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 the earliest event reported):  February 12, 2009

Aspyra, Inc.

(Exact Name of Registrant as Specified in Its Charter)

California	001-13268	95-3353465
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

26115-A Mureau Road
Calabasas, CA 91302

(Address of Principal Executive Offices) (Zip Code)

(818) 880-6700

(Registrant’s Telephone Number, Including Area Code)

Copies to:

Darrin Ocasio, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway

New York, New York 10006

(212) 930-9700

(212) 930-9725 (Fax)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01(a)Entry into a Material Definitive Agreement.

On February 12,  2009 (the “Closing Date”), Aspyra, Inc. (the “Company”, “we”, or “our”) entered into a Securities Purchase Agreement (the “Purchase Agreement”), by and among the Company, Jay Weil as collateral agent, and the purchasers named on the signature pages thereto (the “Purchasers”).

Pursuant to the Purchase Agreement, the Company issued and sold to the Purchasers, all of whom are accredited investors, $1,000,000  in principal amount of secured convertible notes (the “Purchaser Notes”), and warrants to purchase 5,774,194 shares of the Company’s common stock (“Purchaser Warrants”). The Purchaser Notes are convertible into shares of the Company’s common stock at a conversion price of $0.31 per share, subject to adjustment in the event of stock splits, stock dividends, and similar transactions. The Purchaser Notes mature on March 26, 2010 and bear interest at the rate of 12% per annum compounded on each July 15 and January 15.  Each Purchaser received Purchaser Warrants equal to the difference between: (A) the sum of: (i) the total number of conversion shares which would have been be issuable upon full conversion of the Purchaser Note determined by dividing the aggregate principal amount of the Purchaser Notes by an assumed conversion rate of $.25 (such quotient is referred to as the “Assumed Note Conversion Shares”), plus (ii) 125% of the Assumed Note Conversion Shares, and (B) the number of conversion shares which are issuable upon conversion of the entire original principal amount of the Purchaser Notes based on the actual conversion price of such Purchaser Notes which is equal to the closing price per share of the Company’s common stock at closing plus $.01.

Pursuant to a security agreement entered into in connection with the Purchase Agreement (the “Security Agreement”), the Purchaser Notes are secured by a security interest in substantially all of the Company’s assets, subordinate only to the security interest held in the Company’s assets by Western Commercial Bank. Pursuant to an Intercreditor Agreement between the Company and Jay Weil, as Collateral Agent for the Purchasers (the “Collateral Agent”), the Purchasers were granted a security interest in the Company’s assets that is pari passu to that of the purchasers who are parties to the Securities Purchase Agreement, dated March 26, 2008,  between the Company, Jay Weil as collateral agent and the purchasers thereto.

We issued the placement agent for the private placement warrants to purchase 129,032 shares of our common stock (the “Broker Warrants”, and together with the Purchaser Warrants, the “Warrants”). The Broker Warrants have the same terms as the Purchaser Warrants. We also paid the placement agent a non-refundable due diligence fee of $5,000 and a cash fee of $40,000.  We also agreed to placement agent’s expenses up to $12,500.

The issuance and sale of the Notes and Warrants was made in reliance upon the exemption provided in Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. No form of general solicitation or general advertising was conducted in connection with the issuance. Each of the Notes and Warrants contain restrictive legends preventing the sale, transfer or other disposition of such Notes and Warrants, unless registered under the Securities Act, or pursuant to an exemption therefrom.

The foregoing summaries of Purchase Agreement, Security Agreement, Notes, Warrants, and Intercreditor Agreement are qualified by reference to the Purchase Agreement, Security Agreement, form of Note, form of Warrants, and Intercreditor Agreement, copies of which are filed herewith as exhibits.

Item 2.03Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement.

The information included in Item 1.01 of this current report on Form 8-K is incorporated by reference into this Item 2.03.

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Item 3.02Unregistered Sales of Equity Securities

The information included in Item 1.01 of this current report on Form 8-K is incorporated by reference into this Item 3.02.

Item 9.01.Financial Statements and Exhibits.

(d)   Exhibits.

Exhibit No.	Description
4.1	Form of Note
4.2	Form of Warrant
99.1	Securities Purchase Agreement dated as of February 12, 2009
99.2	Intercreditor Agreement dated as of February 12, 2009
99.3	Security Agreement dated as of February 12, 2009

3

SIGNATURES

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

February 19, 2009	Aspyra, Inc.
		/s/ Anahita Villafane
		Anahita Villafane
		Chief Financial Officer and Secretary

4

EXHIBIT INDEX

Exhibit No.	Description
4.1	Form of Note
4.2	Form of Warrant
99.1	Securities Purchase Agreement dated as of February 12, 2009
99.2	Intercreditor Agreement dated as of February 12, 2009
99.3	Security Agreement dated as of February 12, 2009

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EX-4.1

Exhibit 4.1

NEITHER THIS SECURITY NOR ANY SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY U.S. STATE OR OTHER JURISDICTION OR ANY EXCHANGE OR SELF-REGULATORY ORGANIZATION, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND SUCH OTHER LAWS AND REQUIREMENTS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR LISTING OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, SUCH REGISTRATION AND/OR LISTING REQUIREMENTS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH WILL BE REASONABLY ACCEPTABLE TO THE ISSUER.

ASPYRA, INC.
SECURED, CONVERTIBLE PROMISSORY NOTE
$	February 12, 2009
	Calabasas, California

FOR VALUE RECEIVED, and upon and subject to the terms and conditions set forth herein, Aspyra, Inc., a California corporation (“Issuer”), hereby promises to pay to the order of                                              , a                                    (together with its permitted successors and assigns, “Holder”), the principal sum of                                      UNITED STATED DOLLARS (U.S. $                       ) on the Maturity Date, together with interest as provided herein.  This Note was issued under and is subject to a Securities Purchase Agreement (the “Purchase Agreement”) dated as of February 12, 2009 among Issuer, payee and certain other parties.  Capitalized terms used and not otherwise defined herein will have the respective meanings given to such terms in the Purchase Agreement.

1.             Maturity Date.  This Note will mature, and be due and payable in full, on March 26, 2010 (the “Maturity Date”), unless Holder has elected to convert this Note pursuant to Section 3 hereof.

2.             Interest.  From and after the date hereof, all outstanding principal of this Note will bear interest at the rate of twelve percent (12%) per annum. Outstanding interest shall be compounded on each July 15 and January 15 during which any interest on this Note shall be outstanding. Upon the occurrence and during the continuance of any Event of Default (as hereinafter defined) under this Note, all outstanding principal of this Note shall bear interest at the rate of 24% per annum. All accrued interest on this Note shall be payable on the Maturity Date or on such earlier date as this Note shall be prepaid or converted into Common Stock.

3.             Optional Conversion of the Note.

3.1          By Holder.  At any time prior to repayment of this Note, Holder may elect, in lieu of repayment, to convert all or a portion of the outstanding principal and/or interest on this Note into that number of shares of Common Stock (as defined in the Purchase Agreement) equal to the quotient obtained by dividing (a) 100.0% of the amount of principal and/or interest on this Note being converted, by (b) the Conversion Price (as hereinafter defined).  Holder will inform Issuer of such election at least 14 days prior to the date the Note or portion thereof is converted into Common Stock.  If Holder delivers such notice to Issuer, Issuer may not elect to pay to Holder the amount of this Note to be converted without Holder’s written consent. For purposes of this Note, “Conversion Price” will initially mean $.31 per share. The Conversion Price will be subject to adjustment as provided in Section 3.3. The Holder shall effect conversions by delivering to the Issuer a Notice of Conversion, the form of which is attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”), provided that such date is on or after the date of delivery of the Notice of Conversion.  If no Conversion Date is specified in a Notice of Conversion, or the stated conversion date is prior to date of delivery of the Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Issuer unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Issuer shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Issuer may deliver an objection to any Notice of Conversion within 1 Business Day of delivery of such Notice of Conversion.  The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

3.2          By Issuer.  At any time after August 30, 2009, but prior to repayment of this Note, if the volume weighted average price of the Common Stock on the NYSE Alternext exceeds 200% of the Conversion Price then in effect during each day for twenty consecutive trading days or more (whether or not such volume weighted average for any day thereafter is 200% or less of the Conversion Price then in effect), then Issuer may give notice to Holder of its election to convert all or a portion of the outstanding principal of, but not any outstanding interest on, this Note into the same number of shares of Common Stock as would be calculated pursuant to Section 3.1 above in the case of an optional conversion by Holder.  Upon conversion, Issuer will pay any outstanding interest on this Note in cash to Holder.  Any notice of conversion will be delivered at least 15 days prior to the date of such conversion and the Conversion Price used in calculating the number of shares of Common Stock to be issued to Holder will be the Conversion Price on the date of the actual conversion (which will be the first date on which Holder becomes fully vested with all rights of such holders of shares of Common Stock). To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Issuer unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the

outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Issuer shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Issuer may deliver an objection to any Notice of Conversion within 1 Business Day of delivery of such Notice of Conversion.  The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

3.3          Adjustments.

(a)           Stock Dividends, Reclassifications, Recapitalizations, Etc.  In the event the Issuer:  (i) pays a dividend in Common Stock or makes a distribution in Common Stock, (ii) subdivides its outstanding Common Stock into a greater number of shares, (iii) combines its outstanding Common Stock into a smaller number of shares or (iv) increases or decreases the number of shares of Common Stock outstanding by reclassification of its Common Stock (including a recapitalization in connection with a consolidation or merger in which the Issuer is the continuing corporation), then the Conversion Price on the record date of such division or distribution or the effective date of such action shall be adjusted by multiplying such Conversion Price by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such event and the denominator of which is the number of shares of Common Stock outstanding immediately after such event.

(b)           Notice of Adjustment.  Whenever the Conversion Price is adjusted, as herein provided, the Issuer shall deliver to the holders of the Note in a certificate of the Issuer’s Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which (i) the Board of Directors determined the fair value of any evidences of indebtedness, other securities or property or warrants, options or other subscription or purchase rights and specifying the Conversion Price after giving effect to such adjustment.

(c)           Notice of Certain Transactions.  In the event that the Issuer shall propose (i) to pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other non-cash dividend or distribution to the holders of its Common Stock, (ii) to offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any capital reorganization, reclassification, consolidation or merger affecting the class of Common Stock, as a whole, or (iv) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Issuer, the Issuer shall, within the time limits specified below, send to each Holder a notice of such proposed action or offer.  Such notice shall be mailed to the Holders at their addresses as they appear in the records of the Issuer, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the Common Stock and the Conversion Price Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (i) or (ii) above, at least ten (10) days prior to the record date for determining holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier.

3.4          No Rights as a Shareholder.  Without limiting any rights that Holder is entitled to under the Purchase Agreement, and if this Note has not been converted, Holder will not be entitled to any voting or other rights as a shareholder of Issuer in connection with this Note.

[The following clause is optional at the request of the Purchaser of this Note, with the choice between 4.99% and 9.99% being at the option of the Purchaser.]

3.5          Limitation on Beneficial Ownership.   Issuer will not effect and will have no obligation to effect any conversion of this Note, and the Holder will have no right to convert any portion of this Note, to the extent that after giving effect to such conversion, the beneficial owner of such shares (together with such person’s affiliates) would have acquired, through conversion of this Note or otherwise, beneficial ownership of a number of shares of Common Stock that exceeds [4.99% / 9.99%] (“Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.    For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a person and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by such person or any of its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of Issuer (including, without limitation, any Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such person or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 3.5, beneficial ownership will be calculated in accordance with Section 13(d) of the Exchange Act.  For purposes of this Section 3.5, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of shares of outstanding Common Stock as reflected in (1) Issuer’s most recent Form 8-K, Form 10-Q, Form 10-QSB, Form 10-K or Form 10-KSB as the case may be, (2) a more recent public announcement by Issuer, or (3) any other notice by Issuer or its transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written request of any Holder, Issuer will promptly, but in no event later than 2 business days following the receipt of such notice, confirm orally and in writing to any such Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock will be determined after giving effect to conversions of Preferred Shares by such Holder and its affiliates since the date as of which such number of outstanding Common Stock was reported.  By written notice to Issuer, the Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice, but (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to Issuer, and (ii) any such increase or decrease will apply only to the Holder and not to any other Holder.

3.6  Shareholder Approval   Unless and until Shareholder Approval has been obtained and deemed effective, the Issuer shall not upon the conversion of this Note issue shares of Common Stock to the extent that such issuance, together with all previous issuances of Common Stock pursuant to the exercise of all Warrants and the conversion of all Notes issued pursuant to the Purchase Agreement, would in the aggregate exceed a number of shares of Common Stock equal to more than 19.99% of the Issuer’s issued and outstanding Common Stock on the Closing Date.

4.             Security.  Repayment of this Note is secured, pari passu with Holders of all other Notes issued pursuant to the Purchase Agreement, by a security interest in substantially all the assets of Issuer pursuant to a security agreement, related collateral assignments and such other necessary documents entered into by Issuer in favor of Jay Weil, as collateral agent for the purchasers.

5.             Prepayment.  Issuer may not prepay this Note prior to the Maturity Date, without the written consent of Holder.

6.             Transfer.  Purchaser may transfer this Note in compliance with applicable U.S. federal and state and/or foreign securities laws and in accordance with Section 5.1 of the Purchase Agreement.

7.             Financial Covenants. Until this Note has been redeemed or otherwise satisfied in accordance with its terms the Issuer shall not, unless the holders of Notes representing at least a majority of the aggregate principal amount of the Notes then outstanding, shall otherwise consent in writing, the Issuer shall comply with every financial covenant contained in the Issuer’s loan agreements, notes and other documents with any person to which the Issuer owes any Material Indebtedness, including, without limitation, Western Commercial Bank.

8.             Events of Default.  An “Event of Default” will occur if:

(a)           The Issuer fails to pay (a) any principal of any Note when such amount becomes due and payable in accordance with the terms thereof and such payment is not made with three Business Days of when it is due, or (b) any interest on any Note or any other payment of money required to be made to any of the Purchaser and such payment is not made within three Business Days of when it is due; or

(b)           Any representation or warranty made to the Purchasers in any Transaction Document or in any certificate, agreement or instrument executed and delivered to the Purchasers by the Issuers or any of its subsidiaries or by its accountants or officers pursuant to any Transaction Document is false, inaccurate or misleading in any material respect on the date as of which made, and the Issuer receives notice thereof from the Placement Agent, a Purchaser, or a third party; or

(c)           the Issuer or any of its subsidiaries defaults in the performance of any term, covenant, agreement, condition, undertaking or provision of any Transaction Document, including, but not limited to, its covenants under Section 4.4 of the Purchase Agreement, or any financial covenants set forth in or referred to in this Note, or, in the case of any default in the performance of any term, covenant, agreement, condition, undertaking or provision of any Transaction Document which is capable of being cured, such default is not cured or waived within five (5) Business Days after the Issuer receives notice of such default from the Placement Agent, a Purchaser, or from a third party, or after an officer or director of the Issuer; or

(d)           (i) the Issuer or any of its subsidiaries fails to pay any principal of or interest on any of its Material Indebtedness for a period longer than the grace period, if any, provided for such payment; or (ii) any default, other than one described in (i) of this Section 8(d), under any instrument or agreement evidencing, creating, securing or otherwise relating to Material Indebtedness (including, without limitation, any guaranty or assumption agreement relating to such indebtedness) or other event occurs and continues beyond any applicable notice and cure period (for purposes of this Note the term “Material Indebtedness” means mean indebtedness, in an amount of $100,000 or more, for borrowed money, under capitalized leases or evidenced by a bond, debenture, note or similar instrument, and shall include, without limitation, any such indebtedness assumed or guaranteed); or

(e)           (i) One or more final judgments, decrees or orders shall be entered against the Issuer or any of its subsidiaries involving in the aggregate a liability (not fully covered by insurance other than applicable deductibles) of $75,000 or more and all such judgments, decrees or orders shall not have been vacated, paid or discharged, dismissed, or stayed or bonded pending appeal (or other contest by appropriate proceedings) within sixty (60) days from the entry thereof; (ii) pursuant to one (1) or more judgments, decrees, orders, or other proceedings, whether legal or equitable, any warrant of attachment, execution or other writ is levied upon any property or assets of the Issuer or any subsidiary and is not satisfied, dismissed or stayed (or other contests by appropriate proceedings without bond or stay) within sixty (60) days; (iii) all or any substantial part of the assets or properties of the Issuer or any subsidiary are condemned, seized or appropriated by any government or governmental authority; or (iv) any order is entered in any proceeding directing the winding up, dissolution or split-up of the Issuer or any subsidiary; or

(f)            The Issuer (i) commences any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or (ii) is the debtor named in any other case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (ii) remains undismissed, undischarged or unbonded for a period of sixty (60) days, or (iii) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence to, any order, adjudication or appointment of a nature referred to in clause (i) or (ii) above, or (iv) shall generally not be paying, shall be unable to pay, or shall admit in writing its inability to pay its debts as they become due, or (e) shall make a general assignment for the benefit of its creditors; or

(g)           At any time there occurs a Change of Control Transaction (for purposes of this Note, a “Change of Control Transaction” shall mean (i) a sale, lease or other disposition of assets or properties of the Issuer and it subsidiaries (calculated on a consolidated basis) having a book value of fifty-one percent (51%) or more of the book value of all the assets and properties thereof, or (ii) any transaction in which any person shall directly or indirectly acquire from the holders thereof, by purchase or in a merger, consolidation or other transfer or exchange of outstanding capital stock, ownership of or control over capital stock of the Issuer (or securities exchangeable for or convertible into such stock or interests) entitled to elect a majority of the Issuer’s Board of Directors or representing at least fifty-one percent (51%) of the number of shares of Common Stock outstanding;

(h)           On or at any time after the date of this Note (i) any of the Transaction Documents for any reason, other than a partial or full release in accordance with the terms thereof, ceases to be in full force and effect or is declared to be null and void, (ii) the Security Agreement shall cease to provide the Purchasers a valid security interest in any of the collateral purported to be covered thereby, perfected and with the priority required thereby, subject only to liens permitted under this Agreement and such Security Agreement, and such default in clause (i) or (ii) is not cured or waived within ten (10) days after the Issuer receives notice of such default from a Purchaser or from a third party, or (c) the Issuer or any subsidiary of the Issuer contests the validity or enforceability of any Transaction Document in writing or denies that it has any further liability under any Transaction Document to which it is party, or gives notice to such effect; or

(i)            Prior to April 1, 2009, without the consent of the holders of a majority in principal amount of all of the notes issued pursuant to the Purchase Agreement, the Issuer does not extend or renew its line of credit with the Bank until at least February 28, 2010 and upon terms substantially similar to the Issuer’s existing agreement with the Bank.

9.             Remedies.  At such time that an Event of Default has occurred and is continuing, then Holder, by written notice to Issuer (the “Notice”), may declare all amounts hereunder immediately due and payable in cash and Holder will be entitled to reimbursement of its reasonable costs and expenses related to collection of all amounts owing in connection thereof.  Except for the Notice, Holder need not provide, and Issuer hereby waives, any presentment, demand, protest or other notice of any kind, and Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such election may be rescinded and annulled by Holder at any time prior to payment hereunder.  No such rescission or annulment will affect any subsequent Event of Default or impair any right consequent thereon. In the case of the occurrence of an Event of Default arising out of a breach by the Issuer of the covenant contained in Section 4.4 of the Purchase Agreement (but in no other event), in lieu of declaring all amounts immediately due hereunder, each Purchaser, upon prior written notice to the Issuer, may sell to the Issuer all of the Notes (or all shares of Common Stock issued to the Purchaser upon conversion of the Notes) for a price equal to 125% of the Subscription Price paid by the Purchaser.  The sale referred to in the preceding sentence shall be consummated at a closing to be held not later than ten (10) days after such notice is given and the purchase price shall be paid by the Issuer to the Purchaser at such closing in full in cash.

10.          Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder will be in writing and will be deemed given and effective on the earliest of (a) the date of transmission if such notice or communication is delivered by fax prior to 5:30 p.m. (Eastern Time) on a Business Day, (b) the next Business Day after the date of transmission if such notice or communication is delivered via fax on a day that is not a Business Day or later than 5:30 p.m. (Eastern Time) on a Business Day, (c) the 2nd business day after the date of mailing if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The facsimile number and address for such notices and communications are as set forth on the signature pages to the Purchase Agreement or as otherwise notified by any party in a writing to the others in accordance herewith from time to time.

SIGNED, SEALED AND DELIVERED as of the date first above written.

ASPYRA, INC.

By:

Name:

Title:

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Secured Convertible Promissory Note due March 26, 2010 (the “Note”) of Aspyra, Inc., a California corporation (the “Company”), into shares of common stock, no par value per share (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 3.6 of the Note, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:
	Date to Effect Conversion:
	Principal Amount of Note to be Converted:
	Payment of Interest in Common Stock o yes o no
	If yes $           of Interest Accrued on Account of Conversion at Issue.
	Number of shares of Common Stock to be issued:
	Signature:
	Name:
	Address:
	Or
	DWAC Instructions:
	Broker No:
	Account No:

EX-4.2

Exhibit 4.2

Exhibit A
to
Securities Purchase Agreement

FORM OF WARRANT

NEITHER THIS SECURITY NOR ANY SECURITIES WHICH MAY BE ISSUED UPON EXERCISE OF THIS SECURITY HAVE BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY U.S. STATE OR OTHER JURISDICTION OR ANY EXCHANGE OR SELF-REGULATORY ORGANIZATION, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND SUCH OTHER LAWS AND REQUIREMENTS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR LISTING OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, SUCH REGISTRATION AND/OR LISTING REQUIREMENTS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH WILL BE REASONABLY ACCEPTABLE TO THE COMPANY.

.

ASPYRA, INC.

COMMON STOCK WARRANT

No.                           February            , 2009

ASPYRA, INC., a California corporation (the “Company”), hereby certifies that                                                                       , its permissible transferees, designees, successors and assigns (collectively, the “Holder”), for value received, is entitled to purchase from the Company at any time commencing on the effective date (the “Effective Date”), which shall be the date of the Closing (as defined in the Securities Purchase Agreement, dated as of February      , 2009, by and among the Company and the Purchasers listed on Schedule 1 thereto (the “Securities Purchase Agreement”)), and terminating on the third anniversary of such date (the “Termination Date”) up to                            shares (each, a “Share” and collectively the “Shares”) of the Company’s common stock, no par value per Share (the “Common Stock”), at an exercise price per Share equal to thirty one cents ($0.31) (the “Exercise Price”).  The number of Shares purchasable hereunder and the Exercise Price are subject to adjustment as provided in Section 4 hereof.

1.Method of Exercise; Payment.

()             Cash Exercise.  The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, at any time, or from time to time, by the surrender of this Warrant (with the notice of exercise form (the “Notice of Exercise”) attached hereto as Exhibit A duly executed) at the principal office of the Company, and by payment to the Company of an amount equal to the Exercise Price multiplied by the number of the Shares being purchased, which amount may be paid, at the election of the Holder, by wire transfer or certified check payable to the order of the Company. The person or persons in whose name(s) any certificate(s) representing Shares shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the Shares represented thereby (and such Shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised.

(b)           Net Issue Exercise. In lieu of exercising this warrant pursuant to Section l (a) hereof, the Holder may elect to receive a number of Shares equal to of the value (as determined below) of such portion of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with Notice of Cashless Exercise annexed hereto as Exhibit C duly executed; provided that the Net Issue Exercise set forth in this Section 1(b) is subject to adjustments set forth in Section 4 of this Warrant. In such event, the Company shall issue to the Holder a number of Shares computed using the following formula:

          X  =  Y (A-B)

                        A

Where	X	=	the number of Shares to be issued to the Holder.
	Y	=	the number of Shares subject to this Warrant or, if only a portion of this Warrant is being exercised, the portion of the Warrant being canceled (at the time of such calculation).
	A	=	the fair market value of one share of the Company’s Common Stock (at the date of such calculation).
	B	=	the Exercise Price (as adjusted to the date of such calculation).

(c)           Fair Market Value.  For purposes of this Section 1, the fair market value of the Company’s Common Stock shall mean:

()             The average of the closing sales prices of the Company’s Common Stock quoted on the NYSE Alternext (“Alternext”), or if the Alternext is not the principal market for the Company’s Common Stock, then the Nasdaq Stock Market or in the Over-The-Counter Market Summary or the closing price quoted on any other exchange on which the Common Stock is listed, whichever is applicable, as published in the The Wall Street Journal for the ten (10) trading days prior to the date of determination of fair market value;

()             If the Company’s Common Stock is not traded on the Nasdaq Stock Market or Over-The-Counter or on an exchange, the fair market value of the Common Stock per share shall be agreed upon by the parties hereto.  If parties cannot agree on the fair market value within five (5) business days of delivery of the Notice of Exercise, the Board of Directors in good faith shall determine the fair market value of the Common Stock; provided, however, that the fair market value of the Common Stock shall be no greater than the price at which the Company last sold its Common Stock or the exercise price of its last granted options, whichever occurs later.

(d)           Stock Certificates.  In the event of any exercise of the rights represented by this Warrant, as promptly as practicable after this Warrant is surrendered and delivered to the Company along with all other appropriate documentation on or after the date of exercise and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of Shares issuable upon such exercise.  In the event this Warrant is exercised in part, the Company at its expense will execute and deliver a new Warrant of like tenor exercisable for the number of Shares for which this Warrant may then be exercised.

(e)           Taxes.  The issuance of the Shares upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such Shares, shall be made without charge to the Holder for any tax or other charge in respect of such issuance.

2.Warrant.

(a)           Exchange, Transfer and Replacement.  At any time prior to the exercise hereof, this Warrant may be exchanged upon presentation and surrender to the Company, alone or with other warrants of like tenor of different denominations registered in the name of the same Holder, for another warrant or warrants of like tenor in the name of such Holder exercisable for the aggregate number of Shares as the warrant or warrants surrendered.

(b)           Replacement of Warrant.  Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver in lieu thereof, a new Warrant of like tenor.

(c)           Cancellation; Payment of Expenses.  Upon the surrender of this Warrant in connection with any transfer, exchange or replacement as provided in this Section 2, this Warrant shall be promptly canceled by the Company.  The Holder shall

pay all taxes and all other expenses (including legal expenses, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section 2.

(d)           Warrant Register.  The Company shall maintain, at its principal executive offices (or at the offices of the transfer agent for the Warrant or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant (the “Warrant Register”), in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant.

3.Rights and Obligations of Holders of this Warrant.  The Holder of this Warrant shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity; provided, however, that in the event any certificate representing shares of Common Stock or other securities is issued to the holder hereof upon exercise of this Warrant, such holder shall, for all purposes, be deemed to have become the holder of record of such Common Stock on the date on which this Warrant, together with a duly executed Election to Purchase, was surrendered and payment of the aggregate Exercise Price was made, irrespective of the date of delivery of such Common Stock certificate.

4.Adjustments.

(a)           Stock Dividends, Reclassifications, Recapitalizations, Etc.  While this Warrant is outstanding, in the event the Company:  (i) pays a dividend in Common Stock or makes a distribution in Common Stock, (ii) subdivides its outstanding Common Stock into a greater number of shares, (iii) combines its outstanding Common Stock into a smaller number of shares or (iv) increases or decreases the number of shares of Common Stock outstanding by reclassification of its Common Stock (including a recapitalization in connection with a consolidation or merger in which the Company is the continuing corporation), then (1) the Exercise Price on the record date of such division or distribution or the effective date of such action shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such event and the denominator of which is the number of shares of Common Stock outstanding immediately after such event, and (2) the number of shares of Common Stock for which this Warrant may be exercised immediately before such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the Exercise Price immediately before such event and the denominator of which is the Exercise Price immediately after such event.

(b)           Combination: Liquidation.  While this Warrant is outstanding, (i) In the event of a Combination (as defined below), each Holder shall have the right to receive upon exercise of the Warrant the kind and amount of shares of capital stock or other securities or property which such Holder would have been entitled to receive upon or as a result of such Combination had such Warrant been exercised immediately prior to such event (subject to further adjustment in accordance with the terms hereof).  Unless

paragraph (ii) is applicable to a Combination, the Company shall provide that the surviving or acquiring Person (the “Successor Company”) in such Combination will assume by written instrument the obligations under this Section 4 and the obligations to deliver to the Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to acquire. “Combination” means an event in which the Company consolidates with, mergers with or into, or sells all or substantially all of its assets to another Person, where “Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity; (ii)  In the event of (x) a Combination where consideration to the holders of Common Stock in exchange for their shares is payable solely in cash or (y) the dissolution, liquidation or winding-up of the Company, the Holders shall be entitled to receive, upon surrender of their Warrant, distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrant, as if the Warrant had been exercised immediately prior to such event, less the Exercise Price.  In case of any Combination described in this Section 4, the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall deposit promptly with an agent or trustee for the benefit of the Holders of the funds, if any, necessary to pay to the Holders the amounts to which they are entitled as described above.  After such funds and the surrendered Warrant are received, the Company is required to deliver a check in such amount as is appropriate (or, in the case or consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by the Holders surrendering such Warrant.

(c)  Notice of Adjustment.  Whenever the Exercise Price or the number of shares of Common Stock and other property, if any, issuable upon exercise of the Warrant is adjusted, as herein provided, the Company shall deliver to the holders of the Warrant in accordance with Section 10 a certificate of the Company’s Chief Financial Officer setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which (i) the Board of Directors determined the fair value of any evidences of indebtedness, other securities or property or warrants, options or other subscription or purchase rights and (ii) the Current Market Value of the Common Stock was determined, if either of such determinations were required), and specifying the Exercise Price and number of shares of Common Stock issuable upon exercise of Warrant after giving effect to such adjustment.

(d)  Notice of Certain Transactions.  While this Warrant is outstanding, in the event that the Company shall propose (a) to pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other non-cash dividend or distribution to the holders of its Common Stock, (b) to offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) to effect any capital reorganization, reclassification, consolidation or merger affecting the class of Common Stock, as a whole, or (d) to effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company shall, within the

time limits specified below, send to each Holder a notice of such proposed action or offer.  Such notice shall be mailed to the Holders at their addresses as they appear in the Warrant Register (as defined in Section 2(d)), which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, issuable upon exercise of each Warrant and the Exercise Price after giving effect to any adjustment pursuant to Section 4 which will be required as a result of such action.  Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (a) or (b) above, at least ten (10) days prior to the record date for determining holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier.

(e)  Current Market Value.  “Current Market Value” per share of Common Stock or any other security at any date means (i) if the security is not registered under the Securities Exchange Act of 1934 and/or traded on a national securities exchange, quotation system or bulletin board, as amended (the “Exchange Act”), (a) the value of the security, determined in good faith by the Board of Directors of the Company and certified in a board resolution, based on the most recently completed arm’s-length transaction between the Company and a Person other than an affiliate of the Company or between any two such Persons and the closing of which occurs on such date or shall have occurred within the six-month period preceding such date, or (b) if no such transaction shall have occurred within the six-month period, the value of the security as determined by an independent financial expert or an agreed upon financial valuation model or (ii) if the security is registered under the Exchange Act and/or traded on a national securities exchange, quotation system or bulletin board, the average of the daily closing bid prices (or the equivalent in an over-the-counter market) for each day on which the Common Stock is traded for any period on the principal securities exchange or other securities market on which the common Stock is being traded (each, a “Trading Day”) during the period commencing thirty (30) days before such date and ending on the date one day prior to such date.

5.Fractional Shares.  In lieu of issuance of a fractional share upon any exercise hereunder, the Company will issue an additional whole share in lieu of that fractional share, calculated on the basis of the Exercise Price.

6.Legends.  Prior to issuance of the shares of Common Stock underlying this Warrant, all such certificates representing such shares shall bear a restrictive legend to the effect that the Shares represented by such certificate have not been registered under the 1933 Act, and that the Shares may not be sold or transferred in the absence of such registration or an exemption therefrom, such legend to be substantially in the form of the bold-face language appearing at the top of Page 1 of this Warrant.

7.             Disposition of Warrants or Shares.  The Holder of this Warrant, each transferee hereof and any holder and transferee of any Shares, by his or its acceptance thereof, agrees that no public distribution of Warrants or Shares will be made in violation of the provisions of the 1933 Act.  Furthermore, it shall be a condition to the transfer of this Warrant that any transferee thereof deliver to the Company his or its written agreement to accept and be bound by all of the terms and conditions contained in this Warrant.

8.             Merger or Consolidation.  The Company will not merge or consolidate with or into any other corporation, or sell or otherwise transfer its property, assets and business substantially as an entirety to another corporation, unless the corporation resulting from such merger or consolidation (if not the Company), or such transferee corporation, as the case may be, shall expressly assume, by supplemental agreement reasonably satisfactory in form and substance to the Holder, the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company.

9.             Notices.  Except as otherwise specified herein to the contrary, all notices, requests, demands and other communications required or desired to be given hereunder shall only be effective if given in writing by certified or registered U.S. mail with return receipt requested and postage prepaid; by private overnight delivery service (e.g. Federal Express); by facsimile transmission (if no original documents or instruments must accompany the notice); or by personal delivery.  Any such notice shall be deemed to have been given (a) on the business day immediately following the mailing thereof, if mailed by certified or registered U.S. mail as specified above; (b) on the business day immediately following deposit with a private overnight delivery service if sent by said service; (c) upon receipt of confirmation of transmission if sent by facsimile transmission; or (d) upon personal delivery of the notice.  All such notices shall be sent to the following addresses (or to such other address or addresses as a party may have advised the other in the manner provided in this Section 9):

if to the Company:	Aspyra, Inc.
	26115-A Mureau Road
	Calabasas, California 91302
	Attention:
	Facsimile:
with copy to:	Sichenzia Ross Friedman Ference LLP
	1065 Avenue of the Americas, 21st Floor
	New York, NY 10018
	Attention: Darrin M. Ocasio, Esq.
	Facsimile: (212) 930-9725
if to the Holder:
with a copy to:
	Facsimile:

Notwithstanding the time of effectiveness of notices set forth in this Section, an Election to Purchase shall not be deemed effectively given until it has been duly completed and submitted to the Company together with this original Warrant and payment of the Exercise Price in a manner set forth in this Section.

10.           Limitation on Exercise. Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act, does not exceed [4.999%/9.999%] of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. This provision shall not restrict the number of shares of Common Stock which a Holder may receive or beneficially own in order to determine the amount of securities or other consideration that such Holder may receive in the event of a merger or other business combination or reclassification involving the Company. This restriction may not be waived without the consent of the Holder.

11.           Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York.

12.           Successors and Assigns.  This Warrant shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

13.           Headings.  The headings of various sections of this Warrant have been inserted for reference only and shall not affect the meaning or construction of any of the provisions hereof.

14.           Severability. If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant, and the balance hereof shall be interpreted as if such provision were so excluded.

15.           Modification and Waiver.  This Warrant and any provision hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the Company and the Holder.

16.           Specific Enforcement.  The Company and the Holder acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Warrant were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Warrant and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which either of them may be entitled by law or equity.

17.           Assignment.  Subject to prior written approval by the Company, this Warrant may be transferred or assigned, in whole or in part, at any time and from time to time by the then Holder by submitting this Warrant to the Company together with a duly executed Assignment in substantially the form and substance of the Form of Assignment which accompanies this Warrant, as Exhibit B hereto, and, upon the Company’s receipt hereof, and in any event, within five (5) business days thereafter, the Company shall issue a warrant to the Holder to evidence that portion of this Warrant, if any as shall not have been so transferred or assigned.

18.           Shareholder Approval.    Unless and until Shareholder Approval has been obtained and deemed effective, the Company shall not upon exercise of this Warrant issue shares of Common Stock to the extent that such issuance, together with all previous issuances of Common Stock pursuant to the exercise of all Warrants and the conversion of all Notes issued pursuant to the Securities Purchase Agreement would in the aggregate exceed a number of shares of Common Stock equal to more than 19.99% of the Company’s issued and outstanding Common Stock on the Closing Date.

(signature page immediately follows)

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed, manually or by facsimile, by one of its officers thereunto duly authorized.

	ASPYRA, INC.
Date: February 12, 2009	By:
	Name:
	Title:   President and Chief Executive Officer

EXHIBIT A
TO
WARRANT CERTIFICATE

ELECTION TO PURCHASE

To Be Executed by the Holder
in Order to Exercise the Warrant

The undersigned Holder hereby elects to purchase                Shares pursuant to the attached Warrant, and requests that certificates for securities be issued in the name of:

(Please type or print name and address)

(Social Security or Tax Identification Number)

and delivered

to:

(Please type or print name and address if different from above)

If such number of Shares being purchased hereby shall not be all the Shares that may be purchased pursuant to the attached Warrant, a new Warrant for the balance of such Shares shall be registered in the name of, and delivered to, the Holder at the address set forth below.

In full payment of the purchase price with respect to the Shares purchased and transfer taxes, if any, the undersigned hereby tenders payment of $                    by check, money order or wire transfer payable in United States currency to the order of ASPYRA, INC.

	HOLDER:
	By:
	Name:
	Title:
	Address:
Dated:

EXHIBIT B
TO
WARRANT

FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto                            the right represented by the within Warrant to purchase              shares of Common Stock of Aspyra, Inc., a California corporation, to which the within Warrant relates, and appoints                                        Attorney to transfer such right on the books of Aspyra, Inc., a California corporation, with full power of substitution of premises.

Dated:	By:
	Name:
	Title:
	(signature must conform to name
	of holder as specified on the fact
	of the Warrant)
	Address:

Signed in the presence of :

Dated:

EXHIBIT C

TO

WARRANT

NOTICE OF EXERCISE OF COMMON STOCK WARRANT

PURSUANT TO NET ISSUE (“CASHLESS”) EXERCISE PROVISIONS

Aspyra, Inc.

26115-A Mureau Road

Calabasas, California 91302

Number of Shares of
Common Stock to be
Issued Under this
Notice:

CASHLESS EXERCISE

Gentlemen:

The undersigned, registered holder of the Warrant to Purchase Common Stock delivered herewith (“Warrant”) hereby irrevocably exercises such Warrant for, and purchases thereunder, shares of the Common Stock of ASPYRA, INC., a California corporation, as provided below.  Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given in the Warrant.  The portion of the Aggregate Price (as hereinafter defined) to be applied toward the purchase of Common Stock pursuant to this Notice of Exercise is $                , thereby leaving a remainder Aggregate Price (if any) equal to $                .  Such exercise shall be pursuant to the net issue exercise provisions of Section 1(b) of the Warrant. Therefore, the holder makes no payment with this Notice of Exercise.  The number of shares to be issued pursuant to this exercise shall be determined by reference to the formula in Section 1(b) of the Warrant which requires the use of the fair market value (as defined in Section 1(c) of the Warrant) of the Company’s Common Stock on the business day immediately preceding the day on which this Notice is received by the Company.  To the extent the foregoing exercise is for less than the full Aggregate Price of the Warrant, the remainder of the Warrant representing a number of Shares equal to the quotient obtained by dividing the remainder of the Aggregate Price by the Warrant Price (and otherwise of like form, tenor and effect) may be exercised under Section 1(b) of the Warrant. For purposes of this Notice the term “Aggregate Price” means the product obtained by multiplying (i) the number of shares of Common Stock for which the Warrant is exercisable times the Warrant Price;

Signature:

Address:

Date:

EX-99.1

Exhibit 99.1

SECURITIES PURCHASE AGREEMENT

among

ASPYRA, INC.

as Issuer,

JAY WEIL

As Collateral Agent

and

THE PERSONS LISTED ON THE SIGNATURE PAGES HERETO

as Purchasers

February 12, 2009

EXHIBITS

Exhibit A	Form of Secured Convertible Note
Exhibit B-1	Form of Security Agreement
Exhibit B-2	Form of Notice of Collateral Assignment of Security Interest in Patent Applications
Exhibit B-3	Form of Notice of Collateral Assignment of Security Interest in Trademarks
Exhibit C	Form of Warrant
Exhibit D	Form of Accredited Investor Questionnaire
Exhibit E	Form of Legal Opinion of Issuer’s Counsel
SCHEDULES
Schedule 3.1.4	Required Actions
Schedule 3.1.6	Capitalization
Schedule 3.1.9	Brokerage or Finder’s Fees
Schedule 3.1.12	Certain Changes
Schedule 3.1.20	Intellectual Property
Schedule 3.1.24(d)	Labor Matters

SECURITIES PURCHASE AGREEMENT

THIS AGREEMENT is made as of February 12, 2009 among ASPYRA, INC., a California corporation (“Issuer” or the “Company”), Jay Weil, as Collateral Agent (the “Collateral Agent”) and the persons listed on the signature pages hereto (“Purchasers”).

For value received, the parties agree as follows:

1.DEFINITIONS

1.1Definitions.  In this Agreement:

“Affiliate” of a Person means any other Person who directly or indirectly controls, is controlled by, or is under common control with, such Person.

“Business Day” means any day other than a Saturday, a Sunday or a day on which the Principal Market is closed or on which banks in the City of New York are required or authorized by law to be closed.

“Common Stock” means common stock of Issuer, no par value, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, any successor act of Congress, and the regulations promulgated thereunder, as amended from time to time.

“Exempt Issuance” means the issuance of (a) options to purchase Common Stock and/or Common Stock to employees, officers, directors or consultants of the Issuer pursuant to any plan duly adopted for such purpose by the Board of Directors of the Issuer; provided that the total number of shares of Common Stock issued plus the total number of shares of Common Stock issuable upon exercise of options shall not exceed 1,500,000 shares of the Issuer’s Common Stock, (b)  securities issuable upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, other than options referred to in clause (a), provided that such Securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities (subject to adjustment for forward and reverse stock splits, stock dividends, recapitalizations and the like that occur after the date hereof), (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Issuer (i.e., directors that do not have an interest in the counter-party in any such acquisition or strategic transaction), provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Issuer and in which the Issuer receives benefits in addition to the investment of funds, but shall not include a transaction in which the Issuer is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities and provided, further, that the issuance of securities in one transaction or a series of related transactions constituting or which are convertible into or exchangeable for a

number of shares of Common Stock which is more than 19.9% of the outstanding shares of Common Stock on the date a definitive agreement related to the issuance of such securities is entered into by the Issuer shall also require the approval of the holders of a majority of the outstanding principal amount of the Notes (the “Required Holders”) if the outstanding principal amount of the Notes then exceeds $500,000 or securities issued to the purchasers who are parties to the Common Stock and Warrant Purchase Agreement, dated May 4, 2006, between the Company and the parties set forth on the signature page to such agreement provided they participate in a new transaction with the Company by April 1, 2008.

“Event of Default” has the meaning specified in the Notes.

“Issuer’s Knowledge” means the actual knowledge of the executive officers (as defined in Rule 405 under the Securities Act) of the Issuer, after due inquiry.

“March 2008 Purchase Agreement” means the Securities Purchase Agreement, dated as of March 26, 2008, among the Issuer, Jay Weil, as Collateral Agent, and the persons listed on the signature page thereto.

“March 2008 Notes” means the secured convertible notes of the Issuer issued pursuant to the March 2008 Purchase Agreement.

“Material Adverse Effect” means a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of Issuer, or a material adverse effect on Issuer’s ability to perform its obligations under the Transaction Documents.

“Note” means each secured, convertible loan note issued by Issuer to a Purchaser pursuant to this Agreement, and Notes means some or all such Notes together, as the context requires.

“Person” means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Principal Market” means the American Stock Exchange or the principal exchange, market or quotation system on which the Common Stock is then listed, traded or quoted.

“Proceeding” means any action, claim, suit, arbitration, inquiry, notice of violation, investigation or other proceeding.

“SEC” means the U.S. Securities and Exchange Commission and any successor Person.

“Securities” means the Notes and Warrants.

“Securities Act” means the U.S. Securities Act of 1933, any successor act of Congress, and the regulations promulgated thereunder, as amended from time to time.

“Transaction Documents” means this Agreement, the Notes, the Security Agreement, the Warrants and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Warrant” means each Common Stock purchase warrant issued by Issuer to a Purchaser pursuant to this Agreement, and Warrants means some or all of such Warrants together, as the context requires.

2.PURCHASE AND SALE OF NOTES AND WARRANTS

2.1          Commitment. Upon and subject to the terms and conditions set forth herein, each Purchaser hereby subscribes for and commits to purchase from Issuer, and Issuer hereby reserves for issuance and commits to issue and sell to each Purchaser, a Note in the face amount, and a Warrant covering the number of shares of Common Stock, set forth on such Purchaser’s signature page to this Agreement, for the subscription price set forth on such signature page (the “Subscription Price”).

2.2          Minimum and Maximum Amounts.  Each Note and Warrant will be issued as part of a series of issuances of one or more Notes and Warrants for a maximum cumulative Subscription Price for all Purchasers of $1,200,000.

2.3Terms of Notes.  Each Note will:

2.3.1be substantially in the form attached hereto as Exhibit A;

2.3.2       be issued in a face amount equal to 100% of the Subscription Price paid by the Purchaser;

2.3.3       mature, and be due and payable in full, on March 26, 2010  (the “Maturity Date”);

2.3.4       bear interest at the rate of 12% per annum compounded on each July 15 and January 15 during which any portion of principal of the Note shall remain outstanding and bear interest at the rate of 24% per annum upon the occurrence and during the continuance of any Event of Default;

2.3.5       be convertible at any time and from time to time prior to repayment, at the option of the holder or, under the circumstances described therein, at the option of Issuer, into that number of shares of Common Stock equal to quotient obtained by dividing (a) the principal and interest of the Note being converted, by (b) the conversion price of the Note, which will initially be $ 0.31 and be subject to adjustment in certain circumstances as set forth in the Note;

2.3.6       be secured, pari passu with all other Notes and the March 2008 Notes, as to repayment, by a security interest in all of Issuer’s assets, including its intellectual property rights, which security interest shall be subordinate to the security interest in such assets held by the Bank, but which security interest shall have priority with respect any other person, firm or entity, pursuant to a security agreement, in substantially the form attached hereto as Exhibit B-1, to be given by Issuer to the Collateral Agent in favor of the Purchasers (the “Security Agreement”) and Collateral Assignments of Patents, Trademarks and Copyrights, in substantially the forms attached hereto as Exhibit B-2 and Exhibit B-3, respectively (collectively, the “Collateral Assignments”);

2.3.7       not be prepayable by Issuer without the written consent of the holder;

2.3.8       only be repaid by Issuer, in whole or in part, pro rata, based on relative outstanding amounts, with all other outstanding Notes at the time of each such repayment; and

2.3.9       not be transferable by the Purchaser or any subsequent holder, except in accordance with Section 5.1 hereof..

2.4          Terms of Warrants.  Each Warrant will:

2.4.1       be in substantially the form attached hereto as Exhibit C;

2.4.2       entitle the holder to purchase such number of shares of Common Stock as shall be set forth on such Purchaser’s signature page; the total number of warrants to be issued to the Purchaser is the difference between: (A) the sum of: (i) the total number of conversion shares which would have been be issuable upon full conversion of the Note determined by dividing the aggregate principal amount of the Notes by an assumed conversion rate of $.25 (such quotient is referred to as the “Assumed Note Conversion Shares”), plus (ii) 125% of the Assumed Note Conversion Shares, and (B) the number of conversion shares which are issuable upon conversion of the entire original principal amount of the Note based on the actual conversion price of such Notes which is equal to the closing price per share of the Issuer’s common stock at closing plus $.01;

2.4.3       be exercisable, in whole or in part, from time to time from the date of issuance through the third anniversary of the Closing Date, in cash, at the price of $ 0.31 per share, subject to adjustment in certain circumstances as set forth in the Warrant;

2.4.4       entitle the holder to cashless exercise, which will result in the holder receiving that number of shares of Common Stock equal to (a) the excess of the fair market value (as defined therein) per share over the exercise price per share at the date of exercise, multiplied by (b) the total number of shares as to which exercised, and then divided by (c) the fair market value per share; and

2.4.5     not be transferable by the Purchaser or any subsequent holder except in accordance with Section 5.1 hereof.

2.5        Subscription Documents and Payments.  Each Purchaser has delivered, or will deliver, the following concurrently with such Purchaser’s execution and delivery of this Agreement:

2.5.1     payment to the Issuer of the Subscription Price for the Note and Warrant subscribed for by such Purchaser; and

2.5.2     a fully completed and signed accredited investor questionnaire (the “Investor Questionnaire”) with respect to such Purchaser, in substantially the form attached hereto as Exhibit D.

2.6          Purchaser Conditions Precedent.  The obligations of each Purchaser to consummate the transactions contemplated in Section 2.1 are subject to the satisfaction of the following conditions precedent on or prior to the Closing Date (as defined in Section 2.8):

2.6.1       Issuer and the Collateral Agent will have executed and delivered to the Purchaser this Agreement, and Issuer will have countersigned such Purchaser’s signature page to this Agreement;

2.6.2       Issuer shall have delivered to such Purchaser the Securities to which such Purchaser is entitled as of the Closing Date;

2.6.3       Issuer and the Collateral Agent will have executed and delivered to the Purchaser the Security Agreement and such additional financing statements, collateral assignments and other instruments and documents as may be necessary or prudent, in the reasonable discretion of the Purchaser and the Collateral Agent, to perfect the security interests of the Purchasers under the Security Agreement;

2.6.4       at the Closing, the Issuer shall have delivered a bring-down certificate signed by the Chief Executive Officer of the Issuer to the effect that, as of the Closing Date, (a) the Issuer has performed all obligations required to be performed hereunder at or before the Closing, (b) Issuer has not defaulted hereunder, and (c) all representations and warranties of Issuer herein and in the other Transaction Documents are true and correct as of the Closing Date;

2.6.5       Issuer’s counsel shall have delivered to the Purchaser a legal opinion in substantially the form attached hereto as Exhibit E; and

2.6.6       There shall have occurred no material adverse change in the Issuer’s consolidated business or financial condition since the date of the Issuer’s most recent financial statements filed with the SEC.

2.6.7       There shall be no injunction, restraining order or decree of any nature of any court or governmental authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby and by the other Transaction Documents.

2.6.8       The Issuer shall have obtained all necessary waivers from Western Commercial Bank (the “Bank”) with respect to its Senior Secured Loan permitting the Issuer to enter into the Transaction Documents.

2.6.9       The Issuer shall have paid the expenses described in 7.1 of this Agreement.

2.7        Issuer’s Conditions Precedent.  The obligations of the Issuer to consummate the transactions contemplated in Section 2.1 are subject to the satisfaction of the following conditions precedent on or prior to the Closing Date with respect to the relevant Purchaser:

2.7.1       such Purchaser must have executed and delivered to the Issuer a fully completed signature page to this Agreement for such Purchaser;

2.7.2       the Collateral Agent must have executed and delivered to the Issuer this Agreement and the Security Agreement;

2.7.3       Issuer must have received from such Purchaser a fully completed Investor Questionnaire, and must have found the contents of such questionnaire to be satisfactory in the Issuer’s sole discretion;

2.7.4       The Issuer must have received the Subscription Price payable by such Purchaser; and

2.7.5       There shall be no injunction, restraining order or decree of any nature of any court or governmental authority of competent jurisdiction that is in effect that restrains or prohibits the consummation of the transactions contemplated hereby and by the other Transaction Documents.

2.7.6       The Issuer shall have obtained all necessary waivers from Western Commercial Bank with respect to its Senior Secured Loan permitting the Issuer to enter into the Transaction Documents.

2.8        Closing. The transactions contemplated in Section 2.1 will be consummated in one closing (the “Closing”), which will be held on the date(s) designated by Purchaser that occur (a) on or after the date hereof and (b) on or before February 12, 2009 (the “Closing Date”).  At the Closing:

2.8.1       Issuer will execute and deliver to each Purchaser a signature page to this Agreement with respect to each Purchaser participating in such Closing;

2.8.2       Issuer will issue the relevant Note(s) and Warrant(s) to each such Purchaser;

2.8.3       commencing with the Closing, Collateral Agent may take all actions reasonably necessary or appropriate perfect the security interests under the Security Agreement; and

2.9        Cancellation and Refund.  If the Closing of any Purchaser’s subscription has not occurred prior to February 13, 2009, or if, at any earlier date, events occur that preclude the conditions precedent to Closing such Purchaser’s subscription from occurring, and such Purchaser has not consented to otherwise extend the Closing Date, then the Issuer will refund such Purchaser’s Subscription Price and the subscription by such Purchaser to purchase the Notes and Warrants will automatically be cancelled.

3.REPRESENTATIONS, WARRANTIES AND COVENANTS

3.1          Representations, Warranties and Covenants of Issuer.  Issuer represents, warrants and covenants to Collateral Agent and Purchasers that:

3.1.1       Organization and Qualification. Issuer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, with the requisite power and authority, subject to the Issuer’s obtaining the Shareholder Approval if required by applicable NYSE Alternext (“Alternext”) rules (as such term is defined in Section 4.2.6), to enter into the Transaction Documents and to own, lease and use its properties and assets and to carry on its business as currently conducted.  Issuer is duly qualified to conduct business and is in good standing as a foreign corporation in each jurisdiction in which it conducts business as necessary, except where the failure to be so qualified would not have a Material Adverse Effect, and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

3.1.2       Authorization; Enforcement. Subject to Issuer’s performing the Required Actions (as such term is defined in Section 3.1.4), the Issuer has the requisite corporate power and authority to enter into and perform all of the Transaction Documents. The execution, delivery and performance of the Transaction Documents by Issuer have been duly authorized by all necessary corporate action by Issuer and no further consent or action is required by Issuer, its board of directors or its shareholders (other than the Issuer’s obtaining (i) Shareholder Approval if required by Alternext, (ii) obtaining the waivers and consents required by the Securities Purchase Agreement, dated March 26, 2008) among the Issuer, Jay Weil, as Collateral Agent and the purchasers thereto (the “March 2008 Purchase Agreement”) and (iii) the Issuer’s obtaining the consent of the Western Commercial Bank) in connection therewith, other than actions necessary to satisfy Issuer’s post-Closing obligations under the Transaction Documents, which actions could not be authorized in advance. Subject to the Issuer’s performing the Required Actions, each Transaction Document, when duly executed by the Issuer and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and legally binding obligation of the Issuer enforceable against the Issuer in accordance with its terms, except (a) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (c) insofar as indemnification and contribution provisions may be limited by applicable law.

3.1.3       No Conflicts. Subject to the Issuer’s performing the Required Actions, the execution, delivery and performance of the Transaction Documents by the Issuer do not and will not: (a) conflict with or violate Issuer’s articles of incorporation or bylaws, as amended to date, (b) conflict with, constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien on any asset of the Issuer pursuant to, or give others any right to terminate, amend, accelerate or cancel (with or without notice, lapse of time or both), any agreement, credit facility, debt or other instrument (evidencing any Issuer debt or otherwise) or other understanding to which the Issuer is a party or by which any asset of Issuer is bound or affected, or (c) subject to any Required Actions, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Issuer is subject (including U.S. federal and state securities laws and regulations), or by which any asset of the Issuer is bound or affected, except, in the case of each of clauses (b) and (c), such as could not have or reasonably be expected to result in a Material Adverse Effect.  There is no Proceeding pending or, to the knowledge of the Issuer, threatened against or affecting the Issuer or its assets before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which adversely affects or challenges the legality, validity or enforceability of any Transaction Document.

3.1.4       Required Actions. Except for (a) any filings required under applicable federal and/or state securities laws, (b) the making of any filings, or the obtaining of any approvals required by the Alternext, (c) obtaining Shareholder Approval if required by the rules and regulations of Alternext, (d)  the consents and waivers of the purchasers under the 2008 Purchase Agreement and (e)  as disclosed on Schedule 3.1.4 attached hereto (collectively, the “Required Actions”), Issuer is not required to take any action or obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with its execution, delivery and performance of the Transaction Documents.

3.1.5       Issuance of the Securities. Subject to the Issuer’s performing the Required Actions, the Notes, Warrants and shares of Common Stock issuable upon conversion of the Notes and/or exercise of the Warrants (collectively, the “Transaction Securities”) are duly authorized and, when issued and paid for in accordance with this Agreement, the Notes and the Warrants, will be duly and validly issued, free and clear of all liens, claims and encumbrances imposed by Issuer other than those provided for in the Transaction Documents, and will be issued in compliance with an exemption from registration under all applicable U.S. federal securities laws. The Issuer has reserved from the Issuer’s authorized, but unissued Common Stock the maximum number of shares it may currently reserve in connection with the issuance of such Common Stock upon the conversion of the Notes and exercise of the Warrants.

3.1.6       Capitalization. Schedule 3.1.6 sets forth the capitalization of Issuer as of the date hereof, before giving effect to the issuance of the Securities pursuant hereto, including the amount and kind of authorized shares, the number of each kind of shares issued and outstanding, the number of shares issued and held as treasury stock, and the number of shares reserved for issuance pursuant to Issuer’s stock option plans and all outstanding securities convertible into or exchangeable for any shares of Issuer, including a description of the relevant options, convertible securities and exchangeable securities.  Except as set forth in Schedule 3.1.6, no Person has any right of first refusal, preemptive right, right of participation, anti-dilution right or any similar right to participate in, or that is triggered by, the transactions contemplated by the Transaction Documents.

3.1.7       SEC Reports.  Issuer is currently required to file information, documents and reports with the SEC pursuant to Section 13(a) of the Exchange Act, and Issuer has filed all such reports and schedules, forms, statements and other documents required to be filed by Issuer under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two year period preceding the date hereof (or such shorter period as Issuer was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates of filing with the SEC, the SEC Reports, together with any amendments thereto, complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act.  No SEC Report, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not materially misleading.  There is nothing that would be deemed to be of a materially negative nature to a potential investor in the Common Stock that has not been disclosed in the SEC Reports.

3.1.8       Financial Statements.  The financial statements of Issuer included in the SEC Reports comply in all material respects with applicable accounting requirements and the SEC’s rules and regulations with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles consistently applied, except as may be otherwise specified therein or the notes thereto and except that un-audited financial statements may not contain all required notes and are subject to routine year-end adjustments that are not material in the aggregate.  Such financial statements fairly present in all material respects the financial position of Issuer as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of un-audited statements, to normal, year-end audit adjustments as referred to above.

3.1.9       Brokerage or Finder’s Fees.  Other than as set forth on Schedule 3.1.9, no brokerage, success or finder’s fee or commission is or will be payable by Issuer to any broker, financial adviser or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.

3.1.10     Private Placement. Assuming the accuracy of each Purchaser’s representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by Issuer to Purchaser as contemplated hereby.

3.1.11     Investment Company. Issuer is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  Issuer will conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

3.1.12     Absence of Certain Changes.  Other than as disclosed on exhibit 3.1.12, since September 30, 2008, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations or prospects of the Issuer, or clearly evident to a sophisticated institutional investor from the SEC Documents and/or SEC Reports, including, without limitation:

a. any change in the consolidated assets, liabilities, financial condition or operating results of the Issuer from that reflected in the financial statements included in the Issuer’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2008, except for changes in the ordinary course of business which have not and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate;

b. any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Issuer, or any redemption or repurchase of any securities of the Issuer;

c. any material damage, destruction or loss, whether or not covered by insurance to any assets or properties of the Issuer or its subsidiaries;

d. any waiver, not in the ordinary course of business, by the Issuer or     any subsidiary of a material right or of a material debt owed to it;

e. any satisfaction or discharge of any Lien, claim or encumbrance or payment of any obligation by the Issuer or a subsidiary, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Issuer and its subsidiaries taken as a whole (as such business is presently conducted and as it is proposed to be conducted);

f. any change or amendment to the Issuer’s Articles of Incorporation or By-laws, or material change to any material contract or arrangement by which the Issuer or any subsidiary is bound or to which any of their respective assets or properties is subject;

g. any material labor difficulties or labor union organizing activities with respect to employees of the Issuer or any subsidiary;

h.  any material transaction entered into by the Issuer or a subsidiary other than in the ordinary course of business;

i.  the loss of the services of any key employee, or material change in the composition or duties of the senior management of the Issuer or any subsidiary;

j. the loss or threatened loss of any customer which has had or could reasonably be expected to have a Material Adverse Effect; or

k. any other event or condition of any character that has had or could reasonably be expected to have a Material Adverse Effect.

3.1.13     Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, or self-regulatory organization or body pending or, to the Issuer’s Knowledge or any of its subsidiaries, threatened against or affecting the Issuer, any of its subsidiaries, or any of their respective directors or officers in their capacities as such.  There are no facts known to the Issuer which, if known by a potential claimant or governmental authority, could reasonably be expected to give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Issuer or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect.

3.1.14     Tax Matters.  The Issuer and each of its subsidiaries has timely prepared and filed all tax returns required to have been filed by the Issuer or such subsidiary with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it.  The charges, accruals and reserves on the books of the Issuer in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Issuer or any subsidiary nor, to the Issuer’s Knowledge, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except for any assessment which is not material to the Issuer and its subsidiaries, taken as a whole.  All taxes and other assessments and levies that the Issuer or any subsidiary is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due.  There are no tax liens or claims pending or, to the Issuer’s Knowledge, threatened, against the Issuer or any subsidiary or any of their respective assets or property.  There are no outstanding tax sharing agreements or other such arrangements between the Issuer and any subsidiary or other corporation or entity. No transfer or other taxes are required to be paid in connection with the issuance and sale of any of the Securities.

3.1.15     Transactions with Affiliates.  Except as disclosed in the SEC Documents, none of the officers or directors of the Issuer and, to the Issuer’s Knowledge, none of the employees of the Issuer, is presently a party to any transaction with the Issuer or any subsidiary (other than as holders of stock options and/or warrants, and for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the Issuer’s Knowledge, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

3.1.16     Internal Controls.  The Issuer and the subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any difference.  The Issuer

maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles in the United States and the applicable requirements of the Exchange Act. The Issuer’s officers certified to the Issuer’s internal controls as of the filing of the Issuer’s Form 10-QSB for the quarter ended September 30, 2008 and since that date, that there have been no significant changes in the Issuer’s internal controls (as such term is defined in Section 307(b) of Regulation S-K) or, to the Issuer’s Knowledge, any other facts that would significantly affect the Issuer’s internal controls.  The Issuer is not required at this date to certify its internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and has not taken any steps necessary to evaluate its internal controls to determine whether it will be able to take such a certification.

3.1.17     Acknowledgment Regarding Purchaser’s Purchase of the Securities.  The Issuer acknowledges and agrees that Purchaser is not acting as a financial advisor or fiduciary of the Issuer (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, that this Agreement and the transaction contemplated hereby, and the relationship between each Purchaser and the Issuer, are “arms-length,” and that any statement made by Purchaser (except as set forth in Section 3.2), or any of its representatives or agents, in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation, is merely incidental to Purchaser’s purchase of the Securities and has not been relied upon as such in any way by the Issuer, its officers or directors.  The Issuer further represents to Purchaser that the Issuer’s decision to enter into this Agreement and the transactions contemplated hereby has been based solely on an independent evaluation by the Issuer and its representatives.

3.1.18     No General Solicitation.  To the best of the Issuer’s knowledge, neither the Placement Agent nor any distributor participating on the Issuer’s behalf in the transactions contemplated hereby (if any) nor any person acting for the Issuer, or any such distributor, has conducted any “general solicitation,” as described in Rule 502(c) under Regulation D, with respect to any of the Securities being offered hereby.

3.1.19     No Integrated Offering.  Neither the Issuer, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from the registration under the Securities Act pursuant to the provisions of Regulation D.  The transactions contemplated hereby are exempt from the registration requirements of the Securities Act, assuming the accuracy of the representations and warranties herein contained of each Purchaser.

3.1.20     Intellectual Property.

(a)To the Issuer’s Knowledge, all Intellectual Property of the Issuer and its subsidiaries is currently in compliance with all legal requirements (including timely filings, proofs and payments of fees) and is valid and enforceable, except where the failure to be in compliance or to be valid and enforceable has not and could not reasonably be expected to have a Material Adverse Effect on the Issuer and its subsidiaries taken as a whole.  No Intellectual Property of the Issuer or its subsidiaries which is necessary for the conduct of Issuer’s and each

of its subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has been or is now involved in any cancellation, dispute or litigation, and, to the Issuer’s Knowledge, no such action is threatened.  No patent of the Issuer or its subsidiaries has been or is now involved in any interference, reissue, re-examination or opposition proceeding.  “Intellectual Property” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation).

(b)           All of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property which are necessary for the conduct of the Issuer’s and each of its subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted to which the Issuer or any subsidiary is a party or by which any of their assets are bound (other than generally commercially available, non custom, off the shelf software application programs having a retail acquisition price of less than $10,000 per license) (collectively, “License Agreements”) are valid and binding obligations of the Issuer or its subsidiaries that are parties thereto and, to the Issuer’s Knowledge, the other parties thereto, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and there exists no event or condition which will result in a material violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Issuer or any of its subsidiaries under any such License Agreement.

(c)           Other than as set forth on Schedule 3.1.20, the Issuer and its subsidiaries own or have the valid right to use all of the Intellectual Property that is necessary for the conduct of the Issuer’s and each of its subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted and for the ownership, maintenance and operation of the Issuer’s and its subsidiaries’ properties and assets, free and clear of all liens, encumbrances, adverse claims or obligations to license all such owned Intellectual Property, other than licenses entered into in the ordinary course of the Issuer’s and its subsidiaries’ businesses.  The Issuer and its subsidiaries have a valid and enforceable right to use all third party Intellectual Property and confidential information used or held for use in the respective businesses of the Issuer and its subsidiaries.

(d)           To the Issuer’s Knowledge, the conduct of the Issuer’s and its subsidiaries’ businesses as currently conducted does not infringe or otherwise impair or conflict with (collectively, “Infringe”) any Intellectual Property rights of any third party or any confidentiality obligation owed to a third party, and, to the Issuer’s Knowledge, the Intellectual Property and confidential information of the Issuer and its subsidiaries which are necessary for the conduct of Issuer’s and each of its subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted are not being Infringed by any third party.  There is no litigation or order pending or outstanding or, to the Issuer’s Knowledge, threatened or imminent, that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of any Intellectual Property or confidential information of the Issuer and its subsidiaries and the Issuer’s and its subsidiaries’ use of any Intellectual Property or confidential information owned by a third party, and, to the Issuer’s Knowledge, there is no valid basis for the same.

(e)           The consummation of the transactions contemplated hereby will not result in the alteration, loss, impairment of or restriction on the Issuer’s or any of its subsidiaries’ ownership or right to use any of the Intellectual Property or confidential information which is necessary for the conduct of Issuer’s and each of its subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted.

(f)            The Issuer and its subsidiaries have taken reasonable steps to protect the Issuer’s and its subsidiaries’ rights in their Intellectual Property.  Each employee, consultant and contractor who has had access to confidential information which is necessary for the conduct of Issuer’s and each of its subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has executed an agreement to maintain the confidentiality of such confidential information and has executed appropriate agreements that are substantially consistent with the Issuer’s standard forms thereof.  Except under confidentiality obligations, there has been no material disclosure of any of the Issuer’s or its subsidiaries’ confidential information to any third party.

3.1.21     Environmental Matters.  Neither the Issuer nor any subsidiary is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws; and there is no pending or, to the Issuer’s Knowledge, threatened investigation that might lead to such a claim.

3.1.22     Certificates, Authorities and Permits.  The Issuer and each subsidiary possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by it, and neither the Issuer nor any subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Issuer or such subsidiary, could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.

3.1.23     Key Employees.  No Key Employee, to the Issuer’s Knowledge, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Issuer or any of its subsidiaries to any liability with respect to any of the foregoing matters.  No Key Employee has, to the Issuer’s Knowledge, any intention to terminate his employment with, or services to, the Issuer or any of its subsidiaries. “Key Employee” means any executive officer of the Issuer or any of its subsidiaries, as applicable.

3.1.24     Labor Matters.

(a) The Issuer is not a party to or bound by any collective bargaining agreements or other agreements with labor organizations.  The Issuer has not violated in any material respect any laws, regulations, orders or contract terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment, or employees’ health, safety, welfare, wages and hours.

(b)  There are no labor disputes existing, or to the Issuer’s Knowledge, threatened, involving strikes, slow-downs, work stoppages, job actions, disputes, lockouts or any other disruptions of or by the Issuer’s employees, (B) there are no unfair labor practices or petitions for election pending or, to the Issuer’s Knowledge, threatened before the National Labor Relations Board or any other federal, state or local labor commission relating to the Issuer’s employees, (C) no demand for recognition or certification heretofore made by any labor organization or group of employees is pending with respect to the Issuer and (D) to the Issuer’s Knowledge, the Issuer enjoys good labor and employee relations with its employees and labor organizations.

(c)  To the Issuer’s Knowledge, the Issuer is, and at all times has been, in full compliance in all material respects with all applicable laws respecting employment (including laws relating to classification of employees and independent contractors) and employment practices, terms and conditions of employment, wages and hours, and immigration and naturalization.  There are no claims pending against the Issuer before the Equal Employment Opportunity Commission or any other administrative body or in any court asserting any violation of Title VII of the Civil Rights Act of 1964, the Age Discrimination Act of 1967, 42 U.S.C. §§ 1981 or 1983 or any other federal, state or local law, statute or ordinance barring discrimination in employment.

(d)  Other than as set forth on Schedule 3.1.24(d),the Issuer is not a party to, or bound by, any employment or other contract or agreement that contains any severance, termination pay or change of control liability or obligation, including, without limitation, any “excess parachute payment,” as defined in Section 2806(b) of the Internal Revenue Code.

3.1.25     ERISA.  The Issuer does not maintain or contribute to, or have any obligation under, any an employee pension benefit plan (as defined in the Employee Retirement Income Security Act of 1978, as amended (“ERISA”)) maintained by the Issuer for employees of the Issuer or any of its Affiliates.  The Issuer is in compliance in all material respects with the presently applicable provisions of ERISA and the United States Internal Revenue Code of 1986, as amended, with respect to each employee pension benefit plan, except in any such case for any such matters that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect.

3.2          Representations, Warranties and Covenants of Purchasers.  Each Purchaser represents, warrants and covenants to Issuer, with respect to itself only and not the other Purchasers, as follows:

3.2.1       Organization; Authority. Such Purchaser, if an entity, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite power and authority to enter into and perform the Transaction Documents. If the Purchaser is an entity, the execution, delivery and performance of the Transaction Documents by such Purchaser have been duly authorized by all necessary action by such Purchaser. Each Transaction Document to which such Purchaser is a party has been duly executed by it and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (a) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (c) insofar as indemnification and contribution provisions may be limited by applicable law.

3.2.2       Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state or foreign securities law.  Such Purchaser is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof, has no present intention of distributing any such Securities in violation of the Securities Act, any applicable state securities law and/or any foreign laws and has no direct or indirect arrangement or understandings with any other Person to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities in compliance with applicable U.S. federal and state and foreign securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

3.2.3       Purchaser Status. At the time such Purchaser was offered the Securities and as of the date hereof, either (a) it was and is an “accredited investor” as that term is defined under Regulation D, or (b) it was not and is not a “U.S. Person” as that term is defined in Rule 902(o) of Regulation S and the sale of the Securities constituted an “offshore transaction” as that term is defined in Rule 902(i) of Regulation S, and that all statements and answers provided to Issuer by such Purchaser in its Investor Questionnaire are true and accurate as of the date given and as of the date of the Closing.

3.2.4       Experience of Purchaser. Such Purchaser has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

3.2.5       General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

3.2.6       Available Information.  Such Purchaser acknowledges that, prior to executing this Agreement, it has been given an opportunity to ask questions of and receive answers from, Issuer concerning the terms and conditions of the offering of the Securities and to obtain any other information that it has requested with respect to Issuer’s operations and its proposed investment in Issuer in order to evaluate the investment and verify the accuracy of all information furnished to it regarding Issuer; and access to all of the SEC Reports that have been filed on Issuer’s behalf with the SEC.

3.2.7       Acknowledgment Regarding Investment by Placement Agent and Affiliates. Such Purchaser acknowledges that officers, directors, employees and agents of the Placement Agent may also purchase the Securities on the same terms as the Purchaser.

4.ISSUER COVENANTS

4.1.         Use of Proceeds.  Issuer may use the proceeds from the issuance of the Notes and Warrants only for working capital purposes, including the payment of current liabilities existing at Closing.

4.2.         Affirmative Covenants.

4.2.1       Board Matters.  Until such time as all Notes have been either fully repaid or fully converted into Common Stock, Issuer will maintain a board comprised of 7 (seven) directors and will use all reasonable efforts to keep all board positions continuously filled with suitably qualified individuals, and to keep vacancies to a minimum, so as to provide Issuer with adequate corporate governance resources.  During such period, Issuer will also procure and maintain directors and officer’s liability insurance with customary liability limits and coverage terms. For purposes of this Section 4.2.1, a suitably qualified director candidate will be someone (1) with qualifications and strengths that balance and complement the qualifications and strengths of other board members, (2) who possesses independence, knowledge, judgment, character, leadership skills, requisite education and relevant experience, and (3) who has a high moral standing and is not currently and has not previously been the subject of any Proceedings, whether or not convicted of any wrongdoing, that call into question such person’s character, judgment or integrity.  Notwithstanding the foregoing, so long as any principal or interest on any of the Notes is outstanding, the holders of the Notes shall have the right to appoint a non-voting representative (the “Observer”) to attend meetings of the board of directors of the Issuer, to change the representative so appointed at any time and, upon the resignation of such representative for any reason, to reappoint such a representative.  Issuer shall provide the Observer with a copy of any materials to be distributed or discussed at such meetings at the same time as provided to members of the Board.  Nothing herein shall require Issuer to change the place or time of any meeting for which notice has been provided by Issuer to the Observer simultaneously with that provided to Issuer’s directors.  Observer will be expected to conduct himself or herself in accordance with those reasonable rules of order applicable to members of Issuer’s board of directors and not otherwise to interfere with or disrupt the conduct of business by Issuer’s board of directors, and will be subject to dismissal (and subsequently replacement by his or her appointers) for failure to comply therewith.  Upon presentation of reasonable documentation therefore, Issuer shall promptly reimburse the Observer for all reasonable and necessary out of pocket expenses actually incurred by the Observer in attending any meeting of the board of directors, but Observer will not otherwise be compensated for attending and observing meetings of Issuer’s board of directors.  As a condition precedent to attending

meetings of Issuer’s board of directors and receiving materials distributed or discussed at such meetings, Observer must execute and deliver a non-disclosure agreement in favor of Issuer pursuant to which Observer undertakes contractual duties respecting his or her use and disclosure of all confidential and proprietary information of Issuer contained therein of similar scope to those duties by which members of Issuer’s board of directors are bound.

4.2.2       Reservation of Shares. Until such time as all Notes have been either fully repaid or fully converted into Common Stock, Issuer will maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

4.2.3       Filing of SEC Reports. Until such time as all Notes have been either fully repaid or fully converted into Common Stock, Issuer will timely file with the SEC all periodic reports (including exhibits thereto) required under the Exchange Act, including, without limitation, all such current reports on Form 8-K that are necessary to describe the terms of the transactions contemplated by the Transaction Documents. Without limiting the generality of the foregoing, the Issuer agrees that it will:

(a)           on or prior to 8:30 a.m. (eastern time) on the second Business Day following the date of this Agreement, if required, issue a press release disclosing the material terms of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, and

(b)           if required, on or prior to 5:00 p.m. (Eastern Standard Time) on the fourth Business Day following the date of this Agreement, file with the SEC a Current Report on Form 8-K disclosing the material terms of and including as exhibits this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby; provided, however, that each Purchaser shall have a reasonable opportunity to review and comment on any such press release, if required, or Form 8-K prior to the issuance or filing thereof; and provided, further, that if the Issuer fails to issue a press release disclosing the material terms of this Agreement and the other Transaction Documents within the time frames described herein, if required to be filed, any Purchaser or the Placement Agent may issue a press release disclosing such information subject to notice to, and consent by, the Issuer, which consent shall not be unreasonably withheld.  Thereafter, the Issuer shall timely file all filings and notices required by the SEC or applicable law with respect to the transactions contemplated hereby.

4.2.4       Existence and Compliance.  Until such time as all Notes have been either fully repaid or fully converted into Common Stock, the Issuer agrees that it will, and will cause each of its subsidiaries to,:

(a)           maintain its corporate existence in good standing;

(b)           comply with all governmental requirements applicable to the operation of its business, except for instances of noncompliance that are immaterial;

(c)           comply with all agreements, documents and instruments binding on it or affecting its properties or business, except for instances of noncompliance that are immaterial; and

(d)           ensure that the Common Stock is at all times listed and quoted on the Principal Market.

4.2.5  Notice of Event of Default.  Upon the occurrence of an Event of Default, the Issuer shall (i) notify the Purchasers of the nature of such Event of Default as soon as practicable (but in no event later than one Business Day after the Issuer becomes aware of such Event of Default), and (ii) not later than two Business Days after delivering such notice to the Purchasers, issue a press release disclosing such Event of Default and take such other actions as may be necessary to ensure that none of the Purchasers are in the possession of material, nonpublic information as a result of receiving such notice from the Issuer.

4.2.6  Shareholder Approval.  If required by the rules and regulations of Alternext, within 120 days after the Closing Date, at a meeting of its shareholders held upon requisite notice and pursuant to the rules and regulations of Alternext, the Issuer shall obtain the approval of its shareholders for the issuance and/or potential issuance of all shares of Common Stock which may be issued pursuant to the conversion of the Notes and the exercise of the Warrants equal to 19.99 percent or more of Common Stock in connection with this Agreement (the “Shareholder Approval”).

4.2.7       Alternext Additional Shares Listing.  Within 21 days after the Issuer’s obtaining Shareholder Approval (or 45 days of the date hereof if Shareholder Approval is not required by the rules and regulations of Alternext, the Alternext shall have approved for listing upon issuance all shares of the Issuer’s Common Stock issuable upon conversion of the Notes and Warrants to be sold pursuant to this Agreement.

4.3.         Negative Covenants.  Until each Note has been fully repaid and/or fully converted into Common Stock, the Issuer covenants with the holder thereof that the Issuer will not:

4.3.1    Other than in connection with an Exempt Issuance, without the prior approval (not to be unreasonably withheld or delayed), of the Required Holders, create, incur, assume or guarantee any indebtedness or contractual or other non-cancelable commitment requiring Issuer to make cash payments, individually or in the aggregate with respect to the same obligee, of $10,000 or more (other than success fees or other similar contingent commitments relating to future financings by the Issuer provided such payments in excess of $10,000 are due and payable only out of the proceeds of the funds raised);

4.3.2    Other than in connection with an Exempt Issuance, without the prior written consent of the Required Holders, create any security interest or other lien for funded indebtedness on any asset subject to the Security Agreement other than (a) security interests and liens that are subordinate to those created under the Security Agreement on terms reasonably acceptable to the Required Holders (such approval not to be unreasonably withheld or delayed) or (b) purchase money security interests incurred in connection with the acquisition of assets in a transaction otherwise not prohibited hereunder.

4.3.3    redeem or re-purchase for cash any Common Stock or other equity security or security (other than convertible debt) exercisable to purchase any equity security of Issuer, or pay or declare any cash dividend or other cash distribution in respect thereof.

4.3.4    without the prior written consent of the Required Holders, amend the Issuer’s line of credit agreement with the Bank, as in effect immediately after the Closing or use any of the proceeds of the sale of the Securities to pay any outstanding principal under the Issuer’s line of credit with the Bank; it being understood and agreed, however, that the Issuer intends to renew its line of credit with the Bank.

4.4          Dilutive Issuances.  Other than in connection with Exempt Issuances, prior to the first anniversary of the date of this Agreement, without the prior written consent of the Required Holders, Issuer shall not (a) issue Common Stock (other than pursuant to the exercise of rights by holders of the Notes or Warrants or securities convertible into or exercisable to purchase Common Stock that are already outstanding on the date hereof) at a price per share that is less than the initial conversion price of the Notes, (b) issue securities convertible into or exercisable to purchase Common Stock, at a price per share of Common Stock to be issued that is less than the initial conversion price of the Notes or (c) distribute to holders of Common Stock (i) any dividend or other distribution of cash, evidences of its indebtedness, shares of its capital stock or any other properties or securities or (ii) any options, warrants or other rights to subscribe for or purchase any of the foregoing (each of the issuances described in clauses (a) through (c) is hereinafter referred to as a “Dilutive Issuance”).

4.5          Preemptive Right on Certain Issuances.

(a) Grant of Rights.  For the period from March 27, 2009  until one year after the Closing Date, the Company hereby grants to each Purchaser the right to purchase, pro rata, all (or any part) of any New Securities (as defined in Section 4.5(f) below) that the Company may, from time to time during such period, propose to sell or issue.  The Purchaser’s pro rata share of the New Securities (its “Pro Rata Amount”) for purposes of this Section 4.5, is equal to the ratio of (i) the sum of the number of shares of Common Stock then held by the Purchasers plus the number of shares issuable to the Purchaser assuming the entire principal amount of all of the Notes held by the Purchaser are converted into Common Stock and all of the Warrants held by the Purchaser are exercised in accordance with their respective terms (the “Purchaser Shares”) to (ii) the sum of (A) the total number of shares of the Common Stock held all Purchasers as of the date of such determination, plus (B) the total number of Purchaser Shares held by all Purchasers.

(b) Notice.  The Company shall not issue, sell or exchange, agree to issue, sell or exchange, or reserve or set aside for issuance, sale or exchange any New Securities unless the Company shall deliver to each Purchaser a written notice of any proposed or intended issuance, sale or exchange of New Securities (the “Preemptive Offer”), which Preemptive Offer shall (i) identify and describe the New Securities, (ii) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the New Securities to be issued, sold or exchanged, (iii) identify the persons or entities, if known, to which or with which

the New Securities are to be offered, issued, sold or exchanged and (iv) offer to issue and sell to or exchange with such Purchaser such Purchaser’s Pro Rata Amount.  The Purchaser shall have the right, for a period of 15 days following delivery of the Preemptive Offer, to purchase or acquire, at a price and upon the other terms specified in the Preemptive Offer, the number or amount of New Securities described above.  The Preemptive Offer by its terms shall remain open and irrevocable for such 15-day period.

(c)  Acceptance of Preemptive Offer.  To accept a Preemptive Offer, in whole or in part, a Purchaser must deliver a written notice to the Company prior to the end of the 15-day Preemptive Offer period, setting forth the portion of the Purchaser’s Pro Rata Amount that such Purchaser elects to purchase (the “Notice of Acceptance”).

(d)  Company Sales of Refused Securities.  The Company shall have 180 days from the expiration of the period set forth in Section 4.5(c) above to issue, sell or exchange all or any part of such New Securities as to which a Notice of Acceptance has not been given by the Purchaser (the “Refused Securities”), but only upon terms and conditions that are not materially more favorable to the purchaser of such New Securities as described in the Preemptive Offer.  Notwithstanding anything contained in this Section 4.5 to the contrary, the Preemptive Offer need not be given prior to the purchase by the party intending to purchase the New Securities described in the Preemptive Offer; provided that (i) such Preemptive Offer is sent within five (5) days after the sale to such party is consummated and remains open for a fifteen (15) day period from the receipt thereof, (ii) the Company has set aside a number of shares sufficient to satisfy the obligations of the Company pursuant to this Section 4.5, and (iii) such New Securities purchased by the party intending to purchase the New Securities described in the Preemptive Offer are not considered for purposes of determining each Purchaser’s Pro Rata Amount pursuant to Section 4.5(a) hereof.

(e)  Completion of Purchase.  Upon the closing of the issuance, sale or exchange of all or less than all the Refused Securities, the Purchaser shall acquire from the Company, and the Company shall issue to the Purchaser, the number or amount of New Securities specified in the Notices of Acceptance upon the terms and conditions specified in the Preemptive Offer.  The purchase by the Purchaser of any New Securities is subject in all cases to the preparation, execution and delivery by the Company and the Purchaser or like investors of a purchase agreement relating to such New Securities reasonably satisfactory in form and substance to the Purchaser and the Company.

(f) “New Securities” Defined.  “New Securities” means (a) any shares of Common Stock, preferred stock or other equity securities of the Company, whether now authorized or not issued after the date hereof; and (b) any options, warrants, convertible notes, or similar rights issued after the date hereof that are or may become convertible into or exercisable or exchangeable for, or that carry rights to subscribe for, any equity securities of the Company; provided, however, that the term “New Securities” does not include any securities issued in connection with an Exempt Issuance.

4.6.  Limitation on Issuing Shares.   Unless and until Shareholder Approval has been obtained and deemed effective (if and only if such Shareholder Approval is required by the rules and regulations of Alternext) the Company shall not upon the conversion of any Note or the exercise of any Warrants issued pursuant to this Agreement issue shares of Common Stock to the extent that such issuance, together with all previous issuances of Common Stock pursuant to the exercise of all Warrants and the conversion of all Notes issued pursuant to this Agreement, would in the aggregate exceed a number of shares of Common Stock equal to more than 19.99% of its issued and outstanding Common Stock on the Closing Date. Until Shareholder Approval has been obtained and deemed effective if such Shareholder Approval is required by the rules and regulations of Alternext, each Purchaser shall be entitled to exercise its Warrants and convert its Notes only to the extent the total number of shares of Common Stock issuable to the Purchaser upon exercise of such Warrants and conversion of such Note does not exceed the Purchaser’s pro rata share of 19.99% of the number of issued and outstanding shares of Common Stock on the Closing Date. Such Purchaser’s pro rata share shall be the quotient obtained by dividing the Subscription Price paid by the Purchaser for the Securities, by the total of all Subscription Prices paid by all Purchaser’s for the Securities purchased by the Purchasers.

5.TRANSFER RESTRICTIONS

5.1          Securities Law Compliance.  Each Purchaser acknowledges that the Securities may only be disposed of in compliance with applicable U.S. federal and state securities laws and foreign laws.  In connection with any transfer of the Securities other than (a) pursuant to an effective registration statement or SEC Rule 144, (b) to Issuer, or (c) to an Affiliate of a Purchaser, Issuer may require the transferor thereof to provide to Issuer an opinion of counsel selected by the transferor and reasonably acceptable to Issuer, the form and substance of which opinion will be reasonably satisfactory to Issuer, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  In the case of (c) above, as a condition of transfer, any such transferee will agree in writing to be bound by the terms of this Agreement.

5.2          Legend.  So long as is required by applicable U.S. federal and state and/or foreign securities laws, all documents evidencing any of the Securities must contain the following legend:

NEITHER THIS SECURITY NOR ANY SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAS BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY U.S. STATE OR OTHER JURISDICTION OR ANY EXCHANGE OR SELF-REGULATORY ORGANIZATION, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND SUCH OTHER LAWS AND REQUIREMENTS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR LISTING OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, SUCH REGISTRATION AND/OR LISTING REQUIREMENTS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH WILL BE REASONABLY ACCEPTABLE TO THE COMPANY.

5.3          Acknowledgement. Each Purchaser acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in Section 5.2 is predicated upon Issuer’s reliance that Purchaser will sell any Securities pursuant either to applicable registration and/or listing requirements, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement or listing, they will be sold in compliance with the plan of distribution set forth therein and upon compliance with the prospectus delivery requirement.

6.COLLATERAL AGENT

6.1          Appointment of Collateral Agent.  Each Purchaser hereby appoints and designates Collateral Agent as its agent to act as herein specified.  Each Purchaser irrevocably authorizes Collateral Agent to take such action on its behalf under the provisions of the Security Agreement, the Collateral Assignments and the other Transaction Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Collateral Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto.  Collateral Agent may perform any of its duties hereunder by or through its agents or employees, and may appoint sub-agents to perform any or all of its duties as Collateral Agent hereunder without the prior consent of Issuer and Purchasers.

6.2          Nature of Duties of Collateral Agent.  Collateral Agent will have no duties or responsibilities, except those expressly set forth in the Transaction Documents.  Neither Collateral Agent nor, if Collateral Agent is an entity, any of its officers, directors, members, managers, partners, employees or agents, will be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by or resulting from its or their gross negligence, willful misconduct or fraudulent act.  The duties of Collateral Agent will be mechanical and ministerial in nature.  Collateral Agent will not have, by reason of this Agreement, a fiduciary relationship in respect of any Purchaser. Nothing in this Agreement, express or implied, is intended to or will be so construed as to impose upon Collateral Agent any obligations in respect of this Agreement and the Security Agreement, except as expressly set forth herein and therein.

6.3          Lack of Reliance on Collateral Agent.

6.3.1       Independently and without reliance on Collateral Agent, each Purchaser, to the extent it deems appropriate, has made and will continue to make (i) its own independent investigation of the financial condition and affairs of Issuer in connection with the taking or not taking of any action in connection herewith and with the other Transaction Documents, and (ii) its own appraisal of the creditworthiness of Issuer, and, except as expressly provided in this Agreement and the Security Agreement, Collateral Agent will have no duty or responsibility, either initially or on a continuing basis, to provide any Purchaser with any credit or other information with respect thereto, whether coming into its possession before or after the delivery of the Notes and Warrants.

6.3.2       Collateral Agent will not be responsible to any Purchaser for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or in connection with the Security Agreement or Collateral Assignments or for the execution, effectiveness, genuineness, validity, enforceability, collectability, priority or sufficiency of this Agreement or the other Transaction Documents, or the financial condition of Issuer, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or the other Transaction Documents, or the financial condition of Issuer, or the existence or possible existence of any or Event of Default or other breach or default by Issuer.

6.4          Certain Rights of Collateral Agent.  If Collateral Agent requests instructions from Purchasers with respect to any act or action (including forbearance from taking action) in connection with this Agreement or the Security Agreement, then Collateral Agent will be entitled to act or refrain from such act or taking such action unless and until Collateral Agent has received instructions from Purchasers, and Collateral Agent will not incur liability to any Person by reason of so refraining.  Without limiting the foregoing, no Purchaser will have any right of action whatsoever against Collateral Agent as a result of Collateral Agent’s acting or refraining from acting hereunder in accordance with the instructions of Purchasers.

6.5          Reliance by Collateral Agent.  Collateral Agent will be entitled to rely, and will be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, email, fax, telex, teletype, message, cablegram, radiogram, order or other documentary, teletransmission or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person.  Collateral Agent may consult with legal counsel (including Issuer’s counsel), independent public accountants and other experts selected by it and will not be liable for any action taken or omitted by it in good faith in accordance with the advice of such counsel, accountants or experts.

6.6          Collateral Agent in Its Individual Capacity.  If Collateral Agent is also a Purchaser, then with respect to its Note and Warrant, Collateral Agent will have the same rights and powers hereunder as any other Purchaser and may exercise the same as though it were not performing the duties specified herein, and the terms “Purchaser” and “Purchasers” or any similar terms will, unless the context clearly otherwise indicates, include Collateral Agent in its individual capacity.  Collateral Agent may accept deposits from, lend money to, and generally engage in any kind of securities purchase, trust, financial advisory or other business with Issuer or any subsidiary as if it were not performing the duties specified herein, and may accept fees and other consideration from Issuer or any subsidiary for such services without having to account for the same to Purchasers.

6.7          Successor Collateral Agent.

6.7.1       Collateral Agent may resign at any time by giving written notice thereof to Purchasers and Issuer, and Collateral Agent may be removed at any time with or without cause by the decision of Purchasers holding a majority in face amount of the Notes.  Upon any such resignation or removal, Purchasers will have the right, with the prior written consent of Issuer, which consent will not be unreasonably withheld or delayed, to appoint a successor agent to serve as Collateral Agent hereunder and under the Security Agreement.  If no successor Collateral Agent has been so appointed by the Purchasers and has accepted such appointment within 30 days after retiring Collateral Agent’s giving of notice of resignation or Purchasers’ removal of retiring Collateral Agent, then, upon the prior written consent of Issuer, which consent will not be unreasonably withheld or delayed, retiring Collateral Agent may, on behalf of Purchasers, appoint a successor Collateral Agent, which must be acceptable to the holders of a majority of the outstanding indebtedness under the Notes.

6.7.2       Upon the acceptance by a successor person meeting such qualifications of any appointment as Collateral Agent hereunder, such successor will thereupon succeed to and become vested with all the rights, powers, privileges and duties of retiring Collateral Agent, and retiring Collateral Agent will be discharged from its duties and obligations under this Agreement.  After any retiring Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions hereof will survive as to any actions taken or omitted by it while it was Collateral Agent under this Agreement.

6.8          Transaction Documents.

6.8.1       Each Purchaser hereby authorizes Collateral Agent to enter into each of the Transaction Documents in the respective forms of the Exhibits hereto and to take all action contemplated thereby.  All rights and remedies under the Transaction Documents may be exercised by Collateral Agent for the benefit of Purchasers upon the terms hereof and thereof.

6.8.2       Whenever under any provision of any Transaction Document Collateral Agent has the right to grant or withhold any consent, exercise any remedy, make any determination or direct any action by Issuer under such Transaction Document, Collateral Agent will act in respect of such consent, exercise of remedies, determination or action, as the case may be, with the consent of and at the direction of Purchasers holding Notes representing in the aggregate a majority of the outstanding principal amount of the Notes; however, no such consent of the Purchasers will be required with respect to any consent, determination or other matter that is ministerial or administrative in nature.  Whenever any consent of or direction from the Purchasers is required, Collateral Agent will send to Purchasers a notice setting forth a description in reasonable detail of the matter as to which consent or direction is requested and Collateral Agent’s proposed course of action with respect thereto.  If Collateral Agent has not received a response from any Purchaser within three business days after giving such notice, then such Purchaser will be deemed to have agreed to the course of action proposed by Collateral Agent.

6.9          Indemnification of Collateral Agent.  Purchasers will indemnify and hold Collateral Agent harmless from and against any and all claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses actually incurred) that Collateral Agent may incur as a consequence, directly or indirectly, of its services as Collateral Agent for Purchasers, other than such items arising out of Collateral Agent’s gross negligence, willful misconduct or fraudulent act.  Any amounts due Collateral Agent from Purchasers pursuant to this Section 6.9 will be paid to Collateral Agent by Purchasers promptly upon request therefor in accordance with their pro rata ownership of the face amount of the Notes.

7.             MISCELLANEOUS

7.1          Fees and Expenses.  Except as otherwise set forth in the Transaction Documents and any engagement letter or agreement between Issuer and the Placement Agent, each party will pay its own fees and expenses incident to the negotiation, preparation, execution and delivery of this Agreement.

7.2          Entire Agreement.  The Transaction Documents, together with the exhibits and schedules thereto and the engagement letters or agreements between Issuer and the Placement Agents contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

7.3          Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder will be in writing and will be deemed given and effective on the earliest of (a) the date of transmission if such notice or communication is delivered by fax prior to 5:30 p.m. (Pacific time) on a business day, (b) the next business day after the date of transmission if such notice or communication is delivered via fax on a day that is not a business day or later than 5:30 p.m. (Pacific time) on a business day, (c) the 2nd business day after the date of mailing if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The facsimile number and address for such notices and communications are as set forth on the signature pages hereto or as otherwise notified by any party to the others in accordance herewith from time to time.

7.4          Amendments; Waivers.  No waiver or any right under this Agreement will be effective unless set forth in a writing signed by the party waiving such right. No waiver of any default under this Agreement will be deemed to be a continuing waiver or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor will any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

7.5          Headings.  The headings herein are for convenience only, do not constitute a part of this Agreement and do not limit, expand or modify the meaning hereof.

7.6          Successors and Assigns.  This Agreement binds and benefits the parties and their successors and permitted assigns.  Issuer may not transfer or assign its rights or obligations hereunder, but each Purchaser, subject to Section 5.1, may assign its rights and obligations under this Agreement to any Person.

7.7          No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

7.8          Governing Law; Forum; Jury Trial Waiver.  (a) This Agreement shall be governed by and construed under the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City and County of New York for the adjudication of any dispute hereunder or any other Transaction Document or in connection herewith or therewith or with any transaction contemplated hereby or thereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

(b) EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE TRANSACTION DOCUMENTS.

7.9          Survival.  The representations, warranties and covenants contained herein will survive the Closing and the delivery of the Securities.

7.10        Execution.  The parties contemplate that each Purchaser will sign a separate signature page to this Agreement and deliver the same to Issuer as part of its subscription documents, and which signature pages will collectively be appended to a single copy of this Agreement by Issuer for all Purchasers whose investor questionnaires are approved and who otherwise become subscribers for a Note and Warrant, and when so appended will collectively constitute a single original.  If desired, the parties may execute additional counterparts of this Agreement, each of which when executed will be an original, and all such counterparts will together constitute one and the same agreement.  This Agreement will become effective with respect to each Purchaser when at least one counterpart has been executed and delivered by such Purchaser, Issuer and Collateral Agent, and counter-signed by Issuer on the original or a counterpart of the signature page for such Purchaser. If any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, then such signature will create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original.

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

7.12        Replacement of Securities.  If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, Issuer will issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to Issuer of such loss, theft or destruction and upon provision of an indemnity reasonably acceptable to Issuer. The applicant for a new certificate or instrument under such circumstances will also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

7.13        Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each Purchaser and Issuer will be entitled to specific performance under the Transaction Documents. The parties acknowledge that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby waive and covenant not to assert in any Proceeding for specific performance of any such obligation the defense that a remedy at law would be adequate.

7.14        Usury. Notwithstanding any provision to the contrary contained in any Transaction Document, the total liability of Issuer under the Transaction Documents for payments in the nature of interest will not exceed the maximum lawful rate, and, without limiting the foregoing, in no event will any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that Issuer may be obligated to pay under the Transaction Documents exceed such maximum rate. If the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, then the new maximum contract rate of interest allowed by law will be the maximum rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the maximum rate is paid by Issuer to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, then such excess will be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to Issuer, the manner of handling such excess to be at such Purchaser’s election.

7.15  Indemnification.   (a) In consideration of each Purchaser’s execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Issuer’s other obligations under the Transaction Documents, the Issuer shall defend, protect, indemnify and hold harmless each Purchaser and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Issuer in any Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Issuer contained in any Transaction Document or any other certificate, instrument or document contemplated hereby or thereby or (iii) any cause of action, suit or claim

brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Issuer) and arising out of or resulting from (1) the execution, delivery, performance or enforcement of any Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (2) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (3) the status of such Purchaser or holder of the Securities as an investor in the Issuer pursuant to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking by the Issuer may be unenforceable for any reason, the Issuer shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law provided that the Issuer shall not be obligated to indemnify a Purchaser or Collateral Agent for any Indemnified Liabilities caused by the gross negligence or willful misconduct of that Purchaser and the Issuer shall not be obligated to indemnify the Collateral Agent for any Indemnified Liabilities caused by the gross negligence or willful misconduct of the Collateral Agent.

(b) Promptly after receipt by Indemnitee under this Section 7.15 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Indemnitee shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 7.15, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnitee, as the case may be; provided, however, that an Indemnitee shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnitee to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnitee and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceeding.  In the case of an Indemnitee, legal counsel referred to in the immediately preceding sentence shall be selected by the holders of a majority in outstanding principal amount of the Notes held by such holders to which the claim relates.  The Indemnitee shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnitee which relates to such action or claim.  The indemnifying party shall keep the Indemnitee reasonably apprised at all times as to the status of the defense or any settlement negotiations in respect thereof. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect to such claim or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnitee. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnitee in respect of all third parties, firms or corporations relating to the matter for which indemnification has been made.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnitee under this Section 7.15, except to the extent that the indemnifying party is materially prejudiced in its ability to defend such action.

(c) The indemnification required by this Section 7.15 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Liabilities are incurred.

(d)  The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnitee against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

[counter-part signature page for Securities Purchase Agreement]

SIGNED AND DELIVERED as of the date first indicated above.

ASPYRA, INC.
as Issuer
By:	/s/Rodney W. Schutt
Name:	Rodney W. Schutt
Title:	Chief Executive Officer
/s/ Jay Weil
Jay Weil, Collateral Agent

[additional counter-part signature page for Securities Purchase Agreement]

Name of Purchaser:

Subscription Price:

Face Amount of Note:

No. of Warrant Shares:

Notice Address:

SIGNED AND DELIVERED as of the dates indicated below.

	ASPYRA, INC.
as Purchaser	as Issuer
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

Schedule 3.1.4

The Issuer currently has the following individuals with the right of first refusal, preemptive right, right of participation, anti-dilution right or any similar right to participate in, or that is triggered by, the transactions contemplated by the Transaction Documents:

·Icon Capital Partners LP

·Tebo Capital LLC SEP IRA

·J. Shawn Chalmers Revocable Trust

·Casoh, Inc

·Bicknell Family Holding Co. LLC

·David & Lisa Suzanne Orschein UTA 8/22/01

·Joe C. Higday Revocable Trust

·MV Advisors II, LLC

·Bradford G. Peters

·C. Ian Sym-Smith

·J. Shawn Chalmers

·Ann Krueger & Kyle Krueger

·Tebo Partners II, LLC

·Gregory H. Ekizian Revocable Trust

·Ronald R. Comer Trust

·Al Des Marteau

·Denise Des Marteau

·Scott J. and Cathy H. Duncan

·The Robert K. Green Trust

·Martin Gregory Haake Trust

·James G. Hammond and Katherine L. Hammond

·Francis M. Hanna and Joanne L. Hanna

·Daniel R. Henry

·Joe C. Higday Trust

·Ron Loew

·Cynthia M. Mason

·James H. McCroy

·James H. McCroy IRA of James H. McCroy

·Orion Capital Investment, LLC

·David G. Orschein

·Pleiades Investment Partners RLP

·Potomac Capital Partners LP

·Potomac Capital International Ltd.

·Prime Petroleum Profit Sharing Trust

·Sands Partnership No. 1 Money Purchase Pension Plan and Trust

·Slater FF&E Fund LLC

·Tebo Capital LLC

·Leon B. Wright and Delores J. Wright

·Philip C. Young

·TITAB, LLC

Schedule 3.1.6

The Issuer is authorized to issue two classes of shares designated as “Common Stock” and “Preferred Stock”.  The number of shares of Common Stock authorized to be issued is 40,000,000, no par value.  The number of shares of Preferred Stock authorized to be issued is 500,000, no par value.  There are currently 12,437,150 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. There are no shares issued and held as treasury stock.

Pursuant to the Issuer’s Equity Incentive Plan, as amended, the Issuer is authorized to issue 3,040.875 shares.  The plan was amended in 2008 to increase the number of available share by 1,750,000 and is subject to approval by the shareholders at the 2009 shareholder meeting.  The Issuer currently has 1,795,000 options outstanding under the plan with 1,245,875 reserved for issuance.

The Issuer currently has the following individuals with the right of first refusal, preemptive right, right of participation, anti-dilution right or any similar right to participate in, or that is triggered by, the transactions contemplated by the Transaction Documents:

·Icon Capital Partners LP

·Tebo Capital LLC SEP IRA

·J. Shawn Chalmers Revocable Trust

·Casoh, Inc

·Bicknell Family Holding Co. LLC

·David & Lisa Suzanne Orschein UTA 8/22/01

·Joe C. Higday Revocable Trust

·MV Advisors II, LLC

·Bradford G. Peters

·C. Ian Sym-Smith

·J. Shawn Chalmers

·Ann Krueger & Kyle Krueger

·Tebo Partners II, LLC

·Gregory H. Ekizian Revocable Trust

·Ronald R. Comer Trust

·Al Des Marteau

·Denise Des Marteau

·Scott J. and Cathy H. Duncan

·The Robert K. Green Trust

·Martin Gregory Haake Trust

·James G. Hammond and Katherine L. Hammond

·Francis M. Hanna and Joanne L. Hanna

·Daniel R. Henry

·Joe C. Higday Trust

·Ron Loew

·Cynthia M. Mason

·James H. McCroy

·James H. McCroy IRA of James H. McCroy

·Orion Capital Investment, LLC

·David G. Orschein

·Pleiades Investment Partners RLP

·Potomac Capital Partners LP

·Potomac Capital International Ltd.

·Prime Petroleum Profit Sharing Trust

·Sands Partnership No. 1 Money Purchase Pension Plan and Trust

·Slater FF&E Fund LLC

·Tebo Capital LLC

·Leon B. Wright and Delores J. Wright

·Philip C. Young

·TITAB, LLC

Schedule 3.1.9

The Company has agreed to pay Great American Advisors, Inc. (GAI) the following with respect to this Transaction:

·A cash success fee equal to (a) four percent (4%) of the gross amount of the Financing arranged by GAI.

·Non-refundable due diligence fee of $5,000.

·Warrants (which shall contain the same exercise price, term and other provisions as the warrants issued to purchasers in the Transaction) to purchase the number of shares of the Company’s common stock equal to the quotient obtained by dividing (a) four percent (4%) of the gross dollar amount of the Financing arranged by GAI by (b) the strike price of the lowest priced Warrants issued in connection with the Financing.

·Reimbursement of expenses not to exceed $12,500.

Schedule 3.1.12

On November 17, 2008, the Company announced the resignation of James Zierick as interim Chief Executive Officer and the appointment of Rodney Schutt as Chief Executive Officer and director of the Company.  Mr. Zierick will remain a director of the Company.

Schedule 3.1.20

Pursuant to the terms of the Company’s Revolving Line of Credit, Western Commercial Bank has a security interest in the Company’s intellectual property.  The Revolving Line of Credit has a one year term and will mature on February 27, 2009.

Schedule 3.1.24 (d)

Pursuant to an employment agreement between the Company and Mr. Rodney Schutt, the Company is obligated to pay Mr. Schutt severance.  The terms of Mr. Schutt’s employment agreement were disclosed on the Company’s Form 8-K filed November 18, 2008.

EXHIBIT A

Form of Note

EXHIBIT B-1

Form of Security Agreement

EXHIBIT B-2

Form of Notice of Collateral Assignment of Security Interest in Patent Applications

EXHIBIT B-3

Form of Notice of Collateral Assignment of Security Interest in Trademarks

EXHIBIT C

Form of Warrant

EXHIBIT D

Form of Accredited Investor Questionnaire

EXHIBIT E

Form of Legal Opinion of Issuer’s Counsel

EX-99.2

Exhibit 99.2

INTERCREDITOR AGREEMENT

This Agreement is entered into this 12th day of February, 2009, by and between, Jay Weil, as Collateral Agent for the persons identified on Exhibit A (collectively, the “March 2008 Creditors”) and Jay Weil, as Collateral Agent for the persons identified on Exhibit B (collectively, the February 2009 Creditors” and collectively with the March 2008 Creditors, the “Creditors”).

BACKGROUND

On the date hereof the February 2009 Creditors have entered into and consummated a Securities Purchase Agreement pursuant to which they have purchased, among other things, certain secured convertible notes of Aspyra, Inc., a California corporation (“Aspyra”) (the “February 2009 Notes”) and on the date hereof the Collateral Agent for the February 2009 Creditors has entered into a Security Agreement and certain other documents with Aspyra which grants to the Collateral Agent, on behalf of the February 2009 Creditors, a security interest in certain assets of Aspyra (the “Collateral”).

On March 26, 2008 the March 2008 Creditors entered into and consummated a Securities Purchase Agreement pursuant to which they purchased, among other things, certain secured convertible notes of Aspyra (the “March 2008 Notes”) and on such date the Collateral Agent for the March 2008 Creditors entered into a Security Agreement and certain other documents with Aspyra which granted to the Collateral Agent, on behalf of the March 2008 Creditors, a security interest in the Collateral.

The Creditors desire to set forth herein their relative positions with respect to the Collateral.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Rights of Action.  The Creditors hereby agree that the security interests and liens granted by Aspyra in the Collateral to the Collateral Agent on behalf of each of the March 2008 Creditors and the February 2009 Creditors shall in all respects be pari passu.  The parties hereto hereby agree that to the extent that the Collateral Agent or any of the March 2008 Creditors or February 2009 Creditors exercise any rights they may have under the security documents or the Uniform Commercial Code or any applicable statute or case law, rule, or regulation with respect to such Collateral, the Creditors shall share pari passu in any proceeds in cash or kind received with respect to any of the Collateral.

2.Miscellaneous.  This Agreement shall be governed by the laws of the State of New York.  This Agreement contains the entire agreement of the parties with respect to the subject matter hereof.

IN WITNESS WHEREOF, the parties hereto have agreed to the foregoing as of the date set forth above.

/s/ Jay Weil

Jay Weil, as Collateral Agent for the persons listed on
Exhibit A

/s/ Jay Weil

Jay Weil, as Collateral Agent for the persons listed on
Exhibit B

EXHIBIT A

February 2009 Creditors

Name	Principal Amount of Note
Allen J. Selner D.P.M	$	100,000
C. Ian Sym-Smith	$	75,000
J. Shawn Chalmers Revocable Trust DTD 08/13/96	$	175,000
Bicknell Family Holding Co. LLC	$	400,000
Harrington Wealth Management FBO Tebo Capital SEP IRA	$	50,000
David & Lisa Suzanne Orscheln UTA 8/22/01	$	100,000
Ann & Kyle Krueger	$	50,000
Joe C. Higday Revocable Trust	$	50,000

EXHIBIT B

March 2008 Creditors

Name	Principal Amount of Note
David K. Richards	$	25,000
Todd A. Tumbleson	$	185,000
J. Shawn Chalmers Revocable Trust dated 8/13/96	$	750,000
Cascoh, Inc.	$	100,000
Bicknell Family Holding Co., LLC	$	1,250,000
Bradford G. Peteres	$	200,000
Icon Capital Partners LP	$	50,000
Joe C. Higday Revocable Trust	$	100,000
Tebo Capital, LLC SEP IRA	$	125,000
C. Ian Sym-Smith	$	100,000
David G. and Lisa Suzanne Orscheln Trust UTA 8,22/01	$	100,000

EX-99.3

Exhibit 99.3

SECURITY AGREEMENT

THIS AGREEMENT is made as of February 12, 2009 between ASPYRA, INC., as debtor, a California corporation (“Debtor”), and Jay Weil, as collateral agent (“Collateral Agent”) for the secured parties (“Secured Parties”) pursuant to that certain Securities Purchase Agreement (the “Purchase Agreement”) dated as of the date hereof among Debtor, Collateral Agent and Secured Parties.

FOR VALUE RECEIVED, Debtor hereby represents, warrants, covenants and agrees as follows:

1.             Security Interest.  (a) To secure its obligations under the Notes (as defined in the Purchase Agreement), Debtor hereby grants to Secured Parties, pari passu, a present and continuing security interest (the “Security Interest”), which is junior to the security interest held by Western Commercial Bank in all of Debtor’s right, title and interest in, to and under all its property (the “Collateral”), whether now owned or existing or hereafter acquired or arising and wheresoever located, including, without limitation:

(i)            all of Debtor’s software, including all source code, object code and documentation, and lexicon databases together, including all trade secrets, copyrights and other property rights therein;

(ii)           all of Debtor’s patents and patent applications, and all continuations, divisions, re-issues and renewals thereof, in whole or in part, together with any patents that may be issued with respect thereto;

(iii)          all of Debtor’s trademarks, service marks and applications for trademarks and service marks, including, but not limited to, the trademarks and applications to register trademarks listed on Exhibit A attached hereto and made a part hereof, all common law rights in the trade marks, service marks and trade names subject to such registrations, all statutory rights that may attach to any registrations thereof and any related renewals, and all related good will;

(iv)          all of Debtor’s copyrights and copyright applications,;

(v)           the right to sue for past, present and future infringement or misappropriation of trade secrets, copyrights, patents, trademarks and service marks, and all rights corresponding thereto throughout the world;

(vi)          all products and proceeds of the foregoing, including the right to receive license fees, royalties and other payments in respect thereof, the proceeds of any infringement suits, and so forth;

(vii)         all equipment (including all machinery, tools and furniture), all inventory (including all merchandise, raw materials, work in process, finished goods and supplies), motor vehicles and goods, (the “Tangible Collateral”);

(viii)        all accounts, accounts receivable, rights to the payment of money, payment intangibles, other receivables, contract rights, contracts, leases, chattel paper, electronic chattel paper, commercial tort claims, insurance refund claims and other insurance claims and proceeds, and general intangibles of Debtor, including, without limitation, all tax refund claims, goodwill, going concern value, blueprints, designs, computer programs, software, service marks, inventions, trade names, customer lists, product lines and research and development, all of Debtor’s rights under all present and further authorizations, permits, licenses and franchises heretofore or hereafter granted to Debtor for the operation of Debtor’s business (including, to the maximum extent permitted by law, all rights incident to appurtenant to such licenses and permits, including, without limitation, the right to receive all proceeds derived from or in connection with the sale, assignment or transfer of such licenses and permits;

(ix)           all instruments, documents of title, letters of credit, rights to proceeds of letters of credit, letter of credit rights, supporting obligations of every kind and description, policies and certificates of insurance, securities, securities entitlements, investment property, partnership interests, membership interests in limited liability companies (including, without limitation, all of Debtors’ right, title and interest in and to all limited liability companies and partnerships and to any successor business entities, and the right to receive all payments and distributions due or to become due under all related partnership agreements, operation agreements, and other constituent documents governing or establishing such business entities), bank deposits, deposit accounts, checking accounts, certificates of deposit and cash;

(x)            all accessions, additions or improvements to, and all proceeds and products of, all of the foregoing, including proceeds of insurance; and

(x)            all books, records, documents, computer tapes and discs relating to all of the foregoing.

(b) All Collateral consisting of accounts, contract rights, chattel paper, general intangibles and other Collateral described in subparagraph (viii) above arising from the sale, delivery or provision of goods and/or services are sometimes hereinafter collectively called the “Customer Receivables.”

(c) Debtor hereby acknowledges and agrees that the description of Collateral contained in this Security Agreement covers, and is intended to cover, all assets of Debtor.  For avoidance of doubt, it is expressly understood and agreed that, to the extent that the Uniform Commercial Code (“UCC”) is revised subsequent to the date hereof such that the definition of any of the foregoing terms included in the description of Collateral is changed, the parties agree that any property which is included in such changed definitions which would not otherwise be included in the foregoing grant on the date hereof be included in such grant immediately upon the effective date of such revision, it being the intention of the parties hereto that the description of Collateral set forth herein be construed to include the broadest possible range of property and assets and all tangible and intangible personal property and fixtures of Debtor of every kind and description.

2.             Collateral Agent.  The rights of Secured Parties in the Collateral will be exercisable by Collateral Agent as agent for Secured Parties pursuant to the Purchase Agreement.  In such capacity, from time to time and at any time, Collateral Agent may in its sole discretion take any and all actions, exercise any and all rights and remedies, give any and all waivers and forbearances, and make any and all determinations and elections that Secured Parties are entitled to exercise under this Agreement and the Notes.  Debtor will be entitled to rely solely on the actions of Collateral Agent as binding all Secured Parties.

3.             Other Matters.

(a) Perfection.  From time to time and at any time, Debtor will execute such financing statements, assignments, notices of assignments, registrations of the collateral assignment of its patents, trademarks and copyrights, and such other filings, notices and any other documents and do such other acts as Collateral Agent may reasonably request for the purpose of perfecting, confirming, continuing, enforcing and/or protecting the security interest of Secured Parties in the Collateral.  Debtor will furnish to Collateral Agent promptly upon request such information as may be necessary to complete such financing statements, filings and other documents.  From time to time and at any time, Collateral Agent may file any and all such documents with the appropriate registries as necessary to perfect, confirm, continue, enforce or protect the security interest of Secured Parties in the Collateral.  Debtor hereby appoints Collateral Agent as its attorney in fact with the power and authority to execute and deliver in Debtor’s name any of the foregoing financing statements, assignments, notices of assignments and other documents that Debtor refuses or is unable to so execute and deliver.  This power of attorney is coupled with an interest and is irrevocable.

(b) Obligations of Collateral Agent.  In addition to those duties and powers of Collateral Agent pursuant to the Purchase Agreement, upon payment in full of all outstanding amounts due under the Notes, Collateral Agent will promptly terminate all financing statements, filings and other documents referenced in Section 3(a) hereof, and execute and deliver to Debtor such termination statements, releases, re-assignments and other instruments as necessary to re-vest in Debtor full title to the Collateral and to remove all liens and security interests of Secured Parties therein.  Collateral Agent hereby appoints Debtor as its attorney in fact with the power and authority to execute and deliver in the name of Collateral Agent and/or Secured Parties any of the foregoing termination statements, releases, re-assignments and other instruments that Collateral Agent and/or Secured Parties refuse or are unable to so execute and deliver.  This power of attorney is coupled with an interest and is irrevocable.

(c) Rights and Remedies of Secured Parties.  The rights and remedies of Secured Parties with respect to the security interest granted hereby are in addition to those set forth in the Notes, and those which are now or hereafter available to Secured Parties as a matter of law or equity.  Each right, power and remedy of Secured Parties provided for herein or in the Notes, or now or hereafter existing at law or in equity, will be cumulative and concurrent and will be in addition to every right, power or remedy provided for herein and the exercise by Secured Parties of any one or more of the rights, powers or remedies provided for in this Agreement or the Notes, or now or hereafter existing at law or in equity, will not preclude the simultaneous or later exercise by any person, including Secured Parties, of any or all other rights, powers or remedies.

4.             Use of Collateral.  Unless an Event of Default has occurred and is continuing under any Note:

(a) Debtor may deal in the Collateral in the ordinary course of business, including the payment of expenses incurred in the ordinary course of the Debtor’s business and the repayment of any loans listed on Schedule 4.1, but in no event may Debtor transfer or assign (i) all or substantially all of its rights in the Collateral to any other person (including a subsidiary or affiliate of Debtor) or (ii) any rights in all or any portion of the Collateral to any subsidiary of affiliate of Debtor, in each case without the prior written consent of Collateral Agent.  Debtor may grant licenses to third parties for the use of, and/or sublicense of, all or any part of the Collateral, on a non-exclusive basis or exclusive basis, but in no event shall any such exclusive license have a term of more than one year unless Debtor first obtains the prior written consent of Collateral Agent.  Licenses may be granted for up-front or recurring license fees, or for other consideration, for such periods of time as Debtor deems appropriate (including license terms that extend beyond the maturity of any Note), and on such other terms and conditions as Debtor deems appropriate, and all such licenses, sublicenses and other grants of rights will survive any repossession of or foreclosure on the Collateral by Collateral Agent;

(b) the proceeds of Debtor’s licensing and other dealings in the Collateral may be used by Debtor for any proper corporate purposes; and

(c) Debtor may grant one or more third parties a security interest in some or all of the Collateral in connection with a purchase money security interest retained by a seller of goods or services.  Provided that it has first obtained the written consent of Collateral Agent, Debtor may grant one or more third parties other types of security interests in some or all of the Collateral to third parties, however, all such interests must be junior and subordinated to the security interest of Secured Parties and such junior secured parties may not take any action with respect to the Collateral without the prior written consent of Collateral Agent.

5.             Events of Default. (a) Debtor will be in default under this Agreement upon the occurrence of any one of the following events (each, an “Event of Default”):

(i) default by Debtor in the due observance or performance of any material covenant or agreement contained herein or material breach by Debtor of any material representation or warranty herein contained and Debtor fails to cure such default within thirty (30) days following written demand by Collateral Agent; or

(ii) any event of default under the Notes occurs; or

(iii) default by Debtor in the payment when due of the principal of, or interest on, any other indebtedness of Debtor to any Secured Party and Debtor fails to cure such default within thirty (30) days following written demand by Collateral Agent.

(b)  If Debtor defaults under this Agreement or any Note and the commercial value of the Collateral exceeds the outstanding amounts due to Secured Parties, then Collateral Agent will act in good faith in a commercially reasonable manner in disposing of or otherwise dealing in the Collateral in order not to prejudice the interests of Debtor’s other secured creditors, unsecured creditors and shareholders.

6.             Remedies Upon Event of Default.  If any Event of Default will have occurred and be continuing, Collateral Agent may exercise all the rights and remedies of a Secured Party under the Purchase Agreement and the UCC (whether or not the UCC is in effect in the jurisdiction where such rights and remedies are exercised) and, in addition, Collateral Agent may, without being required to give any notice, except as herein provided or as may be required by mandatory provisions of law, (i) apply the cash, if any, then held by it as Collateral in the manner specified in Section 8, and (ii) if there will be no such cash or if such cash will be insufficient to pay all the obligations in full, sell the Collateral, or any part thereof, at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as Collateral Agent may deem satisfactory. Collateral Agent may require Debtor to assemble all or any part of the Collateral and make it available to Collateral Agent at a place to be designated by Collateral Agent which is reasonably convenient.  Collateral Agent and any Secured Party may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale) and thereafter hold the same, absolutely, free from any right or claim of whatsoever kind. Upon any such sale Collateral Agent will have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold.  Each purchaser at any such sale will hold the Collateral so sold absolutely, free from any claim or right of whatsoever kind, including any equity or right of redemption of Debtor.  Debtor, to the extent permitted by law, hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter adopted.  At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as Collateral Agent may determine.  Collateral Agent will not be obligated to make such sale pursuant to any such notice.  Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be adjourned.  In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by Collateral Agent until the selling price is paid by the purchaser thereof, but Collateral Agent will not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may again be sold upon like notice.  Collateral Agent, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the security interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

7.             Right of Collateral Agent to Use and Operate Tangible Collateral, Etc.  Upon the occurrence of an Event of Default, to the extent permitted by law, Collateral Agent will have the right and power to take possession of all or any part of the Tangible Collateral, and to exclude Debtor and all persons claiming under Debtor wholly or partly therefrom, and thereafter to hold, store, and/or use, operate, manage and control the same.  Upon any such taking of

possession, Collateral Agent may, from time to time, at the expense of Debtor, make all such repairs, replacements, alterations, additions and improvements to and of the Tangible Collateral as Collateral Agent may deem proper.  In such case, Collateral Agent will have the right to manage and control the Tangible Collateral and to carry on the business and to exercise all rights and powers of Debtor in respect thereto as Collateral Agent will deem best, including the right to enter into any and all such agreements with respect to the leasing and/or operation of the Tangible Collateral and any part thereof as Collateral Agent may see fit; and the Secured Party will be entitled to collect and receive all rents, issues, profits, fees, revenues and other income of the same and every part thereof.  Such rents, issues, profits, fees, revenues and other income will be applied to pay the expenses of holding and operating the Tangible Collateral and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which Collateral Agent may be required or may elect to make, if any, for taxes, assessments, insurance and other charges upon the Tangible Collateral or any part thereof, and all other payments which Collateral Agent may be required or authorized to make under any provision of this Security Agreement (including legal costs and attorney’s fees).  The remainder of such rents, issues, profits, fees, revenues and other income will be applied to the payment of the obligations in such order or priority as Collateral Agent will determine (subject to the provisions of Section 8 hereof) and, unless otherwise provided by law or by a court of competent jurisdiction, any surplus will be paid over to Debtor.

8.             Application of Collateral and Proceeds.  The proceeds of any sale of, or other realization upon, all or any part of the Collateral will be applied in the following order of priorities:

(i)            first, to pay the expenses of such sale or other realization, including those reasonable expenses, liabilities and advances actually incurred or made by Collateral Agent and its agent and counsel in connection therewith, and any other unreimbursed expenses of which Collateral Agent is to be reimbursed pursuant to Section 9 as determined in its sole discretion;

(ii)           second, to the payment of the obligations in such other manner as Collateral Agent, in its sole discretion, will determine; and

(iii)          finally, to pay to Debtor, or its successors or assigns, or to a court of competent jurisdiction, or as directed by a court of competent jurisdiction, any surplus then remaining from such proceeds.

9.             Expenses; Secured Parties’ Lien.  Debtor will promptly upon demand pay to Collateral Agent:

(a)          the amount of any taxes which the Secured Parties may have been required to pay by reason of the security interests herein (including any applicable transfer taxes) or to free any of the Collateral from any lien thereon; and

(b)         the amount of any and all reasonable out-of-pocket expenses, including the reasonable fees and disbursements of Collateral Agent’s counsel and of any agents not regularly in its employ, which Collateral Agent may actually incur in connection with (x) the preparation and administration of this Agreement, (y) the collection, sale or total disposition of any of the Collateral, (z) the exercise by Collateral Agent of any of the powers conferred upon it hereunder, or (aa) any default on Debtor’s part hereunder.

10.          Covenants of Debtor.  Debtor hereby covenants and agrees that Debtor will:

(a)           defend the Collateral against all claims and demands of all persons at any time claiming any interest therein;

(b)           provide Collateral Agent with immediate written notice of (i) any change in the chief executive officer of Debtor or the office where Debtor maintains its books and records pertaining to the Customer Receivables, or (ii) the movement or location of Collateral (outside the ordinary course of business) to or at any address other than as set forth above;

(c)           promptly pay any and all taxes, assessments and governmental charges upon the Collateral prior to the date penalties are attached thereto, except to the extent that such taxes, assessments and charges shall be contested in good faith by Debtor;

(d)           immediately notify Collateral Agent of any event causing a substantial loss or diminution in the value of all or any material part of the Collateral and the amount or an estimate of the amount of such loss or diminution; and

(e)           keep its records concerning the Collateral, including the Customer Receivables and all chattel paper included in the Customer Receivables, at its principal office or at such other place or places of business as the Secured Party may approve in writing, or if in electronic form will ensure that it is available at its principal office.  Debtor will hold and preserve such records and chattel paper and, provided reasonable notice has been given to Debtor, will permit representatives of the Secured Party at any time during normal business hours to examine and inspect the Collateral and to make abstracts from such records and chattel paper and will furnish to the Secured Party such information and reports regarding the Collateral as the Secured Party may from time to time reasonably request.

11.          Collections with Respect to Customer Receivables.  Debtor will, at its expense, and subject at all times to Collateral Agent’s right to give directions and instructions:

(a)           endeavor to collect or cause to be collected from customers indebted on Customer Receivables, as and when due, any and all amounts, including interest, owing under or on account of each Customer Receivables; and

(b)           take or cause to be taken such appropriate action to repossess goods, the sale or rental of which gave rise to any Customer Receivables, or to enforce any rights or liens under Customer Receivables, as Debtor or Collateral Agent may deem proper, and in the name of Debtor, or Collateral Agent, as Collateral Agent may deem proper;

provided that (x) Debtor will use its best judgment to protect the interests of the Secured Parties and (y) Debtor shall not be required under this Section 11 to take any action which would be contrary to any applicable law or court order.  Debtor shall, at the request of Collateral Agent

following the occurrence of any Event of Default (as defined in Section 5 above), notify the account debtors of the security interests of the Secured Parties in any of the Customer Receivables and Collateral Agent may also notify such account debtors of such security interests.  Collateral Agent will have full power at any time after such notice to collect, compromise, endorse, sell or otherwise deal with any or all outstanding Customer Receivables or the proceeds thereof in the name of either Collateral Agent or Debtor.  In the event that, after notice to any account debtors to pay Collateral Agent on behalf of the Secured Parties, Debtor receives any payment on a Customer Receivable, any such payments shall be held by Debtor in trust for Collateral Agent and immediately turned over to Collateral Agent as aforesaid.

12.          Interpretation.  This Agreement will be interpreted in accordance with, and subject to the provisions of, the Purchase Agreement applicable to all Transaction Documents (as such term is defined therein).  Without limiting the foregoing, this Agreement is governed by New York law.

13.          Termination of this Agreement.  This Agreement and the Security Interest shall terminate immediately on the satisfaction of 75% or more of the Note (as defined in the Purchase Agreement, whether by conversion or repayment) and the Collateral Agent shall immediately thereafter return to the Company any Collateral directly or indirectly in its possession or control.

[signatures on following page]

[signature page for Security Agreement]

SIGNED AND DELIVERED as of the date first above written.

ASPYRA, INC.
By:	/s/ Rodney W. Schutt
Name:	Rodney W. Schutt
Title:	Chief Executive Officer
COLLATERAL AGENT:
/s/ Jay Weil
Name: Jay Weil

EXHIBIT A

TRADEMARKS AND TRADEMARK APPLICATIONS

	Serial #	Reg. #	Mark
1	78763848	N/A	ASPYRA EXTENDING YOUR REACH
2	78666294	3245496	ASPYRA
3	76110418	2764775	CYBERPATH
4	75594808	2386421	IMAGEWEB
5	75463890	2390771	MEDVIEW
6	75101266	2063089	CYBERPRINT
7	75101264	2120960	CYBERRAD
8	75101263	2336956	CYBERMED
9	75084391	2177228	CYBERLINK
10	74672541	2036480	CYBERMATE
11	73469850	1320485	CYBERLAB
12	N/A	N/A	WEBGATEWAY