil may release any security for or other obligor of this Note or waive, extend, alter, amend, or modify the Note or otherwise take any action that varies the risk of Maker without releasing or discharging Maker from Maker’s obligation to repay this Note.

10.

VENUE AND WAIVER OF JURY TRIAL. MAKER FURTHER AGREES THAT VENUE FOR EACH ACTION, SUIT, OR OTHER LEGAL PROCEEDING ARISING UNDER OR RELATING TO THIS NOTE OR ANY AGREEMENT SECURING OR RELATED TO THIS NOTE SHALL BE THE COUNTY COURT OR CIRCUIT COURT LOCATED IN HILLSBOROUGH COUNTY, FLORIDA, AND MAKER HEREBY WAIVES ANY RIGHT TO SUE OR BE SUED IN ANY OTHER COUNTY IN FLORIDA OR ANY OTHER STATE. MAKER AND JABIL KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ALL RIGHTS TO A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION ARISING UNDER OR RELATING TO THIS NOTE OR ANY AGREEMENT RELATING TO THIS NOTE. MAKER AND JABIL HAVE FULLY DISCUSSED THIS PROVISION AND AGREE THAT THIS WAIVER IS SUBJECT TO NO EXCEPTIONS AND WAS A MATERIAL INDUCEMENT FOR JABIL TO AGREE TO ACCEPT THIS NOTE.

11.

Miscellaneous. The headings preceding the text of the sections of this Note have been inserted solely for convenience of reference and do not limit or affect the meaning, interpretation, or effect of this Note or the sections. The validity, construction, interpretation, and enforceability of this Note are governed by the laws of the State of Florida, excluding its laws relating to the resolution of conflicts of laws of different jurisdictions. Each required notice, consent, or approval, if any, under this Note will be valid only if it is given in writing (or sent by telex, telegram, or telecopy and promptly confirmed in writing) and addressed by the sender to the recipient’s address that is listed in this Note or to such other address as either party may designate by written notice to the other party. A validly given notice, consent, or approval will be effective o n receipt if hand delivered to the recipient or the day it (or the written confirmation of it) is postmarked for dispatch by first class, postage prepaid, United States mail. These notice provisions apply only if a notice is required by
this Note. They do not apply if no notice is required. This Note is not assignable by Maker.

DIGITAL LIGHTWAVE, INC.

By:_____________________________

Name:__________________________

Title:___________________________

STATE OF ______________________

COUNTY OF ____________________

The foregoing instrument was acknowledged before me this ____ day of _________, 2003, by ____________________________, as _____________________ of Digital Lightwave, on behalf of the corporation. He/she is personally known to me or he/she has produced __________________ as identification.

__________________________________

Notary Public, State at Large

EX-10.3 5 ex103.htm EXHIBIT 10.3 PROMISSORY NOTE - EXHIBIT 10.3

[Inventory Note]

PROMISSORY NOTE

DIGITAL LIGHTWAVE, INC.

$2,741,095.94

Effective Date: May 1, 2003

Promise to pay. Digital Lightwave, Inc. (“Maker”), a Delaware corporation, 15550 Lightwave Drive, Clearwater, FL 33760, for value received, promises to pay to the order of Jabil Circuit, Inc. (“Jabil”) at 10560 9^th Street North, St. Petersburg, FL 33716, or at such other place as the holder of this Note designates in writing to Maker, the principal amount of TWO MILLION SEVEN HUNDRED FORTY ONE THOUSAND NINETY FIVE AND 94/100 DOLLARS (U.S. $2,741,095.94) and to pay interest as required under this Note.

Interest rate. Maker shall pay interest on the outstanding principal amount of this Note at a rate of six percent (6%) per year.

Payments. This Note matures on October 1, 2004, and Maker shall pay all unpaid principal and accrued interest in full on October 1, 2004. Payments made by Maker to Jabil for certain "Existing Inventory" will be credited as payments on this Note as provided for in the Forbearance Agreement between Maker and Jabil dated on or about the same date as this Note.

Default and remedies. The occurrence of any of the following events constitutes a “Default”:

(a)

The nonpayment when due of any interest or principal under this Note or any other liability, obligation, or indebtedness (including without limitation the $2,838,904.06 promissory note dated on or about the same date as this Note) owing from Maker to Jabil, whether at maturity, by acceleration, or otherwise;

(b)

A breach by Maker of any representation, warranty, or covenant contained in this Note or any other agreement between Maker and Jabil;

(c)

The initiation of an action or proceeding for the dissolution, termination or liquidation of Maker;

(d)

A determination by Jabil that any representation or warranty made by Maker to Jabil is now, or was when made, materially untrue or misleading;

(e)

(f)

(g)

(h)

A determination by Jabil that a material adverse change has occurred in the financial condition of Maker since the financial condition of Maker was disclosed to Jabil in connection with this Note.

10.

11.

Miscellaneous. The headings preceding the text of the sections of this Note have been inserted solely for convenience of reference and do not limit or affect the meaning, interpretation, or effect of this Note or the sections. The validity, construction, interpretation, and enforceability of this Note are governed by the laws of the State of Florida, excluding its laws relating to the resolution of conflicts of laws of different jurisdictions. Each required notice, consent, or approval, if any, under this Note will be valid only if it is given in writing (or sent by telex, telegram, or telecopy and promptly confirmed in writing) and addressed by the sender to the recipient’s address that is listed in this Note or to such other address as either party may designate by written notice to the other party. A validly given notice, consent, or approval will be effective o n receipt if hand delivered to the recipient or the day it (or the written confirmation of it) is postmarked for dispatch by first class, postage prepaid, United States mail. These notice provisions apply only if a notice is required by this Note. They do not apply if no notice is required. This Note is not assignable by Maker.

DIGITAL LIGHTWAVE, INC.

By:_________________________

Name:_______________________

Title:________________________

STATE OF __________________

COUNTY OF ________________

__________________________________

Notary Public, State at Large

EX-10.4 6 ex104.htm EXHIBIT 10.4 DIGITAL LIGHTWAVE - EXHIBIT 10.4

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

SECURED PROMISSORY NOTE

$520,000.00

May 29, 2003

Clearwater, Florida

For value received, Digital Lightwave, Inc., a Delaware corporation (the “Company”), promises to pay to Optel, LLC (the “Holder”), the principal sum of Five Hundred Twenty Thousand Dollars ($520,000.00). Interest shall accrue from the date of this Note on the unpaid principal amount at a rate equal to 10.0% per annum, compounded annually. This Note is subject to the following terms and conditions.

Maturity. Principal and any accrued but unpaid interest under this Note shall be due and payable upon demand by the Holder at any time after July 31, 2004 (the “Maturity Date”). Notwithstanding the foregoing, the entire unpaid principal sum of this Note, together with accrued and unpaid interest thereon, shall become immediately due and payable immediately prior to the earlier to occur of (a) a Change of Control (as defined below), (b) the insolvency of the Company, (c) the commission of any act of bankruptcy by the Company, (d) the execution by the Company of a general assignment for the benefit of creditors, (e) the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of 90 days or more, or (f) the appointment of a receiver or trustee to take possession of the property or assets of the Company. For purposes of this Note a “Change of Control” shall mean a sale of all or substantially all of the Company’s assets, or any merger or consolidation of the Company with or into another corporation; other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction.

Payment; Prepayment. All payments shall be made in lawful money of the United States of America at such place as the Holder hereof may from time to time designate in writing to the Company. Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal. Prepayment of this Note may be made at any time without penalty.

Transfer; Successors and Assigns. The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. This Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company. Thereupon, a new note for the same principal amount and interest will be issued to, and registered in the name of, the transferee. Interest and principal are payable only to the registered holder of this Note.

Governing Law. This Note and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Florida, without giving effect to principles of conflicts of law.

Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or 48 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below or as subsequently modified by written notice.

Amendments and Waivers. Any term of this Note may be amended only with the written consent of the Company and the Holder. Any amendment or waiver effected in accordance with this Section 6 shall be binding upon the Company, each Holder and each transferee of any Note.

Officers and Directors Not Liable. In no event shall any, officer or director of the Company be liable for any amounts due or payable pursuant to this Note.

Security Interest. This Note is secured by all of the assets of the Company in accordance with a separate security agreement originally dated as of February 14, 2003 and amended and restated as of the date hereof (the “Security Agreement”), between the Company and the Holder. In case of an Event of Default (as defined in the Security Agreement), the Holder shall have the rights set forth in the Security Agreement.

10.

Counterparts. This Note may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will constitute a single agreement.

11.

Action to Collect on Note. If action is instituted to collect on this Note, the Company promises to pay all costs and expenses, including reasonable attorney’s fees, incurred in connection with such action.

12.

Loss of Note. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note or any Note exchanged for it, and indemnity satisfactory to the Company (in case of loss, theft or destruction) or surrender and cancellation of such Note (in the case of mutilation), the Company will make and deliver in lieu of such Note a new Note of like tenor.

This Note was entered into as of the date set forth above.

COMPANY:

DIGITAL LIGHTWAVE, INC.

By: ___________________________

Name: _________________________

(print)

Title: __________________________

AGREED TO AND ACCEPTED:

OPTEL, LLC

By: ___________________________

Name: _________________________

(print)

Title: __________________________

EX-10.5 7 ex105.htm EXHIBIT 10.5 DIGITAL LIGHTWAVE - EXHIBIT 10.5

DIGITAL LIGHTWAVE, INC.

EIGHTH AMENDED AND RESTATED SECURITY AGREEMENT

This Eighth Amended and Restated Security Agreement (this “Agreement”) is made as of May 29, 2003, by and between Digital Lightwave, Inc., a Delaware corporation (the “Debtor”), in favor of Optel, LLC (the “Secured Party”).

RECITALS

The Debtor and the Secured Party are parties to (i) that certain Secured Promissory Note dated as of February 14, 2003 in the original principal amount of $800,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (ii) that certain Secured Promissory Note dated as of February 26, 2003 in the original principal amount of $650,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (iii) that certain Secured Promissory Note dated as of March 28, 2003 in the original principal amount of $450,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (iv) that certain Secured Promissory Note dated as of April 2, 2003 in the original prin cipal amount of $60,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (v) that certain Secured Promissory Note dated as of April 29, 2003 in the original principal amount of $500,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (vi) that certain Secured Promissory Note dated as of May 14, 2003 in the original principal amount of $400,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, (vii) that certain Secured Promissory Note dated as of May 19, 2003 in the original principal amount of $620,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time, and (viii) that certain Secured Promissory Note dated as of the date here of in the original principal amount of $520,000 upon the terms and subject to the conditions set forth therein, and as the same may be increased, amended, modified or extended from time to time (collectively, the “Notes”). The parties intend that the Debtor’s obligations to repay the Notes be secured by all of the assets of the Debtor.

AGREEMENT

In consideration of the purchase of the Notes by the Secured Party and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Debtor hereby agrees with the Secured Party as follows:

Grant of Security Interest.

(a)

To secure the Debtor’s full and timely performance of the Obligations, the Debtor hereby grants to the Secured Party a continuing Lien on and security interest (the “Security Interest”) in, all of the Debtor’s right, title and interest in and to all of its personal property and assets (both tangible and intangible), including, without limitation, the following, whether now owned or hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles; (e) all Inventory; (f) all Investment Property; (g) all Deposit Accounts; (h) all Cash; (i) all other Goods of the Debtor; (j) all Intellectual Property; and (l) all Proceeds of each of the foregoing and all accessions to, and replacements for, each of the foregoing (collectively, the “Collateral”). The Security Interest shall be a first and pri or interest in all of the Collateral, provided, however, that the Security Interest shall be subordinated with respect to any Collateral that is subject to the Prior Security Interests (as defined below).

(b)

The following terms shall have the following meanings for purposes of this Agreement:

“Account” means any “Account,” as such term is defined in the UCC now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts, rights to payment and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to the Debtor whether or not arising out of goods or software sold or services rendered by the Debtor or from any other transaction, whether or not the same involves the sale of goods or services by the Debtor and all of the Debtor’s rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of the Debtor’s rights to any goods represented by an y of the foregoing, and all monies due or to become due to the Debtor under all purchase orders and contracts for the sale of goods or the performance of services or both by the Debtor or in connection with any other transaction (whether or not yet earned by performance on the part of the Debtor), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.

“Cash” means all cash, money, currency, and liquid funds, wherever held, in which the Debtor now or hereafter acquires any right, title, or interest.

“Chattel Paper” means any “Chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Commercial Tort Claim” shall have the meaning given to that term in Section 2(e) of this Agreement.

“Credit Documents” means this Agreement, the Notes and any UCC-1 Financing Statement filed herewith.

“Deposit Accounts” means any “Deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Documents” means any “Documents,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Electronic Chattel Paper” means any “Electronic chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Equipment” means any “Equipment,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest and any and all additions, upgrades, substitutions and replacements of any of the foregoing, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires interest.

“Fixtures” means any “Fixtures,” as such term is defined in the UCC, together with all right, title and interest of the Debtor in and to all extensions, improvements, betterments, accessions, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“General Intangible” means any “General intangible,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest that the Debtor may now or hereafter have in or under any contracts, rights to payment, payment intangibles, confidential information, interests in partnerships, limited liability companies, corporations, joint ventures and other business associations, permits, goodwill, claims in or under insurance policies, including unearned premiums and premium adjustments, uncertificated securities, deposit, checking and other bank accounts, but shall not include any Intellectual Property (including the right to receive all proceeds and damages therefrom), rights to receive tax refunds and other payments and rights of indemnification.

“Goods” means any “Goods,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Instruments” means any “Instrument,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Intellectual Property” means, collectively, all rights, priorities and privileges of the Debtor relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, inventions, patents, patent licenses, trademarks, trademark licenses and trade secrets (including customer lists), domain names, Web sites and know-how, including, but not limited to, the patents, trademarks and copyrights set forth on Schedule 2 .

“Inventory” means any “Inventory,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property that are held by or on behalf of the Debtor for sale or lease or are furnished or are to be furnished under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in the Debtor’s business, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the same is in transit or in the constructive, actual or exclusive possession of the Debtor or is held by others for the Debtor’s account, including, without limitation, all goods covered by purchase orders and contracts wi th suppliers and all goods billed and held by suppliers and all such property that may be in the possession or custody of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other Persons.

“Investment Property” means any “Investment property,” as such term is defined in the UCC, and includes certificated securities, uncertificated securities, money market funds and U.S. Treasury bills or notes, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“Letter of Credit Right” means any “Letter of credit right,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest, including any right to payment or performance under any letter of credit.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.

“Obligations” shall mean and include all loans, advances, debts, liabilities and obligations, however arising, owed by the Debtor to the Secured Party of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money), direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising pursuant to the terms of the Notes, or any of the other Credit Documents or otherwise, including without limitation all interest, fees, charges, expenses, attorneys’ fees and accountants’ fees chargeable to the Debtor or payable by the Debtor thereunder.

“Permitted Liens” shall mean (a) Liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with generally accepted accounting principals, (b) Liens of carriers, warehousemen, mechanics, materialmen, vendors, and landlords and other similar Liens imposed by law incurred in the ordinary course of business for sums not overdue more than 45 days or being contested in good faith, provided that adequate reserves for the payment thereof have been established in accordance with generally accepted accounting principals, (c) deposits under workers' compensation, unemployment insurance and social security laws or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or to secure statutory obligations of surety or appeal bonds or to secure indemnity, performance or other similar bonds in the ordinary course of business, (d) zoning restrictions, easements, rights-of-way, title irregularities and other similar encumbrances, which alone or in the aggregate are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Debtor, (e) banker's Liens and similar Liens (including set-off rights) in respect of bank deposits, (f) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties and in connection with the importation of goods in the ordinary course of the Debtor’s business, (g) Liens on the property or assets of any subsidiary of the Debtor in favor of the Debtor, (h) purchase money Liens that will be discharged upon the Debtor’s payment of the purchase price for the applicable property, to the extent such Liens relate solely to the property so purchased and (j) the security interests set forth on Schedule 1 (the “Prior Security Interests”); provided, however, that except for the Prior Security Interests, that in each case, such Lien is not senior or prior to the Security Interest created hereunder.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof).

“Proceeds” means “Proceeds,” as such term is defined in the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to the Debtor from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Debtor from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) the proceeds, damages, or recovery based on any claim of the Debtor against third parties (i) for past, present o r future infringement of any copyright, patent or patent license or (ii) for past, present or future infringement or dilution of any trademark or trademark license or for injury to the goodwill associated with any trademark, trademark registration or trademark licensed under any trademark license and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

“Receivables” means all of the Debtor’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, and letters of credit and Letter of Credit Rights.

“Supporting Obligation” means any “Supporting obligation,” as such term is defined in the UCC, now owned or hereafter acquired by the Debtor or in which the Debtor now holds or hereafter acquires any interest.

“UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Florida; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Secured Party’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Florida, the term “UCC” shall mean the Uniform Commercial Code as enacted and in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

Unless otherwise defined herein, all capitalized terms used herein and defined in the Notes shall have the respective meaning given to those terms in the Notes, and terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC.

Representations and Warranties. The Debtor hereby represents and warrants to the Secured Party that:

(a)

Ownership of Collateral. The Debtor is the legal and beneficial owner of the Collateral (or, in the case of after-acquired Collateral, at the time the Debtor acquires rights in the Collateral, will be the legal and beneficial owner thereof). Except for the Security Interest granted to the Secured Party pursuant to this Agreement, the Debtor has rights in or the power to transfer the Collateral free and clear of any adverse Lien, security interest or encumbrance except as created by this Security Interest, except for Permitted Liens. Except for the financing statements listed in Schedule 3, no financing statements covering any Collateral or any proceeds thereof are on file in any public office (other than filings listing the Secured Party as the secured party).

(b)

Valid Security Interest. The Security Interest granted pursuant to this Agreement will constitute a valid and continuing first priority, perfected security interest in favor of the Secured Party in the Collateral for which perfection is governed by the UCC or filing with the United States Copyright Office or United States Patent and Trademark Office. Such Security Interest will be prior to all other Liens on the Collateral, except for Permitted Liens.

(c)

Organization and Good Standing. The Debtor has been duly incorporated, and is validly existing and in good standing, under the laws of the State of Delaware.

(d)

Location, State of Organization and Name of the Debtor. The Debtor’s state of organization is Delaware and the Debtor’s exact legal name as it appears in the official filings in the State of Delaware is as set forth in the first paragraph of this Agreement. The Debtor has only one jurisdiction of organization.

(e)

Location of Equipment and Inventory. All Equipment and Inventory are (i) located at the locations indicated on Schedule 4 (ii) in transit to such locations or (iii) in transit to a third party purchaser which will become obligated on a Receivable to the Debtor upon receipt. Except for Equipment and Inventory referred to in clauses (ii) and (iii) of the preceding sentence, the Debtor has exclusive possession and control of the Inventory and Equipment.

(g)

Delivery of Items. Schedule 5 lists all Instruments (other than checks received in the ordinary course of business), letter-of-credit rights, Electronic Chattel paper and Chattel Paper of the Debtor as of the date hereof. The Debtor has delivered to the Secured Party, together with all necessary stock powers, endorsements, assignments and other necessary instruments of transfer, the originals of all Receivables consisting of instruments and Chattel Paper and the originals of all certificated securities owned directly by the Debtor.

(h)

Receivables. Each Receivable is genuine and enforceable against the party obligated to pay the same (an “Account Debtor”) free from any right of rescission, defense, setoff or discount.

(i)

Insurance. Each insurance policy maintained by the Debtor is validly existing and is in full force and effect. The Debtor is not in default in any material respect under the provisions of any insurance policy, and there are no facts which, with the giving of notice or passage of time (or both), would result in such a default under any material provision of any such insurance policy. Set forth in Schedule 6 is a complete and accurate list of the insurance of the Debtor in effect on the date of this Agreement covering fire, public liability, property damage and worker’s compensation, showing as of such date, (i) the type of insurance carried, (ii) the name of the insurance carrier, and (iii) the amount of each type of insurance carried.

(j)

This Agreement is effective to create a valid and continuing Lien upon the Collateral. All action by the Debtor necessary to protect and perfect such Lien on each item of the Collateral has been duly taken.

Covenants. The Debtor covenants and agrees with the Secured Party that, from and after the date of this Agreement until the Obligations are paid in full:

(a)

Other Liens. Except for the Security Interest and Permitted Liens, the Debtor has rights in or the power to transfer the Collateral and its title and will be able to do so hereafter free from any adverse Lien, security interest or encumbrance, and the Debtor will defend the Collateral against the claims and demands of all persons at any time claiming the same or any interest therein.

(b)

Further Documentation. At any time and from time to time, upon the written request of the Secured Party, and at the sole expense of the Debtor, the Debtor will promptly and duly authenticate and deliver such further instruments and documents and take such further action as the Secured Party may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted including, without limitation, filing any financing or continuation statements under the UCC in effect with respect to the Liens created hereby. The Debtor also hereby authorizes the Secured Party to file any such financing, amendment or continuation statement without the authentication of the Debtor to the extent permitted by applicable law. A reproduction of this Agreement shall be sufficient as a financing statement (or as an exhibit t o a financing statement on form UCC-1) for filing in any jurisdiction.

(c)

Indemnification. The Debtor agrees to defend, indemnify and hold harmless the Secured Party against any and all liabilities, costs and expenses (including, without limitation, legal fees and expenses) (“Liabilities”): (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any law, rule, regulation or order of any governmental authority applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Agreement.

(d)

Maintenance of Records. The Debtor will keep and maintain at its own expense complete and satisfactory, in all material respects, records of the Collateral.

(e)

Inspection Rights. The Secured Party shall have full access during normal business hours, and upon prior notice, to all the books, correspondence and other records of the Debtor relating to the Collateral. The Secured Party or its representatives may examine such records and make photocopies or otherwise take extracts from such records. The Debtor agrees to render to the Secured Party, at the Debtor’s expense, such clerical and other assistance as the Secured Party may request with regard to the exercise of its rights pursuant to this paragraph.

(f)

Compliance with Laws, etc. The Debtor (i) will comply with all laws, rules, regulations and orders of any governmental authority applicable to any part of the Collateral or to the operation of the Debtor’s business, the failure of which to comply with will have a material adverse effect on the Debtor, and (ii) shall not use or permit any Collateral to be used in violation of any provision of any Credit Document, any law, rule or obligation or order of any governmental authority, or any policy of insurance covering the Collateral; provided, however, that in each case, the Debtor may contest any such law, rule, regulation or order; in any reasonable manner which does not, in the reasonable opinion of the Secured Party, adversely affect the Secured Party’s rights or the priority of its Liens on the Collateral.

(g)

Payment of Obligations. The Debtor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or with respect to any its income or profits derived from the Collateral, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral.

(h)

Limitation on Liens on Collateral. The Debtor will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Security Interest and Permitted Liens, and will defend the right, title and interest of the Secured Party in and to any of the Collateral against the claims and demands of all other persons.

(i)

Limitations on Dispositions of Collateral. The Debtor will not sell, transfer, lease, or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so other than dispositions of Inventory in the ordinary course of the Debtor’s business; provided, however that the Debtor will be allowed to grant licenses to its products and related documentation in the ordinary course of business and to establish or provide for escrows of related intellectual property in connection therewith.

(j)

Further Identification of Collateral. The Debtor will furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may request, all in detail acceptable to the Secured Party.

(k)

Notice of Change of State of Incorporation. Without 30 days’ prior written notice to the Debtor shall not (i) change the Debtor’s name, state of incorporation or organization, organizational identification number or place of business (or, if the Debtor has more than one place of business, its chief executive office), or the office in which the Debtor’s records relating to Receivables are kept, or (ii) keep Collateral consisting of Chattel Paper and documents at any location other than its chief executive office.

(l)

Future Commercial Tort Claims. The Debtor will promptly give notice to the Secured Party upon the initiation of any Commercial Tort Claim. The Debtor hereby authorizes the Secured Party to amend this Agreement (without any further action or consent from the Debtor) to include any such Commercial Tort Claim as Collateral hereunder.

(m)

Deposit Accounts. For each deposit account maintained by the Debtor, the Debtor shall, along with the bank or other depository institution at which such deposit account is maintained (the “Depositary Bank”), execute and deliver to the Secured Party a Deposit Account Control Agreement in form and substance reasonably satisfactory to the Secured Party. If requested by the Secured Party, the Debtor shall also obtain a blocked account, lockbox or similar agreement with all or certain Depository Banks. Without ten days prior written notice to the Secured Party, the Debtor shall not establish any deposit account not set forth on Schedule 6.

(n)

Collection of Receivables. The Debtor shall collect, enforce and receive delivery of the Receivables in accordance with past practice.

(q)

Insurance. The Debtor shall (i) maintain and keep in force insurance of the types and in amounts customarily carried from time to time during the term of this Agreement in its lines of business, including fire, public liability, property damage and worker’s compensation, such insurance to be carried with companies and in amounts satisfactory to the Secured Party, (ii) deliver to the Secured Party from time to time, as the Secured Party may request, schedules setting forth all insurance then in effect, and (iii) deliver to the Secured Party copies of each policy of insurance which replaces, or evidences the renewal of, each existing policy of insurance at least 15 days prior to the expiration of such policy. The Secured Party shall be named as additional insured or additional loss payee, as appropriate, on all liability and property insurance of the Debtor and such policie s shall contain such additional endorsements as shall be required by the Secured Party.

(r)

Mortgagee Waivers. The Debtor shall use its best efforts to obtain waivers or subordinations of Liens from landlords and mortgagees, and the Debtor shall, in all instances, obtain signed acknowledgements of the Secured Party’s Liens from bailees having possession of any of the Debtor’s Collateral that they hold such Collateral for the benefit of the Secured Party pursuant to Section 9313(c) of the UCC.

(s)

Letters of Credit. If the Debtor is or becomes the beneficiary of a letter of credit, the Debtor shall promptly, and in any event within two business days after becoming a beneficiary, notify the Secured Party thereof and enter into a tri-party agreement with the Secured Party and the issuer or confirmation bank with respect to such Letter of Credit Rights assigning such Letter of Credit Rights to the Secured Party and directing all payments thereunder to the Secured Party, all in form and substance satisfactory to the Secured Party.

(t)

Electronic Chattel Paper. The Debtor shall take all steps reasonably necessary to grant the Secured Party control of all Electronic Chattel Paper in accordance with the UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

(u)

Intellectual Property Matters. The Debtor shall notify the Secured Party immediately if it knows or has reason to know (i) that any application or registration relating to any of its Intellectual Property that is material to the operation of its business may become abandoned or dedicated, or (ii) of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding the Debtor’s ownership of any Intellectual Property that is material to the operation of its business, its right to register the same, or to keep and maintain the same.

(v)

Intellectual Property Applications. In no event shall the Debtor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any patent, trademark or copyright with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency without giving the Secured Party prior written notice thereof, and, upon request of the Secured Party, the Debtor shall execute and deliver any and all security documents as the Secured Party may request to evidence the Secured Party’s Lien on such Intellectual Property and the general intangibles of the Debtor relating thereto or represented thereby. The Debtor hereby authorizes the Secured Party to amend this Agreement (without any further action or consent from the Debtor) to include any such patent, trademark or copyright as Collateral hereunder.

(w)

Intellectual Property Abandonment. The Debtor shall take all actions reasonably necessary or requested by the Secured Party to maintain and pursue each application, to obtain the relevant registration and to maintain the registration of its Intellectual Property, including the filing of applications for renewal, affidavits of use, affidavits of noncontestability and opposition and interference and cancellation proceedings.

(x)

Protection of Intellectual Property. In the event that any of the Debtor’s Intellectual Property is infringed upon, or misappropriated or diluted by a third party, the Debtor shall notify the Secured Party promptly after the Debtor learns thereof. The Debtor shall, unless the Secured Party shall determine that such Intellectual Property is in no way material to the conduct of its business or operations, promptly sue for, and seek recovery of any and all damages resulting from such infringement, misappropriation or dilution, and shall take such other actions as the Secured Party shall deem necessary under the circumstances to protect such Intellectual Property.

(y)

Chattel Paper. The Debtor shall type, print or stamp conspicuously on the face of all original copies of all Collateral consisting of Chattel Paper and Documents not in the possession of the Secured Party having a value in excess of $100,000 a legend satisfactory to the Secured Party indicating that such Chattel Paper is subject to the security interest granted hereby.

(z)

Limitation on Filing of Financing Statements. The Debtor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement without the prior written consent of the Secured Party and agrees that it will not do so without the prior written consent of the Secured Party, subject to the Debtor’s rights under Section 9509(d)(2) of the UCC.

Event of Default; the Secured Party’s Appointment as Attorney-in-Fact.

(a)

Event of Default. For purposes of this Agreement, the occurrence of any one of the following events (each, an “Event of Default”) shall constitute a default hereunder and under the Notes or any of the other Credit Documents:

(i)

The Debtor’s failure to pay or discharge the Obligations in full in accordance with the terms of the Notes or any of the other Credit Documents;

(ii)

A breach of any representation or warranty made by the Debtor under the this Agreement, the Notes or any of the other Credit Documents as of the date thereof or any other document or instrument entered into between the Debtor and the Secured Party in connection herewith.

(iii)

The Debtor’s failure to observe or perform any other covenant, obligation, condition or agreement contained in this Agreement, the Notes or any of the other Credit Documents and such failure shall continue for 10 days after the earlier of (i) the Debtor’s written acknowledgement of such failure and (ii) written notice by the Secured Party to the Debtor of such failure.

(iv)

The insolvency of the Debtor, the commission of any act of bankruptcy by the Debtor, the execution by the Debtor of a general assignment for the benefit of creditors, the filing by or against the Debtor of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of 90 days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Debtor.

(v)

A default shall occur under the Notes or any of the other Credit Documents, or any other agreement entered into between the Debtor and the Secured Party in connection herewith.

(b)

Powers. The Debtor hereby appoints the Secured Party and any officer or agent of the Secured Party, with full power of substitution, as its attorney-in-fact with full irrevocable power and authority in the place of the Debtor and in the name of the Debtor or its own name, from time to time in the Secured Party’s discretion so long as an Event of Default has occurred and is continuing, for the purpose of carrying out the terms of this Agreement, to take any appropriate action and to authenticate any instrument which may be necessary or desirable to accomplish the purposes of this Agreement. Without limiting the foregoing, so long as an Event of Default has occurred and is continuing, the Secured Party shall have the right, without notice to, or the consent of, the Debtor, to do any of the following on the Debtor’s behalf:

(i)

to pay or discharge any taxes or Liens levied or placed on or threatened against the Collateral;

(ii)

to direct any party liable for any payment under any of the Collateral to make payment of any and all amounts due or to become due thereunder directly to the Secured Party or as the Secured Party directs;

(iii)

to ask for or demand, collect, and receive payment of and receipt for, any payments due or to become due at any time in respect of or arising out of any Collateral;

(iv)

to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to enforce any right in respect of any Collateral;

(v)

to defend any suit, action or proceeding brought against the Debtor with respect to any Collateral;

(vi)

to settle, compromise or adjust any suit, action or proceeding described in subsection (v) above and to give such discharges or releases in connection therewith as the Secured Party may deem appropriate;

(vii)

to assign any patent right included in the Collateral of the Debtor (along with the goodwill of the business to which any such patent right pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Secured Party shall in its sole discretion determine; and

(viii)

generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral and to take, at the Secured Party’s option and the Debtor’s expense, any actions which the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the Secured Party’s Liens on the Collateral and to carry out the intent of this Agreement, in each case to the same extent as if the Secured Party were the absolute owner of the Collateral for all purposes.

The Debtor hereby ratifies whatever actions the Secured Party shall lawfully do or cause to be done in accordance with this Section 4. This power of attorney shall be a power coupled with an interest and shall be irrevocable.

(c)

No Duty on the Secured Party’s Part. The powers conferred on the Secured Party by this Section 4 are solely to protect the Secured Party’s interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Secured Party shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Secured Party nor any of its officers, directors, employees or agents shall, in the absence of willful misconduct or gross negligence, be responsible to the Debtor for any act or failure to act pursuant to this Section 4.

Performance by the Secured Party of the Debtor’s Obligations. If the Debtor fails to perform or comply with any of its agreements or covenants contained in this Agreement and the Secured Party performs or complies, or otherwise causes performance or compliance, with such agreement or covenant in accordance with the terms of this Agreement, then the expenses of the Secured Party incurred in connection with such performance or compliance shall be payable by the Debtor to the Secured Party on demand and shall constitute Obligations secured by this Agreement.

Remedies. If an Event of Default has occurred and is continuing, the Secured Party may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the foregoing, the Secured Party, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law) to or upon the Debtor or any other person (all of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances collect, receive, appropriate and realize upon any or all of the Collateral, and/or may sell, lease, assign, give an option or options to purchase, or otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the foregoing ), in one or more parcels at a public or private sale or sales, at any exchange, broker’s board or office of the Secured Party or elsewhere upon such terms and conditions as the Secured Party may deem advisable, for cash or on credit or for future delivery without assumption of any credit risk. The Secured Party shall have the right upon any such public sale or sales and, to the extent permitted by law, upon any such private sale or sales, to purchase all or any part of the Collateral so sold, free of any right or equity of redemption in the Debtor, which right or equity is hereby waived or released. The Secured Party shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable expenses incurred therein or in connection with the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Secured Party under this Agreement (including, without limitation, reasonable atto rneys’ fees and expenses) to the payment in whole or in part of the Obligations, in such order as the Secured Party may elect, and only after such application and after the payment by the Secured Party of any other amount required by any provision of law, need the Secured Party account for the surplus, if any, to the Debtor. To the extent permitted by applicable law, the Debtor waives all claims, damages and demands it may acquire against the Secured Party arising out of the exercise by the Secured Party of any of its rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten days before such sale or other disposition. The Debtor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Secured Party to collect su ch deficiency.

Limitation on Duties Regarding Preservation of Collateral. The Secured Party’s sole duty with respect to the custody, safekeeping and preservation of the Collateral, under Section 9207 of the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account. Neither the Secured Party nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Debtor or otherwise.

Powers Coupled with an Interest. All authorizations and agencies contained in this Agreement with respect to the Collateral are irrevocable and are powers coupled with an interest.

No Waiver; Cumulative Remedies. The Secured Party shall not by any act (except by a written instrument pursuant to Section 11(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the Notes or any of the other Credit Documents or in any breach of any of the terms and conditions of this Agreement. No failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Secured Party of any right or remedy under this Agreement on any one occasion shall not be construed as a bar to any right or remedy which the Secured Party would otherwise have on any subsequent occasion. The rights and remedies provided in this Agreement are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law.

10.

Termination of Security Interest. Upon satisfaction of the Debtor’s obligations pursuant to the Notes, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Debtor. Upon any such termination, the Secured Party shall authenticate and deliver to the Debtor such documents as the Debtor may reasonably request to evidence such termination.

11.

Miscellaneous.

(a)

Amendments and Waivers. Any term of this Agreement may be amended with the written consent of the parties or their respective successors and assigns. Any amendment or waiver effected in accordance with this Section 11(a) shall be binding upon the parties and their respective successors and assigns.

(b)

Transfer; Successors and Assigns. The terms and conditions of this Agreement shall be binding upon the Debtor and its successors and assigns, as well as all persons who become bound as a debtor to this Agreement and inure to the benefit of the Secured Party and its successors and assigns. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(c)

Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

(d)

Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(e)

Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(f)

(h)

Payments Free of Taxes, Etc. All payments made by the Debtor under this Agreement shall be made by the Debtor free and clear of and without deduction for any and all present and future taxes, levies, charges, deductions and withholdings. In addition, the Debtor shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance and enforcement of this Agreement. Upon request by the Secured Party, the Debtor shall furnish evidence satisfactory to the Secured Party that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies and charges have been paid.

(i)

Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith, in order to maintain the economic position enjoyed by each party as close as possible to that under the provision rendered unenforceable. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(j)

Entire Agreement. This Agreement, and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto concerning such subject matter are expressly canceled.

(k)

Amendment and Restatement. Effective upon execution of this Agreement by both parties, the Seventh Amended and Restated Security Agreement dated as of May 19, 2003 between the Debtor and the Secured Party is hereby amended and restated in its entirety to read as set forth in this Agreement.

[Signature Page Follows]

The Debtor and the Secured Party have caused this Agreement to be duly executed and delivered as of the date first above written.

DEBTOR:

DIGITAL LIGHTWAVE, INC.

By: ____________________________

Name:___________________________

Title: ___________________________

SECURED PARTY:

OPTEL, LLC

By: ____________________________

Name:___________________________

Title: ___________________________

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